A Conversation with Michele Flournoy

Michèle Flournoy discusses U.S. defense policy and strategy as well as broader international security challenges.

This meeting is a part of The Paul C. Warnke Lecture on International Security established in 2002, and is dedicated to the memory of Paul Warnke (1920-2001), member and former director of the Council on Foreign Relations. The series commemorates his legacy of public service, his friendship to the Council, and his unique combination of eloquence, intellect, and pragmatism in the cause of peace and America's values.

PETER ACKERMAN: Good evening. Good evening. I'm Peter Ackerman. I'm a board member of the Council on Foreign Relations. And I want to welcome you to the Warnke Lecture Series. And I want to particularly thank the members of the family -- the Warnke family that are in attendance tonight as well as all of the donors to this lectureship who have made this evening's event possible.

There have been many distinguished speakers in this lectureship, and we have one tonight that I'd like to briefly introduce, but I know many of you know her very, very well, so I'll be brief. Currently Michele is the senior adviser for the Boston Consulting Group and before that was undersecretary of defense from 2009 to February of 2012. She was the principal adviser to the secretary of defense in the formulation of national security and defense policy in the oversight of military plans and operations and in National Security Council deliberations. She led the development of DOD's new strategic guidance and represented the department in dozens of foreign of foreign engagements, in the media and before Congress. Now, the thing -- and Ms. Flournoy also was the head -- co-head of the transition team for the Obama administration. But a thing that impresses me the most is she did something before that that I think is very difficult: She started a successful think tank in this town call the Center for New American Security.

Michele has received several awards from the secretary of defense and the chairman of the Joint Chiefs of Staff, and she's a member of the Defense Policy Board, this council and the Aspen Strategy Group. She is a graduate of Harvard and Balliol College, where she received a master's degree.

Now, what we're going to do for the first half-hour, I'm going to be sort of guiding a general presentation by Michele with a series of very informal questions, and she'll elaborate on them. So let me start, and then in the last half-hour we will entertain questions from the floor.

So Michele, could I start by asking you what you think should be the U.S. grand strategy in the coming decades? Is it time for the United -- (laughter) --

MICHELE FLOURNOY: Start with the easy questions. (Laughter.)

ACKERMAN: Is it time for the United States to reconsider its global commitments and to scale back?

FLOURNOY: Well, thank you for the very warm introduction. And let me just first say how honored I am to be selected to be part of the Warnke lecture series. Paul Warnke was someone who was a model for all of us entering the national security domain and public service for so many years, not only in terms of his impact on arms control and national security more broadly but also, for someone who was going into the Pentagon, someone, you know, for -- as a model of someone who really understood how to make things happen in that five-sided building, which was not always easy. So I am just honored and so pleased to see all of you here tonight and to see so many friends and colleagues in the audience.

Starting with the very simple question -- (chuckles) -- of the future of American grand strategy, you know, I am one who believes that the United States, as the sole superpower in the world, still has an indispensable leadership role to play. What it means to be a superpower in a more multilateral, more multipolar world is different. But the role is still unique. There's really no other country that can lead the way we can, that convene -- that can convene the way we can, that can put together international coalitions to solve shared problems the way we can. And I think it would be a shame to go into a period of greater retrenchment or isolationism in response to some of the budgetary pressures that we're facing. So the leadership role remains.

I also think that as a global power with global interests and as the world gets more interdependent, we have to stay engaged. It's in our interest to stay engaged, for our security at home, for the prosperity of our people, for the growth of our economy and so forth. So I think in the grandest sense, a strategy of engagement and of continued international leadership is imperative.

What we can talk about is what does that mean, because I think we do have to be smarter about the way we engage and when we use what tools and, in some cases, more selective, particularly with regard to how we use the military instrument. Just one fact that I read today was sort of jarring. Since the end of the Cold War, the U.S. has been at war more months out of that period than not. I think there is -- now is a time for reflection, post-Iraq, as we transition in Afghanistan, to think about a more integrated use of our instruments of national power, and how do we protect our interests with the fuller variety of tools and be very careful about the use of the military instrument and learn some of the lessons that we need to learn from the past decade.

ACKERMAN: So if somebody would ask you what would -- should we do -- should we not do going forward that we have done, how would you answer that question?

FLOURNOY: You know, I think one of the things that we've done, and particularly in the post-9/11 period, is sometimes reach for the military instrument first. You know, I'm someone who believes in a strong military. I have, in my time, supported its use in many occasions, you know, advising my boss, Secretary Gates or Secretary Panetta or even the president. But I think that we currently have a situation where we've had very robust funding for many years for the military, and virtually every other instrument on life support -- very anemic funding for our diplomatic tools, our economic assistance tools, even our -- even our trade -- free trade kind of efforts. So I think a more balanced approach that has more balanced investment across the tools, but also more integrated use of the tools is warranted.

ACKERMAN: Thank you. We've gone through sequestration, and perhaps maybe you can comment on that in the context of being a little bit more granular about the Defense Department's budgetary needs, priorities and how you see that shaping up.

FLOURNOY: Yeah. Well, first of all, sequestration was the Sword of Damocles that was supposed to force everyone to get to a budget deal. It was never supposed to actually come down on our heads. But here we are, and I'm not sure that a budget deal is much closer in sight, even though I think we all know that the elements of entitlement reform, tax reform -- some tightening of discretionary spending and so forth.

But in terms of DOD, I think the answer to your question of, you know, how will the -- what will the impacts be, it really depends on a couple of key factors. One is, how deep will the cuts to defense be? Will it be along the lines of the president's budget, which are fairly modest over time, or will they be further rounds on the order of the sequestration cuts, meaning, next year, we'll have another round of $50 billion a year or $40 billion a year and so forth? In any case, I think -- I think the Defense Department has some very fundamental choices to make about how it takes those cuts.

Historically, we've managed drawdowns very, very badly. We tend to balance our budget on the backs of the force. You cut force structure, you cut readiness, you cut modernization, which is sort of your seed corn for the future. And typically, we end up with a hollow force. Not always, but that's kind of the tendency if left to our own devices.

This time, I think we need to look very hard at the defense enterprise. Overhead has grown substantially in recent years. We've added more than a hundred thousand civilians to DOD's roles in the last decade; the contractor pool is almost as big. It's almost a second civilian work force of the same size.

Every headquarters I saw in -- whether -- when I was in the Pentagon -- Office of the Secretary of Defense, Joint Staff Services, combatant commands, defense agencies, have more people and more layers and more bureaucracy than they need. So the first place to go after the money, in my view, is out of that overhead.

And there's, you know, plenty of examples where this -- of how this can be done from the private sector that I think can be applied in the public sector. Secondly, infrastructure. We still have more infrastructure than the U.S. military of the 21st century needs. We do need another background. Third example -- acquisition reform.

We are -- still have a broken requirements process. We have perverse incentives for the people who manage programs to spend money rather than save it. We have some real challenges on the acquisition side that -- lots of good recommendations made; very few of them actually implemented, because they -- it's politically difficult.

And lastly, I would say personnel costs and health care. I am the last person -- I am a Navy wife; I am the last person who wants to break faith with the men and women who serve and to take away their health benefits, but DOD's health care costs are growing at 10 and a half percent per year -- civilian economy 6 and a half percent. So there's something wrong with how this set of benefits is being managed. And if we don't get our hands around it in terms of managing it, it's not going to be sustainable.

So I would go after those kinds of costs first -- get every dime I can out of that (side of the House ?) before I turn to much deeper cuts in terms of the actual capabilities our military will need to protect our interests in the future.

ACKERMAN: As a bit of a tongue-in-cheek follow-up question, who do you go see to get the things you're talking about? Where does that start?

FLOURNOY: Well, it starts -- it has to start at the top. And I think the good news is, Secretary Hagel, if you all read his -- the speech he gave at NDU -- if you haven't read it, I'd recommend it. He lays down a number of markers in this domain. And I think that's important. So leadership at the top.

I think the hardest thing is that all of these changes require breaking somebody's rice bowl. It's either a bureaucratic rice bowl or it's a Congressional constituency rice bowl. So engaging leaders on the Hill, getting them to see the fact that we are at a unique moment in time. We are at an inflection point in terms of the budget. We can't continue business usual. Use this as a burning platform to try to bring the business of the department into the 21st century.

I mean, those of you who may remember -- I mean, the last time DOD was really transformed was by Robert McNamara in the 1960s. So the -- our business processes are incredibly cutting edge if you're back in the 1960s. And, you know, what Ford Motor Company was doing then, and what McNamara brought into the Pentagon. But, you know, you compare it to where -- how things are done in the private sector today, and we're a little bit behind.

ACKERMAN: OK. Can we shift back to policy for a moment?

FLOURNOY: Yes.

ACKERMAN: We just, not too long ago, invoked R2P, the responsibility to protect, as a way to go into Libya. And we have -- we expected a near holocaust there, and now we're having a near holocaust in Syria. Are there lessons from Libya that we can take into thinking about Syria? Tell me how you think about both.

FLOURNOY: I think -- I -- you know, I supported the intervention in Libya on humanitarian grounds. I think we were right to do it.

I think the real lesson to take away from Libya or one of -- the positive lesson -- there are some negative ones too, but the positive lesson is that there is an approach to leadership -- when the interests we have at stake are primarily humanitarian, not vital U.S. interests, but we have other partners, whether it's our NATO partners or Arab League partners, who do feel they have a vital interest at stake, want to participate, want to contribute, there is a way for the United States to lead but keep its contributions commensurate with its limited interests.

And what we did is we provided the backbone. We provided the intelligence, surveillance, reconnaissance, the command and control, the strategic lift, the aerial refueling, the sort of critical and unique capabilities that were the backbone around which the rest of the coalition could form and really contribute. To me, that's the lesson of Libya that should be taken forward.

I think in -- with regard to Syria, what you see the administration doing on the political side is similar in that we are trying to bring all of the actors together, even trying to pull in Russia -- not Iran, obviously; I don't think that's ever going to happen -- but Turkey, Qatar, the Gulf states, to try to have a common approach to supporting the moderate, nonextremist parts of the rebel forces and, you know, what can we do to, A, make them successful; to, B, get Assad to leave; but C, to have a viable plan to -- for the post-Assad, for the day after Assad falls, because that -- that's what worries me, is that the -- right now, without that plan and without the approach that I think -- that -- being fully in place, if Assad fell tomorrow, my worry was that you'd have a second round of civil war between the extremist and the moderate rebel forces for the prize, for control of the country.

ACKERMAN: Going back to Libya for a second, in that joint operation, did it indicate anything to you about the relative capabilities and the changed relative capabilities between our European allies and ourselves? Is that gap growing? Is it --

FLOURNOY: Sure, I actually think that what we -- you know, Libya was a beneficiary of the last decade in Afghanistan in some ways, because the truth is, we have gotten better at operating together. We are more interoperable. We're more used to -- more used to, you know, being in command centers together, flying together, working together and so forth.

So I think there -- there were -- there's always room for improvement, but there was -- I think the integration went better or more smoothly than many people expected.

I -- my worry going forward is that the fiscal crisis has hit very hard in Europe. Only a few of our allies are meeting the NATO goal of 2 percent GDP investment in defense. I think defense is going to take a -- defense investment is going to take a beating for the next five to 10 years in Europe, even among some of our most important allies, like the U.K. And that means that our partners will come to the table with less capability, at least in the near to midterm.

ACKERMAN: Do we plan for that, or is it just something we accept --

FLOURNOY: I think we have -- we have to take into account. Obviously -- I mean, I think the U.S. is having bilateral conversations encouraging our allies to hold up their part of the bargain. We are playing a very big role inside the NATO command structure to try to encourage some of our allies to pool their resources. So if you can't afford strategic lift by yourself, put together a consortium of countries and invest in some -- a set of capabilities that you share. And we're doing that kind of smart defense kind of approach in a number of areas, or NATO is.

But still, even taking all of that into account, overall, the level of capability will diminish somewhat in the coming years.

ACKERMAN: So my favorite film last year was "Zero Dark Thirty," and probably some people here would agree. And that highlights the role of the CIA's ground branch, their military capability. Should that capability grow or shrink relative to defense? And maybe make some comment about the change in control over our drone program.

FLOURNOY: I think that the Obama administration in its second term is taking the opportunity to step back and think about its counterterrorism strategy broadly and to kind weigh what's been effective, what hasn't, where do we need to do more. And I think they're going to move towards, again, a more balanced and integrated strategy.

I think the discussion about moving aspects of the drone program from the CIA to the Defense Department -- what will that -- that will do in practice is introduce a much greater degree of transparency, because if something's a CIA program, it's covert; you -- people can't even acknowledge its existence or -- you know, and speak about it. If it's on the Defense Department side, there will be much greater transparency in terms of reporting on what's happening, the results of what's happening and so forth. And I actually think that's a -- that's a positive thing.

But you know, the -- I think as the film rightly does portray, although there are some factual inaccuracies there, a little bit of filmmaker license there -- you know, I think it does -- it does -- it did portray the very central role that the agency has played and will continue to play in terms of the counterterrorism mission going forward.

ACKERMAN: Can we got back to the Middle East for a second? And could you just make some general comments about how we best defend our interests over the next decade there? And specifically if some -- if we have -- if you have read her excellent op-ed today in The Wall Street Journal, maybe you could elaborate on the point she made there as well as part of the discussion.

FLOURNOY: OK. Well, the Middle East is going through an historic period of turmoil, as you all know. My own view is that we -- this is going to be a very long book. You know, we -- this is going to be "War and Peace" kind of length -- (chuckles) -- and we're in the first chapter. You know, I think this is a generational kind of phenomenon that we're going to see.

I think -- I am personally paying most attention to Egypt because Egypt is, what, 25 percent of the Arab population? There's a phrase in the region that say, as Egypt goes, so goes the region. What happens under Morsi's leadership, what happens in Egypt, how the Muslim Brotherhood evolves, how the populations -- you know, whether it remains relatively secular or not, how all that works out, I think, will have huge impacts more broadly.

So I think the combination of the, you know, path of the Syrian civil war and the path -- the political path of Egypt will be two of the deciding factors of the future of the region. But I also don't think it's over yet. I think there are other regimes in the region that remain vulnerable to instability. And so there could be further chapters that we haven't even really thought about or anticipated fully.

So much as I support and appreciate the desire to rebalance more of our attention towards Asia, and I think we should, I think the Middle East is going to continue to occupy a huge percentage of our bandwidth of necessity for quite some time.

The piece you referred to in the journal is about Afghanistan. I had a chance after -- of a year of not having visited, I used to go almost every quarter, and I see Tom Henwood, who was my military assistant, in the audience who -- poor guy, I think he went on eight or more trips with me. But having been away for a year and going back, it was really striking what's changed.

The good news is I was much less concerned about the security situation. I think there -- while the Taliban insurgency remains resilient, the objective of pushing them away from the population centers, securing the main lines of communication, building up the Afghan forces so that they can hold their own -- we are well down that path. And it's not over yet, and there's still going to be violence and there's going to be, you know, human cost, but I believe -- I am much more optimistic about the security line of operation, if you will.

What I think -- where I'm worried is the politics. Afghanistan has an election -- a presidential election in 2014 in April. And President Karzai, by virtue of the Constitution, must step down. All accounts are that he has accepted that and will do so. The question is how he steps down, whether he tries to fix who will succeed him. You have a very vibrant set of political discussions going on in the country.

The good news is that from the palace to the opposition, everybody understand that they've got to field -- they try to get -- they have to try to get to something like a national consensus slate -- a multiethnic slate that represents the Northern Alliance, the southern Pashtuns, the -- and all the various groups. But our message to the Afghans that we spoke with was, this is a one shot -- this is your one big shot.

