Globalisation and World Order

By

Dr. Henry Kissinger

Speaking at the Sixth Independent Lecture
12th October 1999 in Trinity College, Dublin

I have been cautioned by many people at the reception not to speak too long because this is a group that likes to challenge speakers. Therefore I will leave a fair amount of time for questions. I must point out that I was a great admirer of President DeGaulle, especially of the way he handled press conferences. He did not believe that he should let French journalists prescribe the subjects he should speak about. So he would arrive with four or five prepared answers and, no matter what the question was, he would work his way through his answers. Now, we will see what happens later.

Just one more introductory remark. For the emotional stability of the American ambassador, I want to make clear that he represents the view point of the American government and that I speak for myself. I believe that foreign policy ought to be a bi-partisan effort and on many key issues I support our administration - and even where I don't, I try to help. I am not going to act as opposition, but the ambassador represents the official, if not necessarily the correct, view on Foreign Policy.

I have been a Professor and I've been a policymaker. I've written books and have had to make decisions, and the perspective is not always the same. As an outsider, you can pick your subject, you can work on it for as long as is necessary and you have the privilege of changing your mind -in fact you get a lot of credit for changing your mind.

As a policymaker, problems present themselves. And the hardest thing in high office in the United States is to prevent the urgent from driving out the important. Every day, thousands of cables arrive in the State Department and servicing these cables takes more of your time than does asking yourself about strategy. When I travel around the world, I'm so often asked what the American strategy is on this or that point. Half the time there isn't any particular strategy. They are really just surviving and trying to keep from drowning in the plethora of demands being made on them. As a policymaker, there are also certain risks you cannot run even if the idea behind them is brilliant, because you only get one chance at a decision.

I say all of this because very often the American debate on foreign policy is presented as a dispute between idealists and realists. Idealists are supposed to represent the moral point of view and to stand for ethical principles; and realists are supposed to be down in the pits working out the actual problems, and they see the relationship of societies as a struggle for power.

In the real world of decisionmakers, that is a meaningless distinction. Moral principles claim universal validity and demand to be immediately executed. Most policy decisions deal with intermediate steps and are always partly unsatisfactory. The final goal is almost never realised in a limited period of time, so real policymaking always involves a compromise between the necessary and the desirable. That means that morality cannot be treated as a cook book in

which there are recipes that can be applied to every conceivable concrete
situation as a guide to immediate action.

On the other hand, power is itself very difficult to calculate and the hardest
job of any policymaker is to go from where he is to where he has never been. And
that requires a degree of moral conviction. I would argue, and it would be
borne out by history, that most of the leaders identified in retrospect with
having practised a certain kind of power politics, were really animated by very
strong moral convictions - though maybe not ones we all agree with. This
distinction between the ideal and the real is one I don't accept. It does not
describe policymaking as I understand it.

I came into office at the end of a period which began with President Kennedy
proclaiming America would bear any burden and make any sacrifice anywhere in the
world in the defence of liberty. By the time I came into office in 1969, there
were riots in the streets in which it was argued that America had no moral right
to make any universal claims and that America needed to withdraw from the world
and first cultivate its own domestic virtues before it could sally forth again.
I have been shaped by a desire to prevent this oscillation between the spirit of
exaltation and the mood of withdrawal, between over-commitment and isolationism.
Whether or not one believes that the period in which I was active met this test
is not as important as remembering that this challenge remains with us. And that
it is a particular problem for America, because America is like no other major
nation. Its history has a clear-cut beginning, its population made up almost
entirely of immigrants. It has never had a powerful neighbour, has never faced a
direct threat to its existence. It has never known foreign occupation and has,
almost always (except in the South and the Civil War), been able to identify
foreign policy with domestic policy.

At the end of World War II - and I am of the generation for whom that war was
the formative experience - the United States first became engaged in
international affairs on a permanent basis. We had 40% of the world's gross
national product and an atomic monopoly. We did not have to make the sorts of
close judgements every European and every Asian country has had to make
throughout their histories. We could overwhelm every problem with resources,
which coincided with the American view that, if we could only make the world
over in our image, the problem of peace and war would solve itself almost
automatically. This missionary spirit is still a dominant theme in American
foreign policy, almost regardless of the administration. My view is that this is
beyond our emotional, physical and intellectual resources to reform all
countries simulatneously. No country can make the world over in its own image;
the histories are too different and the experiences too varied.

When we try to tell China how to organise its internal affairs, it is easy to
forget that China had fourteen imperial dynasties, ten of which had individual
histories longer than the entire history of the United States. The Chinese tend
to believe that they managed to stagger through forty eight hundred years of
their five thousand year history without specific advice from the United
States and that, therefore, they may have done something relevant to their
survival all on their own. Hence they are not too hospitable to our insistent
prescriptions.

