The Conference Board

LJ

Report Number 1024

Leading the Global Enterprise

At a conference cosponsored by The Conference Board and Booz•Allen & Hamilton, business leaders discuss:

* opportunities worldwide—caution in Eastern Europe; promise in Latin America

* the key to globalization—focus on customers

* CEO: risk manager, technology visionary, quality leader

* cementing core capabilities and forging partnerships

UNDATED

Serving Business and Society Since 1916

Global Realities: Risks and Opportunities

Henry Kissinger

Chairman, Kissinger Associates, Inc.

Former U.S. Secretary of State

Some currently popular opinions about interna-
tional affairs are that the United States is the only
superpower left, that democracy and free enter-
prise have triumphed around the world, that we are
heading into a period of peace, and that the West won
the Cold War. I agree that we won the Cold War, but I
hold a minority view on almost all the other statements.
I think we are heading into a period of increasing turbu-
lence, and I do not believe that we have witnessed the
ultimate triumph of democracy.

American Foreign Policy: Hampered by History

I believe that the deepest problem the United States faces now is how to handle the post-Cold War world. If you look at American history, the United States has not really had to conduct foreign policy except in its very early days; between the Monroe Doctrine in 1853 and World War I, we did not participate in international affairs at all. This did not stop Woodrow Wilson, when he showed up in Paris at the end of World War I, from proclaiming a set of unheard of propositions as eternal verities and announcing that everything that had gone before was wrong. We see today in the break up of Yugoslavia and Czechoslovakia that these prescriptions were not necessarily scientifically based. Not to mention that World War II happened 20 years after World War I.

Between World War I and World War II, the United
States again lapsed into isolation. Since emerging as the
dominant country at the end of World War II, we have
oscillated between isolation and dominance, neither of
which is the way foreign policy has conventionally
been conducted. Our nuclear superiority allowed us to
keep this untraditional stance toward foreign policy.

Our economic power was also a factor. We had
nearly 50 percent of the world's gross national product

(GNP) in the 1940s. When you are the only supplier of
capital and the principal supplier of security, you do not
have to conduct foreign policy; you identify problems
and then overwhelm them with resources. This way of
handling problems is much more like domestic policy
than foreign policy for other countries.

This went on until the mid-1970s when the Soviet
Union gained more or less nuclear equality with the
United States, and Germany and Japan captured a larger
and larger share of world GNP. Then the Soviet Union
started to decline in the 1980s. Even in a two-power
world, however, the mobilization of resources seemed
more important than an understanding of historical
trends.

What do I mean by "normal foreign policy?" Normal
foreign policy, the way it developed in Europe in the
17th century after the breakup of the Holy Roman Em-
pire and the way it is still sometimes conducted today,
involves a number of basically equal players whose
combinations affect the possibilities of risks and oppor-
tunities. In a five-, six- or seven-power world, no single
country can be dominant except by an effort that is al-
most certain to unite all the others against it. In a five-,
six- or seven-power world everything depends on your
ability to assess trends before they happen and to gam-
ble based on an assessment that you cannot prove true
when you make it. The difference between great states-
men like Winston Churchill or Charles de Gaulle and
run-of-the-mill statesmen is their ability to understand
historical forces, grasp where things are heading, and
then make better decisions based on these judgments.

In the 1930s, Winston Churchill wrote about British
foreign policy, explaining that for 400 years British pol-
icy was based on supporting the weaker against the
stronger in Europe. He lists all the peoples that Britain
opposed over the centuries, noting that who Britain sup-
ported had nothing to do with likes or dislikes or quali-

Leading the Global Enterprise 9

ties of the rulers. He said not to accuse him of being pro-French and anti-German; if circumstances were reversed, he would be pro-German and anti-French. Through this type of foreign policy, Britain aided in maintaining the balance of power and preserving liberty in Europe.

The United States, on the other hand, is incapable of doing this. Take as an example the current debate about Iraq. When Iraq invaded Iran in 1980, American policymakers said, "Iraq is weaker, and it is in our national interest to support it. Iraq has also had a conversion; it is more moderate and has become a good country. It is now a hope for peace in the area." Then, of course, when it won the war, why cut off aid to this moderate country? But since it had not yet done anything, the United States had to wait until Iraq did something, like invade Kuwait. This is typical American foreign policy. Once Iraq got as strong or stronger than Iran, American policy should have been to cut off support or even to tilt support over to the other side a bit.

Americans believe in the conversion of adversaries. We say, for instance, that we have to save democracy in the former Soviet Union and therefore must give it aid so that it can remain democratic. Never mind that there is no historical example of democracy in Russia or the various republics. The current political system in Russia is more conducive to doing business than the former totalitarian system was, but it is still a combination of chaos, autocracy and anarchy. It is hardly a democracy.

But with the $24 billion a year that has been proposed to aid Russia, we believe we can save democracy. West Germany has spent $220 billion in the last two years on eastern Germany. The West German civil service and West German entrepreneurs have also stepped in, but the former East Germany still has 20 percent unemployment. I think the reunified Germany is going to be a roaring success, so I do not worry about it. My point is that if you transpose the scale of the German effort onto the Soviet territory, $1.5 trillion a year for an indefinite period of time is what it would take to make a fundamental breakthrough.