If these elections are relatively more free and fair, and if you elect a multiethnic slate that, whether it's your favorite slate or your second-favorite slate, people choose to live with it and they adjudicate -- they agree to adjudicate their differences through politics and not going back to civil war, the international community will stick with you and will continue to provide the promised assistance and you will have a shot at staying on the path of stability and economic development and political development.

But if you blow it, if President Karzai decides to try -- that his slate should try to steal the election, there's massive fraud or that you elect a corrupt warlord as your next leader, you can expect the international community, under these economic conditions -- you know, this of -- you know, is Congress going to vote for those aid dollars? Is -- are European parliaments going to vote for those aid dollars? No.

Historically, Afghan governments have fallen not when the troops have come down but when the aid has gone away. So again, you know, they -- how they handle this election will I believe determine whether the international community will continue to provide assistance, and that will determine whether they actually remain on a rough but positive path or whether they slide back into civil war.

ACKERMAN: And before we do shift to (Asia ?), maybe you could share the comments you made with me earlier about the next generations that you saw there.

FLOURNOY: Oh, yeah. The most hopeful thing in Afghanistan is the next generation. If they can survive their near-term future -- (chuckles) -- I'm very hopeful about the mid to longer term. You know, when I -- now that I have more time instead of running in and out of Afghanistan -- I actually had, you know, eight days, and I met with young entrepreneurs who are members of the chamber of commerce in Mazar-e Sharif and went down south to meet young Afghans who are heading NGOs helping the poor Pashtun part of the population, aid workers who are working agricultural development, students at the universities, you know, women entrepreneurs. I mean, there is a group that calls themselves the 1400, which refers to the Afghan calendar year for the election after this one. If -- once we see that generational change, there is great hope for Afghanistan if they can survive to get to that point.

ACKERMAN: Great.

So my last set of questions relate to the shift to the Far East. Could you talk a little bit about the reasoning behind that rebalancing, what it means for U.S. defense policy, how it's going to impact the relationship with China and then, of course, recent events with North Korea.

FLOURNOY: (Chuckles.)

ACKERMAN: And then we'll open it for questions if there's anytime left after that.

FLOURNOY: So, you know, I think the rebalancing was based on a sense that, you know, as we transition out of a decade of war, the assumption was that we would have not necessarily a peace dividend but certainly more leadership bandwidth and more resources to put on other issues. So the question is where is -- what's most important? Where is the sense of opportunity?

And when you think about -- you know, ask the question what region of the world will have the most profound impact on American economic growth and dynamism and prosperity for the next 10 to 20 years and beyond years, the answer is Asia-Pacific. We have had historically a very important role to play as sort of the stabilizer, the -- providing this foundation for -- of stability that allows for the economic growth that's happened in the region. And so there is huge opportunity there. That was the driving impetus.

I think you saw it first in some of the diplomatic gestures that were made early in the Obama administration. You know, Secretary Clinton's first trip was to Asia; the first prime minister invited to the White House was the Japanese prime minister; the first state -- formal state visit was the Indian prime minister. Those were all signals that, you know, we're going to pay more attention to Asia.

Then you also saw a military posture review that also looked at rebalancing our overall global posture but also our posture within the region, not only to maintain our very important commitments in Northeast Asia to our allies, South Korea and Japan, but also to ensure that we can sustain open trade routes, freedom of action down through the Strait of Malacca, down through Southeast Asia, so reaching out more to Australia, to the Philippines, to Vietnam, to other ASEAN nations has been very important. And nobody's talking about building a ring of permanent U.S. bases in Asia. What we are talking about is more partnership, more investment in joint exercises, development of capabilities, building partner capacity, access arrangements, those sorts of things -- a very flexible and tailored approach.

I think what's happening today with North Korea is a great example for why this is important. There are very real threats to our interests and to our allied interests in the region. My own reading of the North Korean -- this round of provocation is at one level, it's expected in the sense that every time we've seen a leadership transition in North Korea, we see a series of provocations that's really for domestic political purposes, it's trying to consolidate the new leader's base of power, first and foremost for the military, but also with the party.

What's different about this one is that the -- you know, this is a particularly young and inexperienced leader who we're not sure -- you know, there may be a great -- somewhat greater risk of miscalculation because of that inexperience. You also have a different situation on the southern side of the border in that you have a South Korean government and population that has endured now provocations that in 2010 led to the loss of Korean lives and a government that is now very clear that they will not let such provocations go unanswered in the future. And so the fact that you will have -- almost certainly have a military response from the South if there is loss of life means that we are in a different situation in that instance.

So now is a time when it's particularly important for the United States to reassure South Korea by holding them close, by deploying the ballistic missile defense assets we've deployed in the region, by demonstrating our commitment to their defense to try -- and at the same time trying to dial back the rhetoric, reduce the tensions and work with the Chinese to see if they can use some of their leverage on Pyongyang to get us back to the discussion we should be having, which is concrete, verifiable steps towards denuclearization on the peninsula.

ACKERMAN: Great. I have many more questions but my time has passed, so I'd like to open it to the floor. If you -- your hand's raised when I notice you, please wait for a microphone. Speak directly into it, state your name and your affiliation, and we'll begin.

Back there.

QUESTIONER: Good evening. Jonathan Brudder (ph) from the Kugosch (ph) Quarterly.

I covered a congressional hearing yesterday where the commander of U.S. troops in Afghanistan, General Dunford, was asked repeatedly what the size of the residual force would be in Afghanistan after 2014. And he ducked the question continually. And I'm wondering if you could explain to us why the administration won't clear up this uncertainty about the size of the residual force, which I gather is having some effect on the confidence of the -- of the U.S. commitment to Afghanistan after 2014.

FLOURNOY: Well, I'm happy to answer the question, but I want to underscore again, particularly for you, that I no longer speak for the administration, so this will give -- be my own personal views. But, you know, I think the American commitment to Afghanistan remains clear, in the sense that we have signed a strategic partnership agreement. We are in negotiation with the Afghans on a bilateral security agreement, and so forth.

I think it is important -- it will be very important and be very reassuring to the Afghans when we do announce the size and nature of the enduring presence. And my hope is that that will be robust enough to not only sort of cover the -- all of the Afghan corps that are deployed across the country, and advise and assist all of them, but also provide the, sort of, enabling backbone for our European allies like the Germans and the Italians and others who've taken leadership roles in key regions -- for them to keep -- to stay in and support.

You know, I think we should give the administration a bit of a break here in that they had a very rough time getting their senior Cabinet, key national security officials confirmed. Senator -- Secretary Kerry, Secretary Hagel. I think last time I checked they'd only had one, maybe two principals committees meetings. These guys come in, they're immediately deluged. Kerry goes off on the road; he's doing his job as diplomat-in-chief. He's running all over the world and serving the needs of the nation doing that. The secretary of defense has got an incredible budget challenge on his hands; he's dealing with that. I mean, we need to give them a little bit of time to get their arms -- rather, their heads around this issue and give their best advice and counsel to the president. So, you know, I'm -- I think we need to cut them a little bit of slack given the other competing challenges on their plate and the way the confirmation timelines have worked.

With that said, my hope is that in the next few months that we will see both an enduring presence announced and a bilateral security agreement concluded such that there's no question on the part of folks here, the Afghans, those who are -- you know, like the Taliban and others who may be watching, there's no question of our enduring commitment to the success of this effort.

ACKERMAN: Over there.

QUESTIONER: When both of you talked about --

ACKERMAN: You are?

QUESTIONER: Oda (ph) (Aberdeen ?), the Capital Trust Group. The two of you talked about Egypt, talked about Syria, but there is a more important country with a more complex challenge; that's Iran. Can you give us your views on Iran and whether Iran can be prevented from having nuclear weapons by diplomacy?

FLOURNOY: So, I think we are in the middle of an unfolding story there. I think the president's been very clear, rightly so, that the idea of Iran having nuclear weapons given their destabilizing influence in the region, given their support for proxies and terrorist groups, that is truly -- given the threat -- the threat they pose to Israel, the threat they pose to us and to our interests, that would be unacceptable.

I think he's also been right to try to pursue that objective first through diplomacy then through backing that up with sanctions. We know the sanctions have really hurt. What we can't -- we haven't seen yet is that economic pain translating into recalculation on the part of the supreme leader with regard to their nuclear pursuits. I think that we want to continue to pursue the sanctions -- keep the sanctions in place, pursue negotiations, watch the program very carefully. At some point, if sanctions don't work, if negotiations don't work, there will be a harder choice to make about whether to use force to set back the program.

But there should be no illusions here. Even the use of force, even the very effective use of force is only a delay tactic. It does not stop the program. It does not solve the problem. It sets it back in time. It puts time back on the clock. But it also risks unleashing a broader conflict. There are many different schools of thought on how Iran would respond. The hopeful school is that they would play the victim and do nothing. I think that's highly unrealistic. I think how Iran would respond could start us into a much broader situation of conflict. And so this is not something we should enter into lightly.

That said, I for one don't believe that a containment model, given Iran's proliferation activity, its support for terrorism, its support for proxies, I don't think that's a viable model in this case, in the nuclear domain. Oh, and I would just add --

ACKERMAN: Please.

FLOURNOY: I also think other countries would react. I don't think -- I think countries -- this would affect the calculations of the Saudis, of Turkey, of others facing a nuclear Iran. And again, I don't think the outcome of that would be very -- would be very -- would not be stabilizing for an already unstable region.

ACKERMAN: Before I -- very quickly, do you think that North Korea is being helpful to Iran in accelerating their program? Is there evidence of that?

FLOURNOY: There's -- I mean, I am a little bit out of date, but my impression is that there has been some technical assistance provided in the past. I think more -- the stronger linkage right now is I think Tehran is watching very carefully what happens with regard to Pyongyang, how Pyongyang is playing its card, how is the international community reacting and so forth. They're taking notes.

QUESTIONER: Thanks. Hi. Deepti Choubey with the Nuclear Threat Initiative. Michele, one of the lines that could have been added to your bio today was that you were an executive board member of Women in International Security, which is an organization aimed at supporting women at every stage of their career that work across the international security sector. I'm wondering how your (latest ?) in government has informed your views about what can be done to make sure that we're making use of a hundred percent of the talent pool, considering the complexity of the world that we're living in, and how we need all people to be engaged in the endeavor.

FLOURNOY: That's a great question and one near and dear to my heart. The good news is that there has been progress made. When I was in the Pentagon for the first time in the Clinton administration, we had a women's leaders lunch, and we all sat at one table, and it was a very small table -- (chuckles) -- sadly.

This time around -- and there are some colleagues in the audience here who served with me in the Pentagon -- there were -- we probably would have filled the executive dining room. So, you know, there's been a lot of progress, more progress to be made.

One of the things that I tried to do as undersecretary was launch a human capital initiative that had many different dimensions, but one of the ideas was to try to take a very dedicated workforce that was working 24/7 but who also had families and outside lives and, without -- you know, without diminishing performance in any way, try to experiment with some alternative ways of working, whether it was a more flexible approach to schedules, more flexible approach to where you work, cross-coverage of portfolios and so forth. And some of these ideas started as kind of women's initiatives, or at least perceived as such for women with kids. But the truth is I very quickly found that the -- all of the workforce was very happy to take advantage of this.

And we started by -- we had a lot of naysayers. We started by -- we took the two busiest or high-tempo offices, the Middle East office, the Southeast Asia office -- we piloted the program there. It was a huge success. And then we promulgated it throughout policy.

And the interesting thing is I didn't say much to Secretary Gates about it. But he actually asked me one day in a meeting, he said, what's going on down there? And I said, what do you mean? He said, I've noticed a real jump in the quality of the work you're doing. And so he noticed it not in terms of the morale or the balance that I was seeing; he noticed the increase in performance. And that's what all the business literature says. You know, you want a big increase in performance, you invest in your human capital.

So I think the most important thing is being creative about the ways we work, providing more institutional, organizational, societal support for a broader diversity of ways of working, career paths and so forth, so that people can be fabulous parents and fabulous contributors to society, not necessarily equally fabulous at the same time on both sides -- (chuckles) -- but over their lifetime, you know, be able to make those contributions in both senses.

QUESTIONER: My name is Roger Parkinson (sp). In a former life, I was a newspaper publisher. I'd like to go back to Mr. Ackerman's first question to you on -- he asked you what you thought the grand strategy going forward for the United States ought to be, and I heard your answers being, stay engaged, provide leadership and have a more integrated use of power, which I think are all valuable. But that doesn't really sound to me like a grand strategy. I wonder if you could be more explicit about what kind of grand strategy you think the U.S. should have going forward.

FLOURNOY: Yeah, I don't have a bumper sticker for you that's equivalent to containment or -- and so forth. But I think -- I think that the U.S. needs to provide leadership that enables our allies and coalitions of the willing to preserve interests that are important to us, values that are important to us, and to engineer shared solutions to shared problems. I think that we have to be more realistic in understanding what our power means in this new world. And that's not being negative; that's not being defeatist; it's not being a wuss. It's just recognizing that there are other power centers in the world. The -- it's a more diffuse international environment, a more multinational or multipolar environment and that it's not a bipolar world anymore and it's a more difficult environment to operate in.

I'm not going to give you a satisfying question. I don't have the paragraph written. It's a great -- now that I'm out of government and I can actually have time to think again, I will personally take that as an assignment to write you a better paragraph. But I think that I -- they're some of the key elements that I've mentioned. How to wrap that into a short narrative that's compelling, that describes the strategy, I think that's a great project for an organization like CFR and for a number of people in this audience.

QUESTIONER: Alton Frye from the council. Michele, before there was the rebalancing, there was the reset toward Moscow. Could you give us a reading on whether you think we are missing opportunities for a more active engagement, producing cooperative outputs with Moscow, or was it maybe not a realistic expectation to begin with?

FLOURNOY: I think -- you know, let's remember what the reset was. The reset was trying to put the relationship on a more pragmatic and cooperative and positive footing. That said, you know, there are still going to be areas where we agree to disagree, so the invasion of Georgia, you know, human rights issues, democracy inside -- how -- the progress of democracy in Russia and so forth.

But there are strategic areas where our interests will align, and we can and should cooperate: preventing Iran from becoming a nuclear weapons state; ensuring that, you know, at the end of the day there's greater stability rather than less stability in Afghanistan; reducing the nuclear danger through further rounds of arms control. I mean, there are a whole number of areas where we identified common interests and we have been able to pursue them with Russia in -- with important results, like New START, like cooperation on Afghanistan, like sanctions against Iran.

I think the -- where the reset has run into, you know, some challenges I think are -- is -- you know, as you have had the passing of the torch from Medvedev back to Putin, I think there is a difference of view there, and I think Putin is a much more skeptical partner. I think he has a narrower view of where -- what our common interests are. I think he has a more anti-Western bias in many of his views and so forth. So I think there is -- I think we still need to be working on the relationship. I think frankly that the recent refinement of our ballistic missile defense investment to actually eliminate the Phase IV part of the European phased adaptive approach system is something where we can still -- we will still meet our defense commitments to our allies, but now the Russians really don't have an excuse not to cooperate on missile defense in Europe, from the -- I mean, the system never really posed a threat to their strategic deterrent, but they perceived it as posing a threat. That is now removed. We should be able to work with them to find ways to cooperate there.

But I think there's a -- this is a larger political question that has more to do with the orientation of the Russian administration at this point than it does to do with the willingness of the U.S. to find ways to continue cooperating.

QUESTIONER: I'm Lionel Rosenblatt, a retired foreign service officer and NGO official. I started out with something called the CORDS program, volunteered for that as a young FSO. And we were taught then to volunteer to go out and talk to villagers and learn from them. And of course, that was a Sunday school picnic compared to Afghanistan, but I'm wondering how much bottom-up feedback we're able to actually get from Afghan villagers, and I'm wondering if the new generation is really able to commit to anything given that their security is in doubt -- partly because Washington is almost as broken as Kabul.

And the second related question is, if we're going to use drones, are the drone operators ever given field experience so that they know what they're looking at so they can distinguish between a wedding party and a funeral and a bunch of terrorists? We would never have ever called in an airstrike in Vietnam without looking on the ground at what was going on, or at least with an A-10.

FLOURNOY: I do think there is a great deal of bottom-up input in Afghanistan. But one of the things that concerns me is there is a strong desire on the part of many in the United States to be done with Afghanistan and to get on with other things without what I think is a very important moment, which is to pause -- and I think, frankly, we need to do this for Iraq too -- and to ask ourselves, what do we learn from these two experiences? What were -- what are the real lessons that we want to ingest, digest, capture so that we don't sort of mindlessly have to -- you know, with -- at great cost learn them again in the future? And that goes -- that's at the strategic level, but it's also in terms of how we operated and how we tried to do development in a conflict environment in Afghanistan and what worked and what didn't and why and how we engaged the population or how we didn't.

You know, I think, on the drone program, the operators of the drones tend not to be people who have on-the-ground experience, and they're -- you know, different sort of set of skills. But I think that -- I would say two things. There -- I have personally witnessed extraordinary efforts made to avoid civilian casualties, including, you know, diverting things at the last moment because a child walks into the picture.

I also from firsthand experience know that there is a lot of disinformation with regard to civilian casualties. I'm not saying there have been none. There have been civilian casualties. I am saying that we know that there are certain other intelligence services out there who literally create stories around civilian casualties that did not occur.

So I think the record is probably more balanced than what is suggested. Again, I think this effort to create a greater transparency on this program, to elevate to a more strategic discussion that looks -- in a more balanced approach, using all of the various instruments, is a positive effort on the part of this administration going into the second term.

ACKERMAN: Maurice.

QUESTIONER: Maurice Sonnenberg, JPMorgan. I want to take you in a totally different area -- malware, gigabytes, where you go from single digits to hundreds, the ability, at least domestically, industrial, to bring down and crash systems. I have a concern that we're losing our edge to the Chinese and, to some degree, the Russians. I wonder what your thoughts are in terms of this whole cyber aspect of defense and offense?

FLOURNOY: I do think there are now a panoply of cyberthreats that are very real. As you suggest, they're advancing at a very rapid pace. They're -- I think we're beyond the days where we had to worry about sort of mischievous hackers. We are now seeing state-sponsored programs of cyberattackers. And that's further compounded by the fact that we have a society where much of our critical infrastructure is owned and/or operated in private-sector hands. So even if you are remarkably successful in protecting the dot-mil world, which we are -- we're a little less successful protecting dot-gov, but still pretty good -- when you get into dot-com, you know, it's really uneven.

I think that the -- as the -- as the debate about CISPA, the cyber legislation that's currently on the Hill, demonstrates, we are being very slow and conceptually getting our heads around what's necessary. We are very bogged down in a series of very important debates about privacy and protection of privacy and so forth. But meanwhile we don't have a legal framework in place to get our house in order on this issue.

The other thing I would say -- and the more -- now that I'm -- have time to actually go learn things for people in the Silicon Valley -- (chuckles) -- there's a whole conceptual reorientation happening out there on the cutting edge, and it's going from not just building higher walls and fences and trying to keep intruders out, it's looking at how do you defend from the inside out. What we're really trying to protect is the data and identity and how do you, even if you have intrusions coming in, make that -- those things protected. That's the new problem set that a lot of new work is happening in the valley is I think going to be the biggest leap ahead conceptually for cybersecurity going forward in the next 10 years.

ACKERMAN: Mitzi.

QUESTIONER: I'm Mitzi Wertheim with the Naval Postgraduate. Michele, this has been just truly fabulous. Based on my own experience -- how are we going to -- how are we going to actually learn, just not note? I mean, when I was in the Pentagon, it was always, well, we note, but we never learn. Has that changed?

FLOURNOY: Right now, you know, the minds of those in the Pentagon are pretty focused -- (chuckles) -- by the sequestration and sort of coping with the current budget crisis. But my hope is that, you know, as we get beyond that -- not beyond it, but as hopefully we get some greater degree of certain of the parameters of what we're going to be living with, there will be an opportunity for people to do some lessons-learned thinking.

But the truth is, when you're in government, you know, the tyranny of the inbox -- you know, I always pushed my staff to be strategic. You know, if Policy wasn't thinking strategically for the secretary, who was, right? (Chuckles.) We weren't doing our job.

But I think this is where the think tank world comes in. I think this is where academia comes in. This is where people whose job it is to try to push the intellectual envelope, to step back and think strategically about either where we're going in the future or what we've recently experienced in the past, to make sense of it, to try to capture that -- I think there's a huge role for those entities to play and to host, then -- just kind of set up and frame the dialogue for those in government who may be too busy to do that work but certainly shouldn't be too busy to listen to it and may take advantage of it.

QUESTIONER: Antoine van Agtmael, Garten Rothkopf. Can I take you 10, maybe even five years down the road and ask what you think growing energy independence, shale gas, will do to defense relations with the Middle East? Is it a major factor? Is it something that will make our life easier or in fact more difficult?

FLOURNOY: A great question. I'm not in the school of thought that says greater energy independence because of our own energy resources will create a situation where we no longer care about the Middle East or we no longer have a vital interest in the Middle East. I think that's a fantasy.

Remember, you know, oil, (gas ?) -- I mean, all of these are still going to be globally traded commodities, and we're going to have a very deep interest in price, right, and therefore instability in the Middle East and the impacts on price and so forth.

I do think a lot of the answer to your question depends on not only what happens for us but what happens for our close allies in Europe and in Asia, because, truthfully, right now they are ones who are most dependent on the energy products coming out of the Middle East already.

But I think we have to think of this in global terms. I think there are other vital interests we have at stake beyond energy in the Middle East, so I don't -- again, I don't think it'll be off our radar screen in any sense of the word. But I do think we should have perhaps a little bit more freedom of action, based in -- based on our own domestic resources being developed.

ACKERMAN: Before I take the last question, I just wanted to make sure everybody remembers that this meeting was on the record and after the meeting's over, there's going to be a dinner reception outside the meeting room.

So -- in the back.

QUESTIONER: Thank you very much. My name is Genie Nguyen with Voice of Vietnamese Americans. Michele, I know that you're the senior adviser of the Boston Consulting Group, so my condolence to what happened to all the people in Boston recently.

And I'd like to tie that back to our topic today and what you are -- you have been an expert, which is international security. What do you see happen in Massachusetts on Monday have anything to do with international security, our challenges as the leadership -- as the leader that you said U.S. has always been and is now still? We are the leader in this world, in the international arena.

And then I also would like to tie back all the connections between Afghanistan and Vietnam, because I believe President Obama had made his vow when he first inaugurate that Afghanistan would not be a Vietnam case, so the drawdown in Afghanistan would have be a successful -- and I think that's very much have to do with the worries about nuclear proliferations in the Middle East. And would you make the connection between the recent visit between Mr. Xi and Mr. Putin and China's perception of itself in the global arena and China's connection with North Korea, with Iran, with Pakistan, with Russia? (Chuckles.)

So where do you see the center of new American security is leading us? Thank you.

FLOURNOY: Wow. That's a long question. So I'm going to pick out what I think is an important element out of all of that, because you drew a lot of connections, and talk a little bit about China.

And you know, I think that the first thing we have to recognize is that we all have a stake in how China rises and in trying to ensure it is a peaceful rise. The -- there are -- I think, actually, there are some strong common interests that the U.S. and China have in maintaining stability in the region, whether it's tamping down tensions that are created by North Korea or China exercising greater self-control and discipline with regard to use of intimidation or coercion over disputed territories, whether in the East China Sea, in the South China Sea and so forth.

Their biggest focus is on their internal stability, their economic growth and so forth. They're not interested in having conflict in the region; we need to constantly come back to that and remind them of that. I think, you know, the new leadership in China -- I think there's an opportunity to refresh the relationship and to try to build areas of cooperation.

But I think we have to be very clear with Beijing about some of our concerns. I personally am very concerned about some of the investments that the PLA is making -- very clearly designed to try to thwart or prevent access by others in the region, thwart freedom of movement in international waters and so forth. There's a lack of transparency there which makes it -- you know, lets people assume the worst.

I think China has yet to play a sort of positive international role that's commensurate with its increasing economic power and role. And we need to push them towards the -- this sort of more responsible stakeholder kind of behavior. But, you know, I don't think that notion of containing China -- I mean, that's what China fears. I don't think it applies. I don't even know what that means, given the level of economic interdependence and some of the shared interests we have.

But I do think this has to be -- we have to continue a very strategic and candid dialogue with China. What's happening on the cyber domain, for example, is completely unacceptable. And they need to -- they need to understand that there are consequences for that in terms of their -- how countries will respond to them as a trade partner and how countries will respond to them in international relations and so forth. So I'll stop there and not stand between you and your dinner.

ACKERMAN: I think we can all agree that Michele Flournoy has carried the flag of the Warnke Lecture series brilliantly. And I want to thank you. It was a great hour.

FLOURNOY: Thank you very much.

ACKERMAN: And thank you all for coming, and we're done. (Applause.)

(C) COPYRIGHT 2013, FEDERAL NEWS SERVICE, INC., 1120 G STREET NW; SUITE 990; WASHINGTON, DC - 20005, USA. ALL RIGHTS RESERVED. ANY REPRODUCTION, REDISTRIBUTION OR RETRANSMISSION IS EXPRESSLY PROHIBITED.

UNAUTHORIZED REPRODUCTION, REDISTRIBUTION OR RETRANSMISSION CONSTITUTES A MISAPPROPRIATION UNDER APPLICABLE UNFAIR COMPETITION LAW, AND FEDERAL NEWS SERVICE, INC. RESERVES THE RIGHT TO PURSUE ALL REMEDIES AVAILABLE TO IT IN RESPECT TO SUCH MISAPPROPRIATION.

FEDERAL NEWS SERVICE, INC. IS A PRIVATE FIRM AND IS NOT AFFILIATED WITH THE FEDERAL GOVERNMENT. NO COPYRIGHT IS CLAIMED AS TO ANY PART OF THE ORIGINAL WORK PREPARED BY A UNITED STATES GOVERNMENT OFFICER OR EMPLOYEE AS PART OF THAT PERSON'S OFFICIAL DUTIES.

FOR INFORMATION ON SUBSCRIBING TO FNS, PLEASE CALL 202-347-1400 OR EMAIL [email protected].

THIS IS A RUSH TRANSCRIPT.

PETER ACKERMAN: Good evening. Good evening. I'm Peter Ackerman. I'm a board member of the Council on Foreign Relations. And I want to welcome you to the Warnke Lecture Series. And I want to particularly thank the members of the family -- the Warnke family that are in attendance tonight as well as all of the donors to this lectureship who have made this evening's event possible.

There have been many distinguished speakers in this lectureship, and we have one tonight that I'd like to briefly introduce, but I know many of you know her very, very well, so I'll be brief. Currently Michele is the senior adviser for the Boston Consulting Group and before that was undersecretary of defense from 2009 to February of 2012. She was the principal adviser to the secretary of defense in the formulation of national security and defense policy in the oversight of military plans and operations and in National Security Council deliberations. She led the development of DOD's new strategic guidance and represented the department in dozens of foreign of foreign engagements, in the media and before Congress. Now, the thing -- and Ms. Flournoy also was the head -- co-head of the transition team for the Obama administration. But a thing that impresses me the most is she did something before that that I think is very difficult: She started a successful think tank in this town call the Center for New American Security.

Michele has received several awards from the secretary of defense and the chairman of the Joint Chiefs of Staff, and she's a member of the Defense Policy Board, this council and the Aspen Strategy Group. She is a graduate of Harvard and Balliol College, where she received a master's degree.

Now, what we're going to do for the first half-hour, I'm going to be sort of guiding a general presentation by Michele with a series of very informal questions, and she'll elaborate on them. So let me start, and then in the last half-hour we will entertain questions from the floor.

So Michele, could I start by asking you what you think should be the U.S. grand strategy in the coming decades? Is it time for the United -- (laughter) --

MICHELE FLOURNOY: Start with the easy questions. (Laughter.)

ACKERMAN: Is it time for the United States to reconsider its global commitments and to scale back?

FLOURNOY: Well, thank you for the very warm introduction. And let me just first say how honored I am to be selected to be part of the Warnke lecture series. Paul Warnke was someone who was a model for all of us entering the national security domain and public service for so many years, not only in terms of his impact on arms control and national security more broadly but also, for someone who was going into the Pentagon, someone, you know, for -- as a model of someone who really understood how to make things happen in that five-sided building, which was not always easy. So I am just honored and so pleased to see all of you here tonight and to see so many friends and colleagues in the audience.

Starting with the very simple question -- (chuckles) -- of the future of American grand strategy, you know, I am one who believes that the United States, as the sole superpower in the world, still has an indispensable leadership role to play. What it means to be a superpower in a more multilateral, more multipolar world is different. But the role is still unique. There's really no other country that can lead the way we can, that convene -- that can convene the way we can, that can put together international coalitions to solve shared problems the way we can. And I think it would be a shame to go into a period of greater retrenchment or isolationism in response to some of the budgetary pressures that we're facing. So the leadership role remains.

I also think that as a global power with global interests and as the world gets more interdependent, we have to stay engaged. It's in our interest to stay engaged, for our security at home, for the prosperity of our people, for the growth of our economy and so forth. So I think in the grandest sense, a strategy of engagement and of continued international leadership is imperative.

What we can talk about is what does that mean, because I think we do have to be smarter about the way we engage and when we use what tools and, in some cases, more selective, particularly with regard to how we use the military instrument. Just one fact that I read today was sort of jarring. Since the end of the Cold War, the U.S. has been at war more months out of that period than not. I think there is -- now is a time for reflection, post-Iraq, as we transition in Afghanistan, to think about a more integrated use of our instruments of national power, and how do we protect our interests with the fuller variety of tools and be very careful about the use of the military instrument and learn some of the lessons that we need to learn from the past decade.

ACKERMAN: So if somebody would ask you what would -- should we do -- should we not do going forward that we have done, how would you answer that question?

FLOURNOY: You know, I think one of the things that we've done, and particularly in the post-9/11 period, is sometimes reach for the military instrument first. You know, I'm someone who believes in a strong military. I have, in my time, supported its use in many occasions, you know, advising my boss, Secretary Gates or Secretary Panetta or even the president. But I think that we currently have a situation where we've had very robust funding for many years for the military, and virtually every other instrument on life support -- very anemic funding for our diplomatic tools, our economic assistance tools, even our -- even our trade -- free trade kind of efforts. So I think a more balanced approach that has more balanced investment across the tools, but also more integrated use of the tools is warranted.

ACKERMAN: Thank you. We've gone through sequestration, and perhaps maybe you can comment on that in the context of being a little bit more granular about the Defense Department's budgetary needs, priorities and how you see that shaping up.

FLOURNOY: Yeah. Well, first of all, sequestration was the Sword of Damocles that was supposed to force everyone to get to a budget deal. It was never supposed to actually come down on our heads. But here we are, and I'm not sure that a budget deal is much closer in sight, even though I think we all know that the elements of entitlement reform, tax reform -- some tightening of discretionary spending and so forth.

But in terms of DOD, I think the answer to your question of, you know, how will the -- what will the impacts be, it really depends on a couple of key factors. One is, how deep will the cuts to defense be? Will it be along the lines of the president's budget, which are fairly modest over time, or will they be further rounds on the order of the sequestration cuts, meaning, next year, we'll have another round of $50 billion a year or $40 billion a year and so forth? In any case, I think -- I think the Defense Department has some very fundamental choices to make about how it takes those cuts.

Historically, we've managed drawdowns very, very badly. We tend to balance our budget on the backs of the force. You cut force structure, you cut readiness, you cut modernization, which is sort of your seed corn for the future. And typically, we end up with a hollow force. Not always, but that's kind of the tendency if left to our own devices.

This time, I think we need to look very hard at the defense enterprise. Overhead has grown substantially in recent years. We've added more than a hundred thousand civilians to DOD's roles in the last decade; the contractor pool is almost as big. It's almost a second civilian work force of the same size.

Every headquarters I saw in -- whether -- when I was in the Pentagon -- Office of the Secretary of Defense, Joint Staff Services, combatant commands, defense agencies, have more people and more layers and more bureaucracy than they need. So the first place to go after the money, in my view, is out of that overhead.

And there's, you know, plenty of examples where this -- of how this can be done from the private sector that I think can be applied in the public sector. Secondly, infrastructure. We still have more infrastructure than the U.S. military of the 21st century needs. We do need another background. Third example -- acquisition reform.

We are -- still have a broken requirements process. We have perverse incentives for the people who manage programs to spend money rather than save it. We have some real challenges on the acquisition side that -- lots of good recommendations made; very few of them actually implemented, because they -- it's politically difficult.

And lastly, I would say personnel costs and health care. I am the last person -- I am a Navy wife; I am the last person who wants to break faith with the men and women who serve and to take away their health benefits, but DOD's health care costs are growing at 10 and a half percent per year -- civilian economy 6 and a half percent. So there's something wrong with how this set of benefits is being managed. And if we don't get our hands around it in terms of managing it, it's not going to be sustainable.

So I would go after those kinds of costs first -- get every dime I can out of that (side of the House ?) before I turn to much deeper cuts in terms of the actual capabilities our military will need to protect our interests in the future.

ACKERMAN: As a bit of a tongue-in-cheek follow-up question, who do you go see to get the things you're talking about? Where does that start?

FLOURNOY: Well, it starts -- it has to start at the top. And I think the good news is, Secretary Hagel, if you all read his -- the speech he gave at NDU -- if you haven't read it, I'd recommend it. He lays down a number of markers in this domain. And I think that's important. So leadership at the top.

I think the hardest thing is that all of these changes require breaking somebody's rice bowl. It's either a bureaucratic rice bowl or it's a Congressional constituency rice bowl. So engaging leaders on the Hill, getting them to see the fact that we are at a unique moment in time. We are at an inflection point in terms of the budget. We can't continue business usual. Use this as a burning platform to try to bring the business of the department into the 21st century.

I mean, those of you who may remember -- I mean, the last time DOD was really transformed was by Robert McNamara in the 1960s. So the -- our business processes are incredibly cutting edge if you're back in the 1960s. And, you know, what Ford Motor Company was doing then, and what McNamara brought into the Pentagon. But, you know, you compare it to where -- how things are done in the private sector today, and we're a little bit behind.

ACKERMAN: OK. Can we shift back to policy for a moment?

FLOURNOY: Yes.

ACKERMAN: We just, not too long ago, invoked R2P, the responsibility to protect, as a way to go into Libya. And we have -- we expected a near holocaust there, and now we're having a near holocaust in Syria. Are there lessons from Libya that we can take into thinking about Syria? Tell me how you think about both.

FLOURNOY: I think -- I -- you know, I supported the intervention in Libya on humanitarian grounds. I think we were right to do it.

I think the real lesson to take away from Libya or one of -- the positive lesson -- there are some negative ones too, but the positive lesson is that there is an approach to leadership -- when the interests we have at stake are primarily humanitarian, not vital U.S. interests, but we have other partners, whether it's our NATO partners or Arab League partners, who do feel they have a vital interest at stake, want to participate, want to contribute, there is a way for the United States to lead but keep its contributions commensurate with its limited interests.

And what we did is we provided the backbone. We provided the intelligence, surveillance, reconnaissance, the command and control, the strategic lift, the aerial refueling, the sort of critical and unique capabilities that were the backbone around which the rest of the coalition could form and really contribute. To me, that's the lesson of Libya that should be taken forward.

I think in -- with regard to Syria, what you see the administration doing on the political side is similar in that we are trying to bring all of the actors together, even trying to pull in Russia -- not Iran, obviously; I don't think that's ever going to happen -- but Turkey, Qatar, the Gulf states, to try to have a common approach to supporting the moderate, nonextremist parts of the rebel forces and, you know, what can we do to, A, make them successful; to, B, get Assad to leave; but C, to have a viable plan to -- for the post-Assad, for the day after Assad falls, because that -- that's what worries me, is that the -- right now, without that plan and without the approach that I think -- that -- being fully in place, if Assad fell tomorrow, my worry was that you'd have a second round of civil war between the extremist and the moderate rebel forces for the prize, for control of the country.

ACKERMAN: Going back to Libya for a second, in that joint operation, did it indicate anything to you about the relative capabilities and the changed relative capabilities between our European allies and ourselves? Is that gap growing? Is it --

FLOURNOY: Sure, I actually think that what we -- you know, Libya was a beneficiary of the last decade in Afghanistan in some ways, because the truth is, we have gotten better at operating together. We are more interoperable. We're more used to -- more used to, you know, being in command centers together, flying together, working together and so forth.

So I think there -- there were -- there's always room for improvement, but there was -- I think the integration went better or more smoothly than many people expected.

I -- my worry going forward is that the fiscal crisis has hit very hard in Europe. Only a few of our allies are meeting the NATO goal of 2 percent GDP investment in defense. I think defense is going to take a -- defense investment is going to take a beating for the next five to 10 years in Europe, even among some of our most important allies, like the U.K. And that means that our partners will come to the table with less capability, at least in the near to midterm.

ACKERMAN: Do we plan for that, or is it just something we accept --

FLOURNOY: I think we have -- we have to take into account. Obviously -- I mean, I think the U.S. is having bilateral conversations encouraging our allies to hold up their part of the bargain. We are playing a very big role inside the NATO command structure to try to encourage some of our allies to pool their resources. So if you can't afford strategic lift by yourself, put together a consortium of countries and invest in some -- a set of capabilities that you share. And we're doing that kind of smart defense kind of approach in a number of areas, or NATO is.

But still, even taking all of that into account, overall, the level of capability will diminish somewhat in the coming years.

ACKERMAN: So my favorite film last year was "Zero Dark Thirty," and probably some people here would agree. And that highlights the role of the CIA's ground branch, their military capability. Should that capability grow or shrink relative to defense? And maybe make some comment about the change in control over our drone program.

FLOURNOY: I think that the Obama administration in its second term is taking the opportunity to step back and think about its counterterrorism strategy broadly and to kind weigh what's been effective, what hasn't, where do we need to do more. And I think they're going to move towards, again, a more balanced and integrated strategy.

I think the discussion about moving aspects of the drone program from the CIA to the Defense Department -- what will that -- that will do in practice is introduce a much greater degree of transparency, because if something's a CIA program, it's covert; you -- people can't even acknowledge its existence or -- you know, and speak about it. If it's on the Defense Department side, there will be much greater transparency in terms of reporting on what's happening, the results of what's happening and so forth. And I actually think that's a -- that's a positive thing.

But you know, the -- I think as the film rightly does portray, although there are some factual inaccuracies there, a little bit of filmmaker license there -- you know, I think it does -- it does -- it did portray the very central role that the agency has played and will continue to play in terms of the counterterrorism mission going forward.

ACKERMAN: Can we got back to the Middle East for a second? And could you just make some general comments about how we best defend our interests over the next decade there? And specifically if some -- if we have -- if you have read her excellent op-ed today in The Wall Street Journal, maybe you could elaborate on the point she made there as well as part of the discussion.

FLOURNOY: OK. Well, the Middle East is going through an historic period of turmoil, as you all know. My own view is that we -- this is going to be a very long book. You know, we -- this is going to be "War and Peace" kind of length -- (chuckles) -- and we're in the first chapter. You know, I think this is a generational kind of phenomenon that we're going to see.

I think -- I am personally paying most attention to Egypt because Egypt is, what, 25 percent of the Arab population? There's a phrase in the region that say, as Egypt goes, so goes the region. What happens under Morsi's leadership, what happens in Egypt, how the Muslim Brotherhood evolves, how the populations -- you know, whether it remains relatively secular or not, how all that works out, I think, will have huge impacts more broadly.

So I think the combination of the, you know, path of the Syrian civil war and the path -- the political path of Egypt will be two of the deciding factors of the future of the region. But I also don't think it's over yet. I think there are other regimes in the region that remain vulnerable to instability. And so there could be further chapters that we haven't even really thought about or anticipated fully.

So much as I support and appreciate the desire to rebalance more of our attention towards Asia, and I think we should, I think the Middle East is going to continue to occupy a huge percentage of our bandwidth of necessity for quite some time.

The piece you referred to in the journal is about Afghanistan. I had a chance after -- of a year of not having visited, I used to go almost every quarter, and I see Tom Henwood, who was my military assistant, in the audience who -- poor guy, I think he went on eight or more trips with me. But having been away for a year and going back, it was really striking what's changed.

The good news is I was much less concerned about the security situation. I think there -- while the Taliban insurgency remains resilient, the objective of pushing them away from the population centers, securing the main lines of communication, building up the Afghan forces so that they can hold their own -- we are well down that path. And it's not over yet, and there's still going to be violence and there's going to be, you know, human cost, but I believe -- I am much more optimistic about the security line of operation, if you will.

What I think -- where I'm worried is the politics. Afghanistan has an election -- a presidential election in 2014 in April. And President Karzai, by virtue of the Constitution, must step down. All accounts are that he has accepted that and will do so. The question is how he steps down, whether he tries to fix who will succeed him. You have a very vibrant set of political discussions going on in the country.

The good news is that from the palace to the opposition, everybody understand that they've got to field -- they try to get -- they have to try to get to something like a national consensus slate -- a multiethnic slate that represents the Northern Alliance, the southern Pashtuns, the -- and all the various groups. But our message to the Afghans that we spoke with was, this is a one shot -- this is your one big shot.

If these elections are relatively more free and fair, and if you elect a multiethnic slate that, whether it's your favorite slate or your second-favorite slate, people choose to live with it and they adjudicate -- they agree to adjudicate their differences through politics and not going back to civil war, the international community will stick with you and will continue to provide the promised assistance and you will have a shot at staying on the path of stability and economic development and political development.

But if you blow it, if President Karzai decides to try -- that his slate should try to steal the election, there's massive fraud or that you elect a corrupt warlord as your next leader, you can expect the international community, under these economic conditions -- you know, this of -- you know, is Congress going to vote for those aid dollars? Is -- are European parliaments going to vote for those aid dollars? No.

Historically, Afghan governments have fallen not when the troops have come down but when the aid has gone away. So again, you know, they -- how they handle this election will I believe determine whether the international community will continue to provide assistance, and that will determine whether they actually remain on a rough but positive path or whether they slide back into civil war.

ACKERMAN: And before we do shift to (Asia ?), maybe you could share the comments you made with me earlier about the next generations that you saw there.

FLOURNOY: Oh, yeah. The most hopeful thing in Afghanistan is the next generation. If they can survive their near-term future -- (chuckles) -- I'm very hopeful about the mid to longer term. You know, when I -- now that I have more time instead of running in and out of Afghanistan -- I actually had, you know, eight days, and I met with young entrepreneurs who are members of the chamber of commerce in Mazar-e Sharif and went down south to meet young Afghans who are heading NGOs helping the poor Pashtun part of the population, aid workers who are working agricultural development, students at the universities, you know, women entrepreneurs. I mean, there is a group that calls themselves the 1400, which refers to the Afghan calendar year for the election after this one. If -- once we see that generational change, there is great hope for Afghanistan if they can survive to get to that point.

ACKERMAN: Great.

So my last set of questions relate to the shift to the Far East. Could you talk a little bit about the reasoning behind that rebalancing, what it means for U.S. defense policy, how it's going to impact the relationship with China and then, of course, recent events with North Korea.

FLOURNOY: (Chuckles.)

ACKERMAN: And then we'll open it for questions if there's anytime left after that.

FLOURNOY: So, you know, I think the rebalancing was based on a sense that, you know, as we transition out of a decade of war, the assumption was that we would have not necessarily a peace dividend but certainly more leadership bandwidth and more resources to put on other issues. So the question is where is -- what's most important? Where is the sense of opportunity?

And when you think about -- you know, ask the question what region of the world will have the most profound impact on American economic growth and dynamism and prosperity for the next 10 to 20 years and beyond years, the answer is Asia-Pacific. We have had historically a very important role to play as sort of the stabilizer, the -- providing this foundation for -- of stability that allows for the economic growth that's happened in the region. And so there is huge opportunity there. That was the driving impetus.

I think you saw it first in some of the diplomatic gestures that were made early in the Obama administration. You know, Secretary Clinton's first trip was to Asia; the first prime minister invited to the White House was the Japanese prime minister; the first state -- formal state visit was the Indian prime minister. Those were all signals that, you know, we're going to pay more attention to Asia.

Then you also saw a military posture review that also looked at rebalancing our overall global posture but also our posture within the region, not only to maintain our very important commitments in Northeast Asia to our allies, South Korea and Japan, but also to ensure that we can sustain open trade routes, freedom of action down through the Strait of Malacca, down through Southeast Asia, so reaching out more to Australia, to the Philippines, to Vietnam, to other ASEAN nations has been very important. And nobody's talking about building a ring of permanent U.S. bases in Asia. What we are talking about is more partnership, more investment in joint exercises, development of capabilities, building partner capacity, access arrangements, those sorts of things -- a very flexible and tailored approach.

I think what's happening today with North Korea is a great example for why this is important. There are very real threats to our interests and to our allied interests in the region. My own reading of the North Korean -- this round of provocation is at one level, it's expected in the sense that every time we've seen a leadership transition in North Korea, we see a series of provocations that's really for domestic political purposes, it's trying to consolidate the new leader's base of power, first and foremost for the military, but also with the party.

What's different about this one is that the -- you know, this is a particularly young and inexperienced leader who we're not sure -- you know, there may be a great -- somewhat greater risk of miscalculation because of that inexperience. You also have a different situation on the southern side of the border in that you have a South Korean government and population that has endured now provocations that in 2010 led to the loss of Korean lives and a government that is now very clear that they will not let such provocations go unanswered in the future. And so the fact that you will have -- almost certainly have a military response from the South if there is loss of life means that we are in a different situation in that instance.

So now is a time when it's particularly important for the United States to reassure South Korea by holding them close, by deploying the ballistic missile defense assets we've deployed in the region, by demonstrating our commitment to their defense to try -- and at the same time trying to dial back the rhetoric, reduce the tensions and work with the Chinese to see if they can use some of their leverage on Pyongyang to get us back to the discussion we should be having, which is concrete, verifiable steps towards denuclearization on the peninsula.

ACKERMAN: Great. I have many more questions but my time has passed, so I'd like to open it to the floor. If you -- your hand's raised when I notice you, please wait for a microphone. Speak directly into it, state your name and your affiliation, and we'll begin.

Back there.

QUESTIONER: Good evening. Jonathan Brudder (ph) from the Kugosch (ph) Quarterly.

I covered a congressional hearing yesterday where the commander of U.S. troops in Afghanistan, General Dunford, was asked repeatedly what the size of the residual force would be in Afghanistan after 2014. And he ducked the question continually. And I'm wondering if you could explain to us why the administration won't clear up this uncertainty about the size of the residual force, which I gather is having some effect on the confidence of the -- of the U.S. commitment to Afghanistan after 2014.

FLOURNOY: Well, I'm happy to answer the question, but I want to underscore again, particularly for you, that I no longer speak for the administration, so this will give -- be my own personal views. But, you know, I think the American commitment to Afghanistan remains clear, in the sense that we have signed a strategic partnership agreement. We are in negotiation with the Afghans on a bilateral security agreement, and so forth.

I think it is important -- it will be very important and be very reassuring to the Afghans when we do announce the size and nature of the enduring presence. And my hope is that that will be robust enough to not only sort of cover the -- all of the Afghan corps that are deployed across the country, and advise and assist all of them, but also provide the, sort of, enabling backbone for our European allies like the Germans and the Italians and others who've taken leadership roles in key regions -- for them to keep -- to stay in and support.

You know, I think we should give the administration a bit of a break here in that they had a very rough time getting their senior Cabinet, key national security officials confirmed. Senator -- Secretary Kerry, Secretary Hagel. I think last time I checked they'd only had one, maybe two principals committees meetings. These guys come in, they're immediately deluged. Kerry goes off on the road; he's doing his job as diplomat-in-chief. He's running all over the world and serving the needs of the nation doing that. The secretary of defense has got an incredible budget challenge on his hands; he's dealing with that. I mean, we need to give them a little bit of time to get their arms -- rather, their heads around this issue and give their best advice and counsel to the president. So, you know, I'm -- I think we need to cut them a little bit of slack given the other competing challenges on their plate and the way the confirmation timelines have worked.

With that said, my hope is that in the next few months that we will see both an enduring presence announced and a bilateral security agreement concluded such that there's no question on the part of folks here, the Afghans, those who are -- you know, like the Taliban and others who may be watching, there's no question of our enduring commitment to the success of this effort.

ACKERMAN: Over there.

QUESTIONER: When both of you talked about --

ACKERMAN: You are?

QUESTIONER: Oda (ph) (Aberdeen ?), the Capital Trust Group. The two of you talked about Egypt, talked about Syria, but there is a more important country with a more complex challenge; that's Iran. Can you give us your views on Iran and whether Iran can be prevented from having nuclear weapons by diplomacy?

FLOURNOY: So, I think we are in the middle of an unfolding story there. I think the president's been very clear, rightly so, that the idea of Iran having nuclear weapons given their destabilizing influence in the region, given their support for proxies and terrorist groups, that is truly -- given the threat -- the threat they pose to Israel, the threat they pose to us and to our interests, that would be unacceptable.

I think he's also been right to try to pursue that objective first through diplomacy then through backing that up with sanctions. We know the sanctions have really hurt. What we can't -- we haven't seen yet is that economic pain translating into recalculation on the part of the supreme leader with regard to their nuclear pursuits. I think that we want to continue to pursue the sanctions -- keep the sanctions in place, pursue negotiations, watch the program very carefully. At some point, if sanctions don't work, if negotiations don't work, there will be a harder choice to make about whether to use force to set back the program.

But there should be no illusions here. Even the use of force, even the very effective use of force is only a delay tactic. It does not stop the program. It does not solve the problem. It sets it back in time. It puts time back on the clock. But it also risks unleashing a broader conflict. There are many different schools of thought on how Iran would respond. The hopeful school is that they would play the victim and do nothing. I think that's highly unrealistic. I think how Iran would respond could start us into a much broader situation of conflict. And so this is not something we should enter into lightly.

That said, I for one don't believe that a containment model, given Iran's proliferation activity, its support for terrorism, its support for proxies, I don't think that's a viable model in this case, in the nuclear domain. Oh, and I would just add --

ACKERMAN: Please.

FLOURNOY: I also think other countries would react. I don't think -- I think countries -- this would affect the calculations of the Saudis, of Turkey, of others facing a nuclear Iran. And again, I don't think the outcome of that would be very -- would be very -- would not be stabilizing for an already unstable region.

ACKERMAN: Before I -- very quickly, do you think that North Korea is being helpful to Iran in accelerating their program? Is there evidence of that?

FLOURNOY: There's -- I mean, I am a little bit out of date, but my impression is that there has been some technical assistance provided in the past. I think more -- the stronger linkage right now is I think Tehran is watching very carefully what happens with regard to Pyongyang, how Pyongyang is playing its card, how is the international community reacting and so forth. They're taking notes.

QUESTIONER: Thanks. Hi. Deepti Choubey with the Nuclear Threat Initiative. Michele, one of the lines that could have been added to your bio today was that you were an executive board member of Women in International Security, which is an organization aimed at supporting women at every stage of their career that work across the international security sector. I'm wondering how your (latest ?) in government has informed your views about what can be done to make sure that we're making use of a hundred percent of the talent pool, considering the complexity of the world that we're living in, and how we need all people to be engaged in the endeavor.

FLOURNOY: That's a great question and one near and dear to my heart. The good news is that there has been progress made. When I was in the Pentagon for the first time in the Clinton administration, we had a women's leaders lunch, and we all sat at one table, and it was a very small table -- (chuckles) -- sadly.

This time around -- and there are some colleagues in the audience here who served with me in the Pentagon -- there were -- we probably would have filled the executive dining room. So, you know, there's been a lot of progress, more progress to be made.

One of the things that I tried to do as undersecretary was launch a human capital initiative that had many different dimensions, but one of the ideas was to try to take a very dedicated workforce that was working 24/7 but who also had families and outside lives and, without -- you know, without diminishing performance in any way, try to experiment with some alternative ways of working, whether it was a more flexible approach to schedules, more flexible approach to where you work, cross-coverage of portfolios and so forth. And some of these ideas started as kind of women's initiatives, or at least perceived as such for women with kids. But the truth is I very quickly found that the -- all of the workforce was very happy to take advantage of this.

And we started by -- we had a lot of naysayers. We started by -- we took the two busiest or high-tempo offices, the Middle East office, the Southeast Asia office -- we piloted the program there. It was a huge success. And then we promulgated it throughout policy.

And the interesting thing is I didn't say much to Secretary Gates about it. But he actually asked me one day in a meeting, he said, what's going on down there? And I said, what do you mean? He said, I've noticed a real jump in the quality of the work you're doing. And so he noticed it not in terms of the morale or the balance that I was seeing; he noticed the increase in performance. And that's what all the business literature says. You know, you want a big increase in performance, you invest in your human capital.

So I think the most important thing is being creative about the ways we work, providing more institutional, organizational, societal support for a broader diversity of ways of working, career paths and so forth, so that people can be fabulous parents and fabulous contributors to society, not necessarily equally fabulous at the same time on both sides -- (chuckles) -- but over their lifetime, you know, be able to make those contributions in both senses.

QUESTIONER: My name is Roger Parkinson (sp). In a former life, I was a newspaper publisher. I'd like to go back to Mr. Ackerman's first question to you on -- he asked you what you thought the grand strategy going forward for the United States ought to be, and I heard your answers being, stay engaged, provide leadership and have a more integrated use of power, which I think are all valuable. But that doesn't really sound to me like a grand strategy. I wonder if you could be more explicit about what kind of grand strategy you think the U.S. should have going forward.

FLOURNOY: Yeah, I don't have a bumper sticker for you that's equivalent to containment or -- and so forth. But I think -- I think that the U.S. needs to provide leadership that enables our allies and coalitions of the willing to preserve interests that are important to us, values that are important to us, and to engineer shared solutions to shared problems. I think that we have to be more realistic in understanding what our power means in this new world. And that's not being negative; that's not being defeatist; it's not being a wuss. It's just recognizing that there are other power centers in the world. The -- it's a more diffuse international environment, a more multinational or multipolar environment and that it's not a bipolar world anymore and it's a more difficult environment to operate in.

I'm not going to give you a satisfying question. I don't have the paragraph written. It's a great -- now that I'm out of government and I can actually have time to think again, I will personally take that as an assignment to write you a better paragraph. But I think that I -- they're some of the key elements that I've mentioned. How to wrap that into a short narrative that's compelling, that describes the strategy, I think that's a great project for an organization like CFR and for a number of people in this audience.

QUESTIONER: Alton Frye from the council. Michele, before there was the rebalancing, there was the reset toward Moscow. Could you give us a reading on whether you think we are missing opportunities for a more active engagement, producing cooperative outputs with Moscow, or was it maybe not a realistic expectation to begin with?

FLOURNOY: I think -- you know, let's remember what the reset was. The reset was trying to put the relationship on a more pragmatic and cooperative and positive footing. That said, you know, there are still going to be areas where we agree to disagree, so the invasion of Georgia, you know, human rights issues, democracy inside -- how -- the progress of democracy in Russia and so forth.

But there are strategic areas where our interests will align, and we can and should cooperate: preventing Iran from becoming a nuclear weapons state; ensuring that, you know, at the end of the day there's greater stability rather than less stability in Afghanistan; reducing the nuclear danger through further rounds of arms control. I mean, there are a whole number of areas where we identified common interests and we have been able to pursue them with Russia in -- with important results, like New START, like cooperation on Afghanistan, like sanctions against Iran.

I think the -- where the reset has run into, you know, some challenges I think are -- is -- you know, as you have had the passing of the torch from Medvedev back to Putin, I think there is a difference of view there, and I think Putin is a much more skeptical partner. I think he has a narrower view of where -- what our common interests are. I think he has a more anti-Western bias in many of his views and so forth. So I think there is -- I think we still need to be working on the relationship. I think frankly that the recent refinement of our ballistic missile defense investment to actually eliminate the Phase IV part of the European phased adaptive approach system is something where we can still -- we will still meet our defense commitments to our allies, but now the Russians really don't have an excuse not to cooperate on missile defense in Europe, from the -- I mean, the system never really posed a threat to their strategic deterrent, but they perceived it as posing a threat. That is now removed. We should be able to work with them to find ways to cooperate there.

But I think there's a -- this is a larger political question that has more to do with the orientation of the Russian administration at this point than it does to do with the willingness of the U.S. to find ways to continue cooperating.

QUESTIONER: I'm Lionel Rosenblatt, a retired foreign service officer and NGO official. I started out with something called the CORDS program, volunteered for that as a young FSO. And we were taught then to volunteer to go out and talk to villagers and learn from them. And of course, that was a Sunday school picnic compared to Afghanistan, but I'm wondering how much bottom-up feedback we're able to actually get from Afghan villagers, and I'm wondering if the new generation is really able to commit to anything given that their security is in doubt -- partly because Washington is almost as broken as Kabul.

And the second related question is, if we're going to use drones, are the drone operators ever given field experience so that they know what they're looking at so they can distinguish between a wedding party and a funeral and a bunch of terrorists? We would never have ever called in an airstrike in Vietnam without looking on the ground at what was going on, or at least with an A-10.

FLOURNOY: I do think there is a great deal of bottom-up input in Afghanistan. But one of the things that concerns me is there is a strong desire on the part of many in the United States to be done with Afghanistan and to get on with other things without what I think is a very important moment, which is to pause -- and I think, frankly, we need to do this for Iraq too -- and to ask ourselves, what do we learn from these two experiences? What were -- what are the real lessons that we want to ingest, digest, capture so that we don't sort of mindlessly have to -- you know, with -- at great cost learn them again in the future? And that goes -- that's at the strategic level, but it's also in terms of how we operated and how we tried to do development in a conflict environment in Afghanistan and what worked and what didn't and why and how we engaged the population or how we didn't.

You know, I think, on the drone program, the operators of the drones tend not to be people who have on-the-ground experience, and they're -- you know, different sort of set of skills. But I think that -- I would say two things. There -- I have personally witnessed extraordinary efforts made to avoid civilian casualties, including, you know, diverting things at the last moment because a child walks into the picture.

I also from firsthand experience know that there is a lot of disinformation with regard to civilian casualties. I'm not saying there have been none. There have been civilian casualties. I am saying that we know that there are certain other intelligence services out there who literally create stories around civilian casualties that did not occur.

So I think the record is probably more balanced than what is suggested. Again, I think this effort to create a greater transparency on this program, to elevate to a more strategic discussion that looks -- in a more balanced approach, using all of the various instruments, is a positive effort on the part of this administration going into the second term.

ACKERMAN: Maurice.

QUESTIONER: Maurice Sonnenberg, JPMorgan. I want to take you in a totally different area -- malware, gigabytes, where you go from single digits to hundreds, the ability, at least domestically, industrial, to bring down and crash systems. I have a concern that we're losing our edge to the Chinese and, to some degree, the Russians. I wonder what your thoughts are in terms of this whole cyber aspect of defense and offense?

FLOURNOY: I do think there are now a panoply of cyberthreats that are very real. As you suggest, they're advancing at a very rapid pace. They're -- I think we're beyond the days where we had to worry about sort of mischievous hackers. We are now seeing state-sponsored programs of cyberattackers. And that's further compounded by the fact that we have a society where much of our critical infrastructure is owned and/or operated in private-sector hands. So even if you are remarkably successful in protecting the dot-mil world, which we are -- we're a little less successful protecting dot-gov, but still pretty good -- when you get into dot-com, you know, it's really uneven.

I think that the -- as the -- as the debate about CISPA, the cyber legislation that's currently on the Hill, demonstrates, we are being very slow and conceptually getting our heads around what's necessary. We are very bogged down in a series of very important debates about privacy and protection of privacy and so forth. But meanwhile we don't have a legal framework in place to get our house in order on this issue.

The other thing I would say -- and the more -- now that I'm -- have time to actually go learn things for people in the Silicon Valley -- (chuckles) -- there's a whole conceptual reorientation happening out there on the cutting edge, and it's going from not just building higher walls and fences and trying to keep intruders out, it's looking at how do you defend from the inside out. What we're really trying to protect is the data and identity and how do you, even if you have intrusions coming in, make that -- those things protected. That's the new problem set that a lot of new work is happening in the valley is I think going to be the biggest leap ahead conceptually for cybersecurity going forward in the next 10 years.

ACKERMAN: Mitzi.

QUESTIONER: I'm Mitzi Wertheim with the Naval Postgraduate. Michele, this has been just truly fabulous. Based on my own experience -- how are we going to -- how are we going to actually learn, just not note? I mean, when I was in the Pentagon, it was always, well, we note, but we never learn. Has that changed?

FLOURNOY: Right now, you know, the minds of those in the Pentagon are pretty focused -- (chuckles) -- by the sequestration and sort of coping with the current budget crisis. But my hope is that, you know, as we get beyond that -- not beyond it, but as hopefully we get some greater degree of certain of the parameters of what we're going to be living with, there will be an opportunity for people to do some lessons-learned thinking.

But the truth is, when you're in government, you know, the tyranny of the inbox -- you know, I always pushed my staff to be strategic. You know, if Policy wasn't thinking strategically for the secretary, who was, right? (Chuckles.) We weren't doing our job.

But I think this is where the think tank world comes in. I think this is where academia comes in. This is where people whose job it is to try to push the intellectual envelope, to step back and think strategically about either where we're going in the future or what we've recently experienced in the past, to make sense of it, to try to capture that -- I think there's a huge role for those entities to play and to host, then -- just kind of set up and frame the dialogue for those in government who may be too busy to do that work but certainly shouldn't be too busy to listen to it and may take advantage of it.

QUESTIONER: Antoine van Agtmael, Garten Rothkopf. Can I take you 10, maybe even five years down the road and ask what you think growing energy independence, shale gas, will do to defense relations with the Middle East? Is it a major factor? Is it something that will make our life easier or in fact more difficult?

FLOURNOY: A great question. I'm not in the school of thought that says greater energy independence because of our own energy resources will create a situation where we no longer care about the Middle East or we no longer have a vital interest in the Middle East. I think that's a fantasy.

Remember, you know, oil, (gas ?) -- I mean, all of these are still going to be globally traded commodities, and we're going to have a very deep interest in price, right, and therefore instability in the Middle East and the impacts on price and so forth.

I do think a lot of the answer to your question depends on not only what happens for us but what happens for our close allies in Europe and in Asia, because, truthfully, right now they are ones who are most dependent on the energy products coming out of the Middle East already.

But I think we have to think of this in global terms. I think there are other vital interests we have at stake beyond energy in the Middle East, so I don't -- again, I don't think it'll be off our radar screen in any sense of the word. But I do think we should have perhaps a little bit more freedom of action, based in -- based on our own domestic resources being developed.

ACKERMAN: Before I take the last question, I just wanted to make sure everybody remembers that this meeting was on the record and after the meeting's over, there's going to be a dinner reception outside the meeting room.

So -- in the back.

QUESTIONER: Thank you very much. My name is Genie Nguyen with Voice of Vietnamese Americans. Michele, I know that you're the senior adviser of the Boston Consulting Group, so my condolence to what happened to all the people in Boston recently.

And I'd like to tie that back to our topic today and what you are -- you have been an expert, which is international security. What do you see happen in Massachusetts on Monday have anything to do with international security, our challenges as the leadership -- as the leader that you said U.S. has always been and is now still? We are the leader in this world, in the international arena.

And then I also would like to tie back all the connections between Afghanistan and Vietnam, because I believe President Obama had made his vow when he first inaugurate that Afghanistan would not be a Vietnam case, so the drawdown in Afghanistan would have be a successful -- and I think that's very much have to do with the worries about nuclear proliferations in the Middle East. And would you make the connection between the recent visit between Mr. Xi and Mr. Putin and China's perception of itself in the global arena and China's connection with North Korea, with Iran, with Pakistan, with Russia? (Chuckles.)

So where do you see the center of new American security is leading us? Thank you.

FLOURNOY: Wow. That's a long question. So I'm going to pick out what I think is an important element out of all of that, because you drew a lot of connections, and talk a little bit about China.

And you know, I think that the first thing we have to recognize is that we all have a stake in how China rises and in trying to ensure it is a peaceful rise. The -- there are -- I think, actually, there are some strong common interests that the U.S. and China have in maintaining stability in the region, whether it's tamping down tensions that are created by North Korea or China exercising greater self-control and discipline with regard to use of intimidation or coercion over disputed territories, whether in the East China Sea, in the South China Sea and so forth.

Their biggest focus is on their internal stability, their economic growth and so forth. They're not interested in having conflict in the region; we need to constantly come back to that and remind them of that. I think, you know, the new leadership in China -- I think there's an opportunity to refresh the relationship and to try to build areas of cooperation.

But I think we have to be very clear with Beijing about some of our concerns. I personally am very concerned about some of the investments that the PLA is making -- very clearly designed to try to thwart or prevent access by others in the region, thwart freedom of movement in international waters and so forth. There's a lack of transparency there which makes it -- you know, lets people assume the worst.

I think China has yet to play a sort of positive international role that's commensurate with its increasing economic power and role. And we need to push them towards the -- this sort of more responsible stakeholder kind of behavior. But, you know, I don't think that notion of containing China -- I mean, that's what China fears. I don't think it applies. I don't even know what that means, given the level of economic interdependence and some of the shared interests we have.

But I do think this has to be -- we have to continue a very strategic and candid dialogue with China. What's happening on the cyber domain, for example, is completely unacceptable. And they need to -- they need to understand that there are consequences for that in terms of their -- how countries will respond to them as a trade partner and how countries will respond to them in international relations and so forth. So I'll stop there and not stand between you and your dinner.

ACKERMAN: I think we can all agree that Michele Flournoy has carried the flag of the Warnke Lecture series brilliantly. And I want to thank you. It was a great hour.

FLOURNOY: Thank you very much.

ACKERMAN: And thank you all for coming, and we're done. (Applause.)

(C) COPYRIGHT 2013, FEDERAL NEWS SERVICE, INC., 1120 G STREET NW; SUITE 990; WASHINGTON, DC - 20005, USA. ALL RIGHTS RESERVED. ANY REPRODUCTION, REDISTRIBUTION OR RETRANSMISSION IS EXPRESSLY PROHIBITED.

UNAUTHORIZED REPRODUCTION, REDISTRIBUTION OR RETRANSMISSION CONSTITUTES A MISAPPROPRIATION UNDER APPLICABLE UNFAIR COMPETITION LAW, AND FEDERAL NEWS SERVICE, INC. RESERVES THE RIGHT TO PURSUE ALL REMEDIES AVAILABLE TO IT IN RESPECT TO SUCH MISAPPROPRIATION.

FEDERAL NEWS SERVICE, INC. IS A PRIVATE FIRM AND IS NOT AFFILIATED WITH THE FEDERAL GOVERNMENT. NO COPYRIGHT IS CLAIMED AS TO ANY PART OF THE ORIGINAL WORK PREPARED BY A UNITED STATES GOVERNMENT OFFICER OR EMPLOYEE AS PART OF THAT PERSON'S OFFICIAL DUTIES.

FOR INFORMATION ON SUBSCRIBING TO FNS, PLEASE CALL 202-347-1400 OR EMAIL [email protected].

THIS IS A RUSH TRANSCRIPT.

PETER ACKERMAN: Good evening. Good evening. I'm Peter Ackerman. I'm a board member of the Council on Foreign Relations. And I want to welcome you to the Warnke Lecture Series. And I want to particularly thank the members of the family -- the Warnke family that are in attendance tonight as well as all of the donors to this lectureship who have made this evening's event possible.

There have been many distinguished speakers in this lectureship, and we have one tonight that I'd like to briefly introduce, but I know many of you know her very, very well, so I'll be brief. Currently Michele is the senior adviser for the Boston Consulting Group and before that was undersecretary of defense from 2009 to February of 2012. She was the principal adviser to the secretary of defense in the formulation of national security and defense policy in the oversight of military plans and operations and in National Security Council deliberations. She led the development of DOD's new strategic guidance and represented the department in dozens of foreign of foreign engagements, in the media and before Congress. Now, the thing -- and Ms. Flournoy also was the head -- co-head of the transition team for the Obama administration. But a thing that impresses me the most is she did something before that that I think is very difficult: She started a successful think tank in this town call the Center for New American Security.

Michele has received several awards from the secretary of defense and the chairman of the Joint Chiefs of Staff, and she's a member of the Defense Policy Board, this council and the Aspen Strategy Group. She is a graduate of Harvard and Balliol College, where she received a master's degree.

Now, what we're going to do for the first half-hour, I'm going to be sort of guiding a general presentation by Michele with a series of very informal questions, and she'll elaborate on them. So let me start, and then in the last half-hour we will entertain questions from the floor.

So Michele, could I start by asking you what you think should be the U.S. grand strategy in the coming decades? Is it time for the United -- (laughter) --

MICHELE FLOURNOY: Start with the easy questions. (Laughter.)

ACKERMAN: Is it time for the United States to reconsider its global commitments and to scale back?

FLOURNOY: Well, thank you for the very warm introduction. And let me just first say how honored I am to be selected to be part of the Warnke lecture series. Paul Warnke was someone who was a model for all of us entering the national security domain and public service for so many years, not only in terms of his impact on arms control and national security more broadly but also, for someone who was going into the Pentagon, someone, you know, for -- as a model of someone who really understood how to make things happen in that five-sided building, which was not always easy. So I am just honored and so pleased to see all of you here tonight and to see so many friends and colleagues in the audience.

Starting with the very simple question -- (chuckles) -- of the future of American grand strategy, you know, I am one who believes that the United States, as the sole superpower in the world, still has an indispensable leadership role to play. What it means to be a superpower in a more multilateral, more multipolar world is different. But the role is still unique. There's really no other country that can lead the way we can, that convene -- that can convene the way we can, that can put together international coalitions to solve shared problems the way we can. And I think it would be a shame to go into a period of greater retrenchment or isolationism in response to some of the budgetary pressures that we're facing. So the leadership role remains.

I also think that as a global power with global interests and as the world gets more interdependent, we have to stay engaged. It's in our interest to stay engaged, for our security at home, for the prosperity of our people, for the growth of our economy and so forth. So I think in the grandest sense, a strategy of engagement and of continued international leadership is imperative.

What we can talk about is what does that mean, because I think we do have to be smarter about the way we engage and when we use what tools and, in some cases, more selective, particularly with regard to how we use the military instrument. Just one fact that I read today was sort of jarring. Since the end of the Cold War, the U.S. has been at war more months out of that period than not. I think there is -- now is a time for reflection, post-Iraq, as we transition in Afghanistan, to think about a more integrated use of our instruments of national power, and how do we protect our interests with the fuller variety of tools and be very careful about the use of the military instrument and learn some of the lessons that we need to learn from the past decade.

ACKERMAN: So if somebody would ask you what would -- should we do -- should we not do going forward that we have done, how would you answer that question?

FLOURNOY: You know, I think one of the things that we've done, and particularly in the post-9/11 period, is sometimes reach for the military instrument first. You know, I'm someone who believes in a strong military. I have, in my time, supported its use in many occasions, you know, advising my boss, Secretary Gates or Secretary Panetta or even the president. But I think that we currently have a situation where we've had very robust funding for many years for the military, and virtually every other instrument on life support -- very anemic funding for our diplomatic tools, our economic assistance tools, even our -- even our trade -- free trade kind of efforts. So I think a more balanced approach that has more balanced investment across the tools, but also more integrated use of the tools is warranted.

ACKERMAN: Thank you. We've gone through sequestration, and perhaps maybe you can comment on that in the context of being a little bit more granular about the Defense Department's budgetary needs, priorities and how you see that shaping up.

FLOURNOY: Yeah. Well, first of all, sequestration was the Sword of Damocles that was supposed to force everyone to get to a budget deal. It was never supposed to actually come down on our heads. But here we are, and I'm not sure that a budget deal is much closer in sight, even though I think we all know that the elements of entitlement reform, tax reform -- some tightening of discretionary spending and so forth.

But in terms of DOD, I think the answer to your question of, you know, how will the -- what will the impacts be, it really depends on a couple of key factors. One is, how deep will the cuts to defense be? Will it be along the lines of the president's budget, which are fairly modest over time, or will they be further rounds on the order of the sequestration cuts, meaning, next year, we'll have another round of $50 billion a year or $40 billion a year and so forth? In any case, I think -- I think the Defense Department has some very fundamental choices to make about how it takes those cuts.

Historically, we've managed drawdowns very, very badly. We tend to balance our budget on the backs of the force. You cut force structure, you cut readiness, you cut modernization, which is sort of your seed corn for the future. And typically, we end up with a hollow force. Not always, but that's kind of the tendency if left to our own devices.

This time, I think we need to look very hard at the defense enterprise. Overhead has grown substantially in recent years. We've added more than a hundred thousand civilians to DOD's roles in the last decade; the contractor pool is almost as big. It's almost a second civilian work force of the same size.

Every headquarters I saw in -- whether -- when I was in the Pentagon -- Office of the Secretary of Defense, Joint Staff Services, combatant commands, defense agencies, have more people and more layers and more bureaucracy than they need. So the first place to go after the money, in my view, is out of that overhead.

And there's, you know, plenty of examples where this -- of how this can be done from the private sector that I think can be applied in the public sector. Secondly, infrastructure. We still have more infrastructure than the U.S. military of the 21st century needs. We do need another background. Third example -- acquisition reform.

We are -- still have a broken requirements process. We have perverse incentives for the people who manage programs to spend money rather than save it. We have some real challenges on the acquisition side that -- lots of good recommendations made; very few of them actually implemented, because they -- it's politically difficult.

And lastly, I would say personnel costs and health care. I am the last person -- I am a Navy wife; I am the last person who wants to break faith with the men and women who serve and to take away their health benefits, but DOD's health care costs are growing at 10 and a half percent per year -- civilian economy 6 and a half percent. So there's something wrong with how this set of benefits is being managed. And if we don't get our hands around it in terms of managing it, it's not going to be sustainable.

So I would go after those kinds of costs first -- get every dime I can out of that (side of the House ?) before I turn to much deeper cuts in terms of the actual capabilities our military will need to protect our interests in the future.

ACKERMAN: As a bit of a tongue-in-cheek follow-up question, who do you go see to get the things you're talking about? Where does that start?

FLOURNOY: Well, it starts -- it has to start at the top. And I think the good news is, Secretary Hagel, if you all read his -- the speech he gave at NDU -- if you haven't read it, I'd recommend it. He lays down a number of markers in this domain. And I think that's important. So leadership at the top.

I think the hardest thing is that all of these changes require breaking somebody's rice bowl. It's either a bureaucratic rice bowl or it's a Congressional constituency rice bowl. So engaging leaders on the Hill, getting them to see the fact that we are at a unique moment in time. We are at an inflection point in terms of the budget. We can't continue business usual. Use this as a burning platform to try to bring the business of the department into the 21st century.

I mean, those of you who may remember -- I mean, the last time DOD was really transformed was by Robert McNamara in the 1960s. So the -- our business processes are incredibly cutting edge if you're back in the 1960s. And, you know, what Ford Motor Company was doing then, and what McNamara brought into the Pentagon. But, you know, you compare it to where -- how things are done in the private sector today, and we're a little bit behind.

ACKERMAN: OK. Can we shift back to policy for a moment?

FLOURNOY: Yes.

ACKERMAN: We just, not too long ago, invoked R2P, the responsibility to protect, as a way to go into Libya. And we have -- we expected a near holocaust there, and now we're having a near holocaust in Syria. Are there lessons from Libya that we can take into thinking about Syria? Tell me how you think about both.

FLOURNOY: I think -- I -- you know, I supported the intervention in Libya on humanitarian grounds. I think we were right to do it.

I think the real lesson to take away from Libya or one of -- the positive lesson -- there are some negative ones too, but the positive lesson is that there is an approach to leadership -- when the interests we have at stake are primarily humanitarian, not vital U.S. interests, but we have other partners, whether it's our NATO partners or Arab League partners, who do feel they have a vital interest at stake, want to participate, want to contribute, there is a way for the United States to lead but keep its contributions commensurate with its limited interests.

And what we did is we provided the backbone. We provided the intelligence, surveillance, reconnaissance, the command and control, the strategic lift, the aerial refueling, the sort of critical and unique capabilities that were the backbone around which the rest of the coalition could form and really contribute. To me, that's the lesson of Libya that should be taken forward.

I think in -- with regard to Syria, what you see the administration doing on the political side is similar in that we are trying to bring all of the actors together, even trying to pull in Russia -- not Iran, obviously; I don't think that's ever going to happen -- but Turkey, Qatar, the Gulf states, to try to have a common approach to supporting the moderate, nonextremist parts of the rebel forces and, you know, what can we do to, A, make them successful; to, B, get Assad to leave; but C, to have a viable plan to -- for the post-Assad, for the day after Assad falls, because that -- that's what worries me, is that the -- right now, without that plan and without the approach that I think -- that -- being fully in place, if Assad fell tomorrow, my worry was that you'd have a second round of civil war between the extremist and the moderate rebel forces for the prize, for control of the country.

ACKERMAN: Going back to Libya for a second, in that joint operation, did it indicate anything to you about the relative capabilities and the changed relative capabilities between our European allies and ourselves? Is that gap growing? Is it --

FLOURNOY: Sure, I actually think that what we -- you know, Libya was a beneficiary of the last decade in Afghanistan in some ways, because the truth is, we have gotten better at operating together. We are more interoperable. We're more used to -- more used to, you know, being in command centers together, flying together, working together and so forth.

So I think there -- there were -- there's always room for improvement, but there was -- I think the integration went better or more smoothly than many people expected.

I -- my worry going forward is that the fiscal crisis has hit very hard in Europe. Only a few of our allies are meeting the NATO goal of 2 percent GDP investment in defense. I think defense is going to take a -- defense investment is going to take a beating for the next five to 10 years in Europe, even among some of our most important allies, like the U.K. And that means that our partners will come to the table with less capability, at least in the near to midterm.

ACKERMAN: Do we plan for that, or is it just something we accept --

FLOURNOY: I think we have -- we have to take into account. Obviously -- I mean, I think the U.S. is having bilateral conversations encouraging our allies to hold up their part of the bargain. We are playing a very big role inside the NATO command structure to try to encourage some of our allies to pool their resources. So if you can't afford strategic lift by yourself, put together a consortium of countries and invest in some -- a set of capabilities that you share. And we're doing that kind of smart defense kind of approach in a number of areas, or NATO is.

But still, even taking all of that into account, overall, the level of capability will diminish somewhat in the coming years.

ACKERMAN: So my favorite film last year was "Zero Dark Thirty," and probably some people here would agree. And that highlights the role of the CIA's ground branch, their military capability. Should that capability grow or shrink relative to defense? And maybe make some comment about the change in control over our drone program.

FLOURNOY: I think that the Obama administration in its second term is taking the opportunity to step back and think about its counterterrorism strategy broadly and to kind weigh what's been effective, what hasn't, where do we need to do more. And I think they're going to move towards, again, a more balanced and integrated strategy.

I think the discussion about moving aspects of the drone program from the CIA to the Defense Department -- what will that -- that will do in practice is introduce a much greater degree of transparency, because if something's a CIA program, it's covert; you -- people can't even acknowledge its existence or -- you know, and speak about it. If it's on the Defense Department side, there will be much greater transparency in terms of reporting on what's happening, the results of what's happening and so forth. And I actually think that's a -- that's a positive thing.

But you know, the -- I think as the film rightly does portray, although there are some factual inaccuracies there, a little bit of filmmaker license there -- you know, I think it does -- it does -- it did portray the very central role that the agency has played and will continue to play in terms of the counterterrorism mission going forward.

ACKERMAN: Can we got back to the Middle East for a second? And could you just make some general comments about how we best defend our interests over the next decade there? And specifically if some -- if we have -- if you have read her excellent op-ed today in The Wall Street Journal, maybe you could elaborate on the point she made there as well as part of the discussion.

FLOURNOY: OK. Well, the Middle East is going through an historic period of turmoil, as you all know. My own view is that we -- this is going to be a very long book. You know, we -- this is going to be "War and Peace" kind of length -- (chuckles) -- and we're in the first chapter. You know, I think this is a generational kind of phenomenon that we're going to see.

I think -- I am personally paying most attention to Egypt because Egypt is, what, 25 percent of the Arab population? There's a phrase in the region that say, as Egypt goes, so goes the region. What happens under Morsi's leadership, what happens in Egypt, how the Muslim Brotherhood evolves, how the populations -- you know, whether it remains relatively secular or not, how all that works out, I think, will have huge impacts more broadly.

So I think the combination of the, you know, path of the Syrian civil war and the path -- the political path of Egypt will be two of the deciding factors of the future of the region. But I also don't think it's over yet. I think there are other regimes in the region that remain vulnerable to instability. And so there could be further chapters that we haven't even really thought about or anticipated fully.

So much as I support and appreciate the desire to rebalance more of our attention towards Asia, and I think we should, I think the Middle East is going to continue to occupy a huge percentage of our bandwidth of necessity for quite some time.

The piece you referred to in the journal is about Afghanistan. I had a chance after -- of a year of not having visited, I used to go almost every quarter, and I see Tom Henwood, who was my military assistant, in the audience who -- poor guy, I think he went on eight or more trips with me. But having been away for a year and going back, it was really striking what's changed.

The good news is I was much less concerned about the security situation. I think there -- while the Taliban insurgency remains resilient, the objective of pushing them away from the population centers, securing the main lines of communication, building up the Afghan forces so that they can hold their own -- we are well down that path. And it's not over yet, and there's still going to be violence and there's going to be, you know, human cost, but I believe -- I am much more optimistic about the security line of operation, if you will.

What I think -- where I'm worried is the politics. Afghanistan has an election -- a presidential election in 2014 in April. And President Karzai, by virtue of the Constitution, must step down. All accounts are that he has accepted that and will do so. The question is how he steps down, whether he tries to fix who will succeed him. You have a very vibrant set of political discussions going on in the country.

The good news is that from the palace to the opposition, everybody understand that they've got to field -- they try to get -- they have to try to get to something like a national consensus slate -- a multiethnic slate that represents the Northern Alliance, the southern Pashtuns, the -- and all the various groups. But our message to the Afghans that we spoke with was, this is a one shot -- this is your one big shot.

If these elections are relatively more free and fair, and if you elect a multiethnic slate that, whether it's your favorite slate or your second-favorite slate, people choose to live with it and they adjudicate -- they agree to adjudicate their differences through politics and not going back to civil war, the international community will stick with you and will continue to provide the promised assistance and you will have a shot at staying on the path of stability and economic development and political development.

But if you blow it, if President Karzai decides to try -- that his slate should try to steal the election, there's massive fraud or that you elect a corrupt warlord as your next leader, you can expect the international community, under these economic conditions -- you know, this of -- you know, is Congress going to vote for those aid dollars? Is -- are European parliaments going to vote for those aid dollars? No.

Historically, Afghan governments have fallen not when the troops have come down but when the aid has gone away. So again, you know, they -- how they handle this election will I believe determine whether the international community will continue to provide assistance, and that will determine whether they actually remain on a rough but positive path or whether they slide back into civil war.

ACKERMAN: And before we do shift to (Asia ?), maybe you could share the comments you made with me earlier about the next generations that you saw there.

FLOURNOY: Oh, yeah. The most hopeful thing in Afghanistan is the next generation. If they can survive their near-term future -- (chuckles) -- I'm very hopeful about the mid to longer term. You know, when I -- now that I have more time instead of running in and out of Afghanistan -- I actually had, you know, eight days, and I met with young entrepreneurs who are members of the chamber of commerce in Mazar-e Sharif and went down south to meet young Afghans who are heading NGOs helping the poor Pashtun part of the population, aid workers who are working agricultural development, students at the universities, you know, women entrepreneurs. I mean, there is a group that calls themselves the 1400, which refers to the Afghan calendar year for the election after this one. If -- once we see that generational change, there is great hope for Afghanistan if they can survive to get to that point.

ACKERMAN: Great.

So my last set of questions relate to the shift to the Far East. Could you talk a little bit about the reasoning behind that rebalancing, what it means for U.S. defense policy, how it's going to impact the relationship with China and then, of course, recent events with North Korea.

FLOURNOY: (Chuckles.)

ACKERMAN: And then we'll open it for questions if there's anytime left after that.

FLOURNOY: So, you know, I think the rebalancing was based on a sense that, you know, as we transition out of a decade of war, the assumption was that we would have not necessarily a peace dividend but certainly more leadership bandwidth and more resources to put on other issues. So the question is where is -- what's most important? Where is the sense of opportunity?

And when you think about -- you know, ask the question what region of the world will have the most profound impact on American economic growth and dynamism and prosperity for the next 10 to 20 years and beyond years, the answer is Asia-Pacific. We have had historically a very important role to play as sort of the stabilizer, the -- providing this foundation for -- of stability that allows for the economic growth that's happened in the region. And so there is huge opportunity there. That was the driving impetus.

I think you saw it first in some of the diplomatic gestures that were made early in the Obama administration. You know, Secretary Clinton's first trip was to Asia; the first prime minister invited to the White House was the Japanese prime minister; the first state -- formal state visit was the Indian prime minister. Those were all signals that, you know, we're going to pay more attention to Asia.

Then you also saw a military posture review that also looked at rebalancing our overall global posture but also our posture within the region, not only to maintain our very important commitments in Northeast Asia to our allies, South Korea and Japan, but also to ensure that we can sustain open trade routes, freedom of action down through the Strait of Malacca, down through Southeast Asia, so reaching out more to Australia, to the Philippines, to Vietnam, to other ASEAN nations has been very important. And nobody's talking about building a ring of permanent U.S. bases in Asia. What we are talking about is more partnership, more investment in joint exercises, development of capabilities, building partner capacity, access arrangements, those sorts of things -- a very flexible and tailored approach.

I think what's happening today with North Korea is a great example for why this is important. There are very real threats to our interests and to our allied interests in the region. My own reading of the North Korean -- this round of provocation is at one level, it's expected in the sense that every time we've seen a leadership transition in North Korea, we see a series of provocations that's really for domestic political purposes, it's trying to consolidate the new leader's base of power, first and foremost for the military, but also with the party.

What's different about this one is that the -- you know, this is a particularly young and inexperienced leader who we're not sure -- you know, there may be a great -- somewhat greater risk of miscalculation because of that inexperience. You also have a different situation on the southern side of the border in that you have a South Korean government and population that has endured now provocations that in 2010 led to the loss of Korean lives and a government that is now very clear that they will not let such provocations go unanswered in the future. And so the fact that you will have -- almost certainly have a military response from the South if there is loss of life means that we are in a different situation in that instance.

So now is a time when it's particularly important for the United States to reassure South Korea by holding them close, by deploying the ballistic missile defense assets we've deployed in the region, by demonstrating our commitment to their defense to try -- and at the same time trying to dial back the rhetoric, reduce the tensions and work with the Chinese to see if they can use some of their leverage on Pyongyang to get us back to the discussion we should be having, which is concrete, verifiable steps towards denuclearization on the peninsula.

ACKERMAN: Great. I have many more questions but my time has passed, so I'd like to open it to the floor. If you -- your hand's raised when I notice you, please wait for a microphone. Speak directly into it, state your name and your affiliation, and we'll begin.

Back there.

QUESTIONER: Good evening. Jonathan Brudder (ph) from the Kugosch (ph) Quarterly.

I covered a congressional hearing yesterday where the commander of U.S. troops in Afghanistan, General Dunford, was asked repeatedly what the size of the residual force would be in Afghanistan after 2014. And he ducked the question continually. And I'm wondering if you could explain to us why the administration won't clear up this uncertainty about the size of the residual force, which I gather is having some effect on the confidence of the -- of the U.S. commitment to Afghanistan after 2014.

FLOURNOY: Well, I'm happy to answer the question, but I want to underscore again, particularly for you, that I no longer speak for the administration, so this will give -- be my own personal views. But, you know, I think the American commitment to Afghanistan remains clear, in the sense that we have signed a strategic partnership agreement. We are in negotiation with the Afghans on a bilateral security agreement, and so forth.

I think it is important -- it will be very important and be very reassuring to the Afghans when we do announce the size and nature of the enduring presence. And my hope is that that will be robust enough to not only sort of cover the -- all of the Afghan corps that are deployed across the country, and advise and assist all of them, but also provide the, sort of, enabling backbone for our European allies like the Germans and the Italians and others who've taken leadership roles in key regions -- for them to keep -- to stay in and support.

You know, I think we should give the administration a bit of a break here in that they had a very rough time getting their senior Cabinet, key national security officials confirmed. Senator -- Secretary Kerry, Secretary Hagel. I think last time I checked they'd only had one, maybe two principals committees meetings. These guys come in, they're immediately deluged. Kerry goes off on the road; he's doing his job as diplomat-in-chief. He's running all over the world and serving the needs of the nation doing that. The secretary of defense has got an incredible budget challenge on his hands; he's dealing with that. I mean, we need to give them a little bit of time to get their arms -- rather, their heads around this issue and give their best advice and counsel to the president. So, you know, I'm -- I think we need to cut them a little bit of slack given the other competing challenges on their plate and the way the confirmation timelines have worked.

With that said, my hope is that in the next few months that we will see both an enduring presence announced and a bilateral security agreement concluded such that there's no question on the part of folks here, the Afghans, those who are -- you know, like the Taliban and others who may be watching, there's no question of our enduring commitment to the success of this effort.

ACKERMAN: Over there.

QUESTIONER: When both of you talked about --

ACKERMAN: You are?

QUESTIONER: Oda (ph) (Aberdeen ?), the Capital Trust Group. The two of you talked about Egypt, talked about Syria, but there is a more important country with a more complex challenge; that's Iran. Can you give us your views on Iran and whether Iran can be prevented from having nuclear weapons by diplomacy?

FLOURNOY: So, I think we are in the middle of an unfolding story there. I think the president's been very clear, rightly so, that the idea of Iran having nuclear weapons given their destabilizing influence in the region, given their support for proxies and terrorist groups, that is truly -- given the threat -- the threat they pose to Israel, the threat they pose to us and to our interests, that would be unacceptable.

I think he's also been right to try to pursue that objective first through diplomacy then through backing that up with sanctions. We know the sanctions have really hurt. What we can't -- we haven't seen yet is that economic pain translating into recalculation on the part of the supreme leader with regard to their nuclear pursuits. I think that we want to continue to pursue the sanctions -- keep the sanctions in place, pursue negotiations, watch the program very carefully. At some point, if sanctions don't work, if negotiations don't work, there will be a harder choice to make about whether to use force to set back the program.

But there should be no illusions here. Even the use of force, even the very effective use of force is only a delay tactic. It does not stop the program. It does not solve the problem. It sets it back in time. It puts time back on the clock. But it also risks unleashing a broader conflict. There are many different schools of thought on how Iran would respond. The hopeful school is that they would play the victim and do nothing. I think that's highly unrealistic. I think how Iran would respond could start us into a much broader situation of conflict. And so this is not something we should enter into lightly.

That said, I for one don't believe that a containment model, given Iran's proliferation activity, its support for terrorism, its support for proxies, I don't think that's a viable model in this case, in the nuclear domain. Oh, and I would just add --

ACKERMAN: Please.

FLOURNOY: I also think other countries would react. I don't think -- I think countries -- this would affect the calculations of the Saudis, of Turkey, of others facing a nuclear Iran. And again, I don't think the outcome of that would be very -- would be very -- would not be stabilizing for an already unstable region.

ACKERMAN: Before I -- very quickly, do you think that North Korea is being helpful to Iran in accelerating their program? Is there evidence of that?

FLOURNOY: There's -- I mean, I am a little bit out of date, but my impression is that there has been some technical assistance provided in the past. I think more -- the stronger linkage right now is I think Tehran is watching very carefully what happens with regard to Pyongyang, how Pyongyang is playing its card, how is the international community reacting and so forth. They're taking notes.

QUESTIONER: Thanks. Hi. Deepti Choubey with the Nuclear Threat Initiative. Michele, one of the lines that could have been added to your bio today was that you were an executive board member of Women in International Security, which is an organization aimed at supporting women at every stage of their career that work across the international security sector. I'm wondering how your (latest ?) in government has informed your views about what can be done to make sure that we're making use of a hundred percent of the talent pool, considering the complexity of the world that we're living in, and how we need all people to be engaged in the endeavor.

FLOURNOY: That's a great question and one near and dear to my heart. The good news is that there has been progress made. When I was in the Pentagon for the first time in the Clinton administration, we had a women's leaders lunch, and we all sat at one table, and it was a very small table -- (chuckles) -- sadly.

This time around -- and there are some colleagues in the audience here who served with me in the Pentagon -- there were -- we probably would have filled the executive dining room. So, you know, there's been a lot of progress, more progress to be made.

One of the things that I tried to do as undersecretary was launch a human capital initiative that had many different dimensions, but one of the ideas was to try to take a very dedicated workforce that was working 24/7 but who also had families and outside lives and, without -- you know, without diminishing performance in any way, try to experiment with some alternative ways of working, whether it was a more flexible approach to schedules, more flexible approach to where you work, cross-coverage of portfolios and so forth. And some of these ideas started as kind of women's initiatives, or at least perceived as such for women with kids. But the truth is I very quickly found that the -- all of the workforce was very happy to take advantage of this.

And we started by -- we had a lot of naysayers. We started by -- we took the two busiest or high-tempo offices, the Middle East office, the Southeast Asia office -- we piloted the program there. It was a huge success. And then we promulgated it throughout policy.

And the interesting thing is I didn't say much to Secretary Gates about it. But he actually asked me one day in a meeting, he said, what's going on down there? And I said, what do you mean? He said, I've noticed a real jump in the quality of the work you're doing. And so he noticed it not in terms of the morale or the balance that I was seeing; he noticed the increase in performance. And that's what all the business literature says. You know, you want a big increase in performance, you invest in your human capital.

So I think the most important thing is being creative about the ways we work, providing more institutional, organizational, societal support for a broader diversity of ways of working, career paths and so forth, so that people can be fabulous parents and fabulous contributors to society, not necessarily equally fabulous at the same time on both sides -- (chuckles) -- but over their lifetime, you know, be able to make those contributions in both senses.

QUESTIONER: My name is Roger Parkinson (sp). In a former life, I was a newspaper publisher. I'd like to go back to Mr. Ackerman's first question to you on -- he asked you what you thought the grand strategy going forward for the United States ought to be, and I heard your answers being, stay engaged, provide leadership and have a more integrated use of power, which I think are all valuable. But that doesn't really sound to me like a grand strategy. I wonder if you could be more explicit about what kind of grand strategy you think the U.S. should have going forward.

FLOURNOY: Yeah, I don't have a bumper sticker for you that's equivalent to containment or -- and so forth. But I think -- I think that the U.S. needs to provide leadership that enables our allies and coalitions of the willing to preserve interests that are important to us, values that are important to us, and to engineer shared solutions to shared problems. I think that we have to be more realistic in understanding what our power means in this new world. And that's not being negative; that's not being defeatist; it's not being a wuss. It's just recognizing that there are other power centers in the world. The -- it's a more diffuse international environment, a more multinational or multipolar environment and that it's not a bipolar world anymore and it's a more difficult environment to operate in.

I'm not going to give you a satisfying question. I don't have the paragraph written. It's a great -- now that I'm out of government and I can actually have time to think again, I will personally take that as an assignment to write you a better paragraph. But I think that I -- they're some of the key elements that I've mentioned. How to wrap that into a short narrative that's compelling, that describes the strategy, I think that's a great project for an organization like CFR and for a number of people in this audience.

QUESTIONER: Alton Frye from the council. Michele, before there was the rebalancing, there was the reset toward Moscow. Could you give us a reading on whether you think we are missing opportunities for a more active engagement, producing cooperative outputs with Moscow, or was it maybe not a realistic expectation to begin with?

FLOURNOY: I think -- you know, let's remember what the reset was. The reset was trying to put the relationship on a more pragmatic and cooperative and positive footing. That said, you know, there are still going to be areas where we agree to disagree, so the invasion of Georgia, you know, human rights issues, democracy inside -- how -- the progress of democracy in Russia and so forth.

But there are strategic areas where our interests will align, and we can and should cooperate: preventing Iran from becoming a nuclear weapons state; ensuring that, you know, at the end of the day there's greater stability rather than less stability in Afghanistan; reducing the nuclear danger through further rounds of arms control. I mean, there are a whole number of areas where we identified common interests and we have been able to pursue them with Russia in -- with important results, like New START, like cooperation on Afghanistan, like sanctions against Iran.

I think the -- where the reset has run into, you know, some challenges I think are -- is -- you know, as you have had the passing of the torch from Medvedev back to Putin, I think there is a difference of view there, and I think Putin is a much more skeptical partner. I think he has a narrower view of where -- what our common interests are. I think he has a more anti-Western bias in many of his views and so forth. So I think there is -- I think we still need to be working on the relationship. I think frankly that the recent refinement of our ballistic missile defense investment to actually eliminate the Phase IV part of the European phased adaptive approach system is something where we can still -- we will still meet our defense commitments to our allies, but now the Russians really don't have an excuse not to cooperate on missile defense in Europe, from the -- I mean, the system never really posed a threat to their strategic deterrent, but they perceived it as posing a threat. That is now removed. We should be able to work with them to find ways to cooperate there.

But I think there's a -- this is a larger political question that has more to do with the orientation of the Russian administration at this point than it does to do with the willingness of the U.S. to find ways to continue cooperating.

QUESTIONER: I'm Lionel Rosenblatt, a retired foreign service officer and NGO official. I started out with something called the CORDS program, volunteered for that as a young FSO. And we were taught then to volunteer to go out and talk to villagers and learn from them. And of course, that was a Sunday school picnic compared to Afghanistan, but I'm wondering how much bottom-up feedback we're able to actually get from Afghan villagers, and I'm wondering if the new generation is really able to commit to anything given that their security is in doubt -- partly because Washington is almost as broken as Kabul.

And the second related question is, if we're going to use drones, are the drone operators ever given field experience so that they know what they're looking at so they can distinguish between a wedding party and a funeral and a bunch of terrorists? We would never have ever called in an airstrike in Vietnam without looking on the ground at what was going on, or at least with an A-10.

FLOURNOY: I do think there is a great deal of bottom-up input in Afghanistan. But one of the things that concerns me is there is a strong desire on the part of many in the United States to be done with Afghanistan and to get on with other things without what I think is a very important moment, which is to pause -- and I think, frankly, we need to do this for Iraq too -- and to ask ourselves, what do we learn from these two experiences? What were -- what are the real lessons that we want to ingest, digest, capture so that we don't sort of mindlessly have to -- you know, with -- at great cost learn them again in the future? And that goes -- that's at the strategic level, but it's also in terms of how we operated and how we tried to do development in a conflict environment in Afghanistan and what worked and what didn't and why and how we engaged the population or how we didn't.

You know, I think, on the drone program, the operators of the drones tend not to be people who have on-the-ground experience, and they're -- you know, different sort of set of skills. But I think that -- I would say two things. There -- I have personally witnessed extraordinary efforts made to avoid civilian casualties, including, you know, diverting things at the last moment because a child walks into the picture.

I also from firsthand experience know that there is a lot of disinformation with regard to civilian casualties. I'm not saying there have been none. There have been civilian casualties. I am saying that we know that there are certain other intelligence services out there who literally create stories around civilian casualties that did not occur.

So I think the record is probably more balanced than what is suggested. Again, I think this effort to create a greater transparency on this program, to elevate to a more strategic discussion that looks -- in a more balanced approach, using all of the various instruments, is a positive effort on the part of this administration going into the second term.

ACKERMAN: Maurice.

QUESTIONER: Maurice Sonnenberg, JPMorgan. I want to take you in a totally different area -- malware, gigabytes, where you go from single digits to hundreds, the ability, at least domestically, industrial, to bring down and crash systems. I have a concern that we're losing our edge to the Chinese and, to some degree, the Russians. I wonder what your thoughts are in terms of this whole cyber aspect of defense and offense?

FLOURNOY: I do think there are now a panoply of cyberthreats that are very real. As you suggest, they're advancing at a very rapid pace. They're -- I think we're beyond the days where we had to worry about sort of mischievous hackers. We are now seeing state-sponsored programs of cyberattackers. And that's further compounded by the fact that we have a society where much of our critical infrastructure is owned and/or operated in private-sector hands. So even if you are remarkably successful in protecting the dot-mil world, which we are -- we're a little less successful protecting dot-gov, but still pretty good -- when you get into dot-com, you know, it's really uneven.

I think that the -- as the -- as the debate about CISPA, the cyber legislation that's currently on the Hill, demonstrates, we are being very slow and conceptually getting our heads around what's necessary. We are very bogged down in a series of very important debates about privacy and protection of privacy and so forth. But meanwhile we don't have a legal framework in place to get our house in order on this issue.

The other thing I would say -- and the more -- now that I'm -- have time to actually go learn things for people in the Silicon Valley -- (chuckles) -- there's a whole conceptual reorientation happening out there on the cutting edge, and it's going from not just building higher walls and fences and trying to keep intruders out, it's looking at how do you defend from the inside out. What we're really trying to protect is the data and identity and how do you, even if you have intrusions coming in, make that -- those things protected. That's the new problem set that a lot of new work is happening in the valley is I think going to be the biggest leap ahead conceptually for cybersecurity going forward in the next 10 years.

ACKERMAN: Mitzi.

QUESTIONER: I'm Mitzi Wertheim with the Naval Postgraduate. Michele, this has been just truly fabulous. Based on my own experience -- how are we going to -- how are we going to actually learn, just not note? I mean, when I was in the Pentagon, it was always, well, we note, but we never learn. Has that changed?

FLOURNOY: Right now, you know, the minds of those in the Pentagon are pretty focused -- (chuckles) -- by the sequestration and sort of coping with the current budget crisis. But my hope is that, you know, as we get beyond that -- not beyond it, but as hopefully we get some greater degree of certain of the parameters of what we're going to be living with, there will be an opportunity for people to do some lessons-learned thinking.

But the truth is, when you're in government, you know, the tyranny of the inbox -- you know, I always pushed my staff to be strategic. You know, if Policy wasn't thinking strategically for the secretary, who was, right? (Chuckles.) We weren't doing our job.

But I think this is where the think tank world comes in. I think this is where academia comes in. This is where people whose job it is to try to push the intellectual envelope, to step back and think strategically about either where we're going in the future or what we've recently experienced in the past, to make sense of it, to try to capture that -- I think there's a huge role for those entities to play and to host, then -- just kind of set up and frame the dialogue for those in government who may be too busy to do that work but certainly shouldn't be too busy to listen to it and may take advantage of it.

QUESTIONER: Antoine van Agtmael, Garten Rothkopf. Can I take you 10, maybe even five years down the road and ask what you think growing energy independence, shale gas, will do to defense relations with the Middle East? Is it a major factor? Is it something that will make our life easier or in fact more difficult?

FLOURNOY: A great question. I'm not in the school of thought that says greater energy independence because of our own energy resources will create a situation where we no longer care about the Middle East or we no longer have a vital interest in the Middle East. I think that's a fantasy.

Remember, you know, oil, (gas ?) -- I mean, all of these are still going to be globally traded commodities, and we're going to have a very deep interest in price, right, and therefore instability in the Middle East and the impacts on price and so forth.

I do think a lot of the answer to your question depends on not only what happens for us but what happens for our close allies in Europe and in Asia, because, truthfully, right now they are ones who are most dependent on the energy products coming out of the Middle East already.

But I think we have to think of this in global terms. I think there are other vital interests we have at stake beyond energy in the Middle East, so I don't -- again, I don't think it'll be off our radar screen in any sense of the word. But I do think we should have perhaps a little bit more freedom of action, based in -- based on our own domestic resources being developed.

ACKERMAN: Before I take the last question, I just wanted to make sure everybody remembers that this meeting was on the record and after the meeting's over, there's going to be a dinner reception outside the meeting room.

So -- in the back.

QUESTIONER: Thank you very much. My name is Genie Nguyen with Voice of Vietnamese Americans. Michele, I know that you're the senior adviser of the Boston Consulting Group, so my condolence to what happened to all the people in Boston recently.

And I'd like to tie that back to our topic today and what you are -- you have been an expert, which is international security. What do you see happen in Massachusetts on Monday have anything to do with international security, our challenges as the leadership -- as the leader that you said U.S. has always been and is now still? We are the leader in this world, in the international arena.

And then I also would like to tie back all the connections between Afghanistan and Vietnam, because I believe President Obama had made his vow when he first inaugurate that Afghanistan would not be a Vietnam case, so the drawdown in Afghanistan would have be a successful -- and I think that's very much have to do with the worries about nuclear proliferations in the Middle East. And would you make the connection between the recent visit between Mr. Xi and Mr. Putin and China's perception of itself in the global arena and China's connection with North Korea, with Iran, with Pakistan, with Russia? (Chuckles.)

So where do you see the center of new American security is leading us? Thank you.

FLOURNOY: Wow. That's a long question. So I'm going to pick out what I think is an important element out of all of that, because you drew a lot of connections, and talk a little bit about China.

And you know, I think that the first thing we have to recognize is that we all have a stake in how China rises and in trying to ensure it is a peaceful rise. The -- there are -- I think, actually, there are some strong common interests that the U.S. and China have in maintaining stability in the region, whether it's tamping down tensions that are created by North Korea or China exercising greater self-control and discipline with regard to use of intimidation or coercion over disputed territories, whether in the East China Sea, in the South China Sea and so forth.

Their biggest focus is on their internal stability, their economic growth and so forth. They're not interested in having conflict in the region; we need to constantly come back to that and remind them of that. I think, you know, the new leadership in China -- I think there's an opportunity to refresh the relationship and to try to build areas of cooperation.

But I think we have to be very clear with Beijing about some of our concerns. I personally am very concerned about some of the investments that the PLA is making -- very clearly designed to try to thwart or prevent access by others in the region, thwart freedom of movement in international waters and so forth. There's a lack of transparency there which makes it -- you know, lets people assume the worst.

I think China has yet to play a sort of positive international role that's commensurate with its increasing economic power and role. And we need to push them towards the -- this sort of more responsible stakeholder kind of behavior. But, you know, I don't think that notion of containing China -- I mean, that's what China fears. I don't think it applies. I don't even know what that means, given the level of economic interdependence and some of the shared interests we have.

But I do think this has to be -- we have to continue a very strategic and candid dialogue with China. What's happening on the cyber domain, for example, is completely unacceptable. And they need to -- they need to understand that there are consequences for that in terms of their -- how countries will respond to them as a trade partner and how countries will respond to them in international relations and so forth. So I'll stop there and not stand between you and your dinner.

ACKERMAN: I think we can all agree that Michele Flournoy has carried the flag of the Warnke Lecture series brilliantly. And I want to thank you. It was a great hour.

FLOURNOY: Thank you very much.

ACKERMAN: And thank you all for coming, and we're done. (Applause.)

(C) COPYRIGHT 2013, FEDERAL NEWS SERVICE, INC., 1120 G STREET NW; SUITE 990; WASHINGTON, DC - 20005, USA. ALL RIGHTS RESERVED. ANY REPRODUCTION, REDISTRIBUTION OR RETRANSMISSION IS EXPRESSLY PROHIBITED.

UNAUTHORIZED REPRODUCTION, REDISTRIBUTION OR RETRANSMISSION CONSTITUTES A MISAPPROPRIATION UNDER APPLICABLE UNFAIR COMPETITION LAW, AND FEDERAL NEWS SERVICE, INC. RESERVES THE RIGHT TO PURSUE ALL REMEDIES AVAILABLE TO IT IN RESPECT TO SUCH MISAPPROPRIATION.

FEDERAL NEWS SERVICE, INC. IS A PRIVATE FIRM AND IS NOT AFFILIATED WITH THE FEDERAL GOVERNMENT. NO COPYRIGHT IS CLAIMED AS TO ANY PART OF THE ORIGINAL WORK PREPARED BY A UNITED STATES GOVERNMENT OFFICER OR EMPLOYEE AS PART OF THAT PERSON'S OFFICIAL DUTIES.

FOR INFORMATION ON SUBSCRIBING TO FNS, PLEASE CALL 202-347-1400 OR EMAIL [email protected].

THIS IS A RUSH TRANSCRIPT.