We now have many discussions - and we've had them for years - about a new world
order. But the fact is, there have always been world orders in periods of peace.
In periods of peace there is some agreement either on what constitutes a just,
domestic arrangement or an agreement that domestic arrangements don't matter in
questions of peace and war, only the demands nations make on each other.

At the beginning of the 19th Century that conviction was that conservative or
legitimate rulers were the key to stability. The Holy Alliance was organised for
what today we would call an ethical foreign policy, namely to make sure that no
country would stray from the accepted moral and political dispensation. Later
on in the century, people came to believe that the domestic structures didn't
matter so much and there was a period of 100 years in which the balance of power
provided the key to the equilibrium. And the reason that worked for that period
is because no country felt fundamentally threatened in its survival by other
nations. If you look at history, and this affects my own prejudice, when
absolute moral claims were pushed to their limits, crusades resulted And you
will find that crusades usually cost more lives than did more limited policies
based on more limited objectives.

But I don't want to argue the relative merits of the various approaches. I'd
like to point out that, in our period, we have a peculiar challenge. In American
mythology, if the whole world were democratic there would be peace. This may be
true though there is no historic evidence for it since there have never been
enough democracies on the global pages to test the proposition (although it must
be noted that many wars have been extremely popular when they started and
that some of the worst excesses we see in our present period seem to be approved
by the populations that carry them out).

But the challenge all of us face, and especially American policymakers, is this:
in the world today, there are really three different kinds of international
order existing side by side.

In the North Atlantic, the principle that democracies do not make war against
each other essentially holds. Between the nations of Western Europe and the
Western Hemisphere as well as between the nations of Europe, war amongst each
other war is, to all practical purposes, excluded - except in special regions
like the Balkans in which these are not really national wars but ethnic and
religious conflicts. Here the Wilsonian principles of the United States,
emphasising the importance of economics, free trade and international
conciliation, find their best expression. And for this reason, in the evolution
of the international order, even greater cohesion in the North Atlantic region
is extremely important and that we must go beyond NATO to political structures
that reflect this possible or, in my view, likely community of interest.

In this sense, Europe and North America and maybe the whole Western Hemisphere
can be said to live in the 21st century. But in Asia, we are dealing with
conditions recalling the 19th Century. The relations of the Asian states to
each other are more comparable to the relations of European nations to each
other in the 19th century. There is no sense of ideological community. The
nations of Asia consider each other strategic rivals. We can lecture India and
Pakistan or China to our hearts' content about the evils of nuclear
proliferation. In the world in which they live, to forego an element of power
is nearly incomprehensible. They assess their relationships in the way European
nations did in the 19th Century and that is regardless of their domestic
structures. After all, India is the most democratic state in the developing
world, yet it nevertheless pursues the policy of nuclear armament.

In the Middle East, we are dealing with a world many parts of which insist that
the structure of the world must be changed. But they don't necessarily accept
the proposition that it must be changed in a democratic direction. This is
where fundamentalism challenges our philosophical convictions and repeats some
of the characteristics of the religious wars of the seventeenth century. I

don't want to turn this into a history lecture, but I do want to stress the fact
that, unless one can diagnose what sort of world one is living in, one will not
be able to define rational objectives.

In the United States, there is now evolving a great debate about our relations
with China, a debate between those who would like to put China into the slot
vacated by the Soviet Union as a permanent adversary of the United States, and
others who believe in a more co-operative relationship. Now I tend to support
the Administration, which holds the latter view, even though I have great
difficulty with the way they explain it, creating the impression that they can
somehow convert the Chinese to our preferred domestic views. This will not
happen, but I do believe that permanent hostility between the West and China
will create permanent opportunities for all Asian countries to manoeuvre between
us for their maximum advantage. Thus co-operative, though not necessarily close,
relations with China are vital. Unless they challenge our fundamental national
interest, they are a key to peace and stability in Asia.

Now it is for these reasons that I'm uneasy with the proclamations of those
backing so-called "ethical" foreign policies that insist on intervention on a
global basis, that reject any concept of national interest, and that thereby
avoid the questions: How do you define ethics? What sacrifices are we willing to
make? What risks are we willing to run? Are we starting what will be perceived
in non-European parts of the world as a new era of more sophisticated
colonialism?

I have been uneasy about almost all recent interventions. They have not achieved
the objective which they proclaim and they have, in my view, made almost every
situation worse. Nor do I accept the proposition that there's nothing you can do
in between total intervention and total passivity. In the political world, we
have to be careful not to proclaim doctrines we are either unable to carry out,
unable to sustain or are unable or unwilling to sacrifice for.

Now let me make some observations about the economic world. Conventional wisdom
holds that, in economics as in politics, we are now living in a new global
system. The argument about economic globalism is based on the proposition that
we have discovered a new form of permanent prosperity, a form of prosperity that
is open to everybody so that the poor have no right to complain about their
condition because it's their own fault. If they carried out correct
macroeconomic policies, they too could share in that prosperity because capital
moves freely and it will go where it is most advantageous. And that puts
universal prosperity within the grasp of any country willing to make the
necessary domestic adjustments.

Let me now raise the political side of the problem. First of all, some
countries are too small or too poor to develop the critical mass needed for self
sustaining growth. Some countries face cultural obstacles. The United States
and other industrial countries have been engaged in research and forming capital
for nearly 50 years, compounding it annually. So this is an advantage that,
even with perfect politics, is not so easy to match.

When one speaks of capital flows, one obviously speaks of comparative advantage.
And one of the comparative advantages of developing countries is low labour
costs and absence of social safety nets - with a result that the process of
industrialisation involves, in many cases, an increase in social tension as the
gap between rich and poor widens. If one says that, therefore, one should create
social safety nets, the answer will be that that is precisely what one has to do
away with if one wants to make the countries more competitive.

In China the state enterprises are the social safety net. If they privatise them, they will have up to 50 to 100 million unemployed. Whether any country can take the pain of such a decision is not questionable.

When one deals with the question of capital flows, it is important to distinguish between equity capital and portfolio capital. When a multi-national corporation invests in a plant in a country it has to become a citizen of that country in its attitudes if it ever wants to benefit from its investment.

But speculative investment has no such constraints. Speculative investment benefits whether the market is going up or going down. There is overwhelming evidence of the fact that it was the speculative side of Asian investments that compounded the South East Asian crisis.

And there are all kinds of corollaries: that when losses are incurred in one part of the developing world, investments in other parts of the developing world, not necessarily related to it, are liquidated in order to help the balance sheets.

So, and finally, if one looks again at the record, one has to say that, if you take today's Argentina, they carried out the prescriptions of the international system to the letter. They dollarised their economy, they conducted a restrictive social policy and they now have twenty per cent unemployment because their neighbour devalued its currency.

It is important to remember that crises have occurred at intervals of no more than three years since 1980, and when that happens, the prescriptions of the international Monetary Fund are for more austerity, for more cuts in social services, for subordinating everything to exports and thereby in a way undermining the conditions for political stability.

The current global system, reflects an extraordinary decade in the United States that has created unprecedented wealth, broadened the availability of capital, funded the creation and brought distribution of a wide variety of new technologies, and created markets for an endless array of goods and services. In America, things can get no better, these are the good old days. But it is not a pattern so easy to duplicate in other societies which lack a well developed regulatory system, and a clear legal and political framework.

So I want to go back to my original point. I deeply believe that the democratic system is the best system of government. At any rate, I agree with Churchill that it may not be the best but that nobody else has come up with a better one.

I also believe that market economics have proved themselves the most reliable guide to economic growth. But it is necessary to find some relationship between economic growth and what is politically bearable. I also would urge some humility in attempting to export our political institutions around the world in a finite period of time. They evolved over six hundred years in the English speaking world, and when one looks at countries like Indonesia - formed out of 15,000 islands and based on having been governed by one colonial power - the question of how to reconcile unity and diversity, which is the key to modern democracy is bound to receive a complex answer. Excessive self-righteousness leads to the tendency to ignore the dangers, to wait until an explosion occurs and then to rely on this principle of intervention.

I don't think the situation in Timor should ever have been permitted to reach a
point where the only way out was foreign intervention. It had to be known that,
in the middle of an Indonesian election campaign in which all the domestic
institutions were up for grabs, one could not also challenge the unity of the
country without a high risk of disaster. Again, I would not accept the
proposition that the choice was one of either doing that or doing nothing.

So I return to my original point. Any policymaker will want to contribute to a better and more stable earth. Modern policymakers living in a nuclear age have a particular nightmare because, on the one hand, they do not want to tempt universal destruction but, on the other hand, if they turned themselves into pacifists they would tempt universal destruction at the hands of the most ruthless.

Modern policymakers live in a world in which decisions are made often by middle
level people sitting at computer terminals that can produce vast flows of
capital with profound consequences for their societies. The problem is how to
control the world in which they live. Modern policymakers are the product of an
educational system quite different from the one in which
my generation grew up, the generation that grew up on books. When we studied, we
knew we would not be able to read every book ever written and that we would not
be able to remember every book we ever read. So we had to develop concepts which
enabled us to recognise comparable phenomena and to project them into the
future. The generation brought up on computers and books and pictures has no
such necessity. They can evoke the answers they need. They don't have to
remember them. They don't have to understand them because they can always evoke
them again. So we have created a huge gap between knowledge and information that
produces a congenital insecurity in which policymakers need to be sort of
confirmed every evening by the television commentators as to the correctness of
their policies. But the public does not forgive disasters, even if they reflect
their own wishes, because they want more from their leaders. So this is the
challenge that I see in the issue of globalism and world order.

I have a Singaporean friend who has summed this up in an alleged Chinese
proverb. I say alleged because I'm not sure there are as many Chinese proverbs
as they lay upon us. But that proverb goes something like this.

When there is turmoil under the heavens, little problems are dealt with as if
they were big problems and big problems are not dealt with at all. When there is
order under the heavens, big problems are reduced to little problems and little
problems should not obsess us.

Our challenge is whether we can distinguish little problems from big problems
and whether, in all the talk of world order, we can define what we really mean.
I'm grateful to this College for giving me the opportunity to present to you a
few fragmentary reflections on this topic.

I am sorry, but I cannot recognize any text in the image. The image appears to be a blurry depiction of a hand.

LC

# INTRODUCTION OF DR. HENRY KISSINGER

Dublin 12th October 1999

Senator Maurice Hayes

Lord Mayor, Provost, friends, on
behalf of Dr. O'Reilly and the Board
of Independent Newspapers it is a
great pleasure to welcome you all
this evening. We are gathered to hear
Dr. Henry Kissinger talk to the title
'Globalisation and World Order'.

This is, as the Provost has said, the Sixth
Independent Lecture and the second in
succession to be given by a Nobel Prize
Winner, which is an indication of the CV
you would need to have if you are thinking
of applying for an Independent Lectureship.

It is also the first lecture to be held under
the title of Independent News & Media
PLC, which is our acknowledgement of the
process and the reality of globalisation, not
only in the expansion of the activities of
the company in the United Kingdom,
South Africa, Portugal, Australia and New
Zealand but also at the explosion of
communication with the electronic media,
the world wide net and the Internet.

While the printed page represents the
bedrock of the business and will continue
to do so, new and exciting avenues of
communication are opening up making
information at once more universal and
more accessible. This promises to be a
change equivalent to the invention of the
wheel or the steel plough or the internal
combustion engine, changing the way
people live and work, the way they do
business, the way they think and
communicate and the way they regard
themselves as individuals and groups.
You can have instant politics or instant
porn, rolling referenda or continuous self-
gratification.

In this New World boundaries are swept
away and new ones are erected.

Senator Maurice Hayes

1

There is an interesting book by Tom Friedman, which has been a best seller in America for weeks now, called 'The Lexus and the Olive Tree' in which the Lexus represents mammon, materialism, commerce and worldly sophistication and the olive tree, the parochial, the local, the desire to cling to the known and traditional and to put down roots. The first is characteristic of pragmatic mobility, the other of the need for roots.

There can be few people on earth better qualified than our speaker, to talk about the new world order or lack of it, or indeed any presentation of geopolitical forces over the last half century because probably more than anybody else he contributed to their creation.

The ending of the cold war, the break up of the Soviet Union and former Yugoslavia,

the end of empire, the rise of new nationalism's, competing fundamentalism's, the opening up of boundaries to free trade, the modernisation and industrialisation of China, the salience of market forces over planned economies, the emergence of multi-national corporations some with more clout than the average Sovereign state.

All of these Henry Kissinger has seen, some he has actively laboured to bring about. More than any other actor, along with President Nixon, he will be remembered as the architect of detente with the Soviet Union, the end of the Cold War and the Salt treaties. He brought China into the main stream of economic and political relationships. He has removed the threat of nuclear war - replaced perhaps by smaller and more local wars and often savage conflicts. He is in an unrivalled position to develop a theory of geopolitics to help us to understand this New World and to develop an ethical, moral and philosophical framework within which we might understand it.

Dr. Henry Kissinger

LC

2

Mr. Jim Ruane

Born in 1923 in Germany, he came to the United States as an emigrant in the face of Nazi persecution in 1938, became a citizen in 1943, served in the United States Army in the Military Government in Germany, took his PhD in Harvard, became Professor of Government, and ran the Defence Studies programme there. At a very early stage, 1957, his book 'Nuclear Weapons and Foreign Policy' was a seminal study as was his later book the 'Necessity for Change'. He was head of the National Security Council from 1969 - 1975 and Secretary of State from 1973 - 1977. He has visited most of the troubled spots of the world at that time - some of them no longer troubled spots China, Soviet