So the ability of America to look at the world when there are five or six major players—the United States, Japan, Europe, China, whatever ends up on former Soviet territory, and maybe India—is the big challenge of our period. Before we can establish ourselves in this New World Order, we will first need some concept of our own national interest—that whatever we are doing is because it serves some specific national purpose. Yet over the decades, American presidents have proudly boasted that the United States has no national interests. President Bush kept saying that the reason we were leading the Gulf War was to defend international law and international principles and that everybody understood the disinterested nature of that effort. This kind of statement scares other countries because if you have no inter-

ests, you are totally unpredictable and become incalculable; you are capable of doing anything. Nobody expects disinterested foreign policy from a country or a business. They expect something that they can calculate and compare with their own interests. This is what we will be facing.

## A Perspective on the Former Soviet Union

Two simultaneous revolutions are going on in the former Soviet Union: one is against communism and the other is against Russian imperialism. The one against communism is essentially economically motivated and has very little to do with Jeffersonian principles of democracy. It has to do with the inefficiency and corruptness of a system in which every article of commerce moves by allocation; therefore, the only free market is at the administrative discretion of the people who make the allocations. This leads to phenomenal corruption, stagnation, over-employment, and all the other attributes now visible in the former Soviet Union.

One of the major problems with communism is that it corrupts the meaning of money. Perquisites rather than money become the economic base. Anyone who has done business in ex-communist countries—with the possible exception of China—knows how difficult it is to get any perception of cost accounting or taxation. Recently, the Russian Republic passed a law that every company that does business in the Soviet Union should pay 60 percent of its global earnings in taxes to the Russian Republic. This shows that they have no grasp of economic reality.

Another problem the West refuses to face is that a territory four times the size of Europe is now broken up into 15 independent states and extends from the Polish border to Vladivostok, from the Arctic Circle to the Middle East. The political organization of that territory will determine the degree of political stability or turbulence that will exist in the world. What happens in Western Russia will affect Europe; what happens in Central Asia will affect the Middle East. If the Soviets reoccupy Ukraine and the Baltic states, Europe will revert to its traditional posture of fear and armament toward Russia. What happens in Central Asia will depend on the interaction of Iran, Turkey, Russia, and the United States. But nobody wants to think about this. The current political thinking of the Western world is, "Let's keep it quiet now, then there will be an election and maybe someone else will have to deal with it or maybe something will happen."

I make the following propositions: First, most anti-communists in the former Soviet Union are not democrats. Second, not every democrat is anti-imperialist. In fact, most democrats in the former Soviet Union are imperialists in the sense that they do not accept the breakup of the Soviet Union as a political entity. There

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is no true Commonwealth there; Russia claims to have
some sort of control over all the other states, which
want to get as free as they can from the Commonwealth.

Note the following absurd situation: The European Security Conference and other institutions to which the Soviet Union belonged have admitted each of the 15 republics as its members. What is Uzbekistan doing in the European Security Conference? In what way is Uzbekistan, or any of these other Central Asian republics, European? They are there because in the back of everyone's mind these republics still belong to the Soviet Union.

Another problem is that the Soviet army is still distributed over the entire territory; it comes and goes as it pleases, and it maneuvers on the territory at will. It does not even inform the local authorities that it is doing it. The army is run out of the Defense Ministry in Moscow—an organization that knows what it is doing. The only problem is that the Defense Ministry is not reporting to anybody because it is the only existing institution of the Commonwealth.

How can that end well? The borders are not recognized. It is a prelude to Yugoslav-type conditions. But nobody in the outside world is complaining. There will be turmoil in that region and paralysis in the outside world. In my view, we should be telling Yeltsin that he will get economic help only if he gets his army inside his borders; he should send ambassadors to the 15 sister republics. But everything the West is doing seems to be an obsessive attempt to reconstruct the Soviet Union. It cannot be in our interest to create a ruble zone to link all the republics when they do not want to be linked.

## A Quick Overview of the Pacific Rim and NAFTA

The U.S. approach to policy is built on the ideal that everyone should take some responsibility for the problems which arise around the world. How much responsi-

bility a country should carry depends on its ability to pay. The Japanese certainly do not think this way. Japanese society is built like a family in conscious competition with the rest of the world. It has very unique institutions, is very competitive, and is quite capable of adjusting to reality but not on the basis of some abstract consideration like responsibility. The reality in Asia is that China, Japan, Russia, the United States, and soon Korea will be in interplay with each other. The Japanese understand that. If the United States fails to include China in its Asian policy, it gives the Japanese greater standing and unbalances the situation in the Pacific. We must deal with China as a nation and as a power, not as a foundation. I am not defending the Chinese human rights record; I am saying that we need them as a player in Asia. We need to have contact with China for that purpose only—no more, no less—on the basis of mutual benefit.

I believe that the most constructive thing going on now in American foreign policy is the North American Free Trade Agreement (NAFTA) with Mexico and Canada. The big revolution is not in Russia but in Mexico, Argentina and Chile. This is where democracy and the free market are really taking hold, and if we build a trading group with them, we will be able to enter international negotiations as a regional player, not just as a single nation up against regional blocs.

Although the United States faces many challenges, I would not trade these for anyone else's. The problems I have described are all manageable; they are mostly conceptual difficulties. However, the nation that has had a terrific victory in the Cold War now has no experience in dealing with the results of this victory. I would have to say, though, that trying to figure out how to manage victory is a lot better than having to salvage something from defeat. It is a brand new situation in which we are all starting from scratch, and in which the United States really has a huge advantage.

Leading the Global Enterprise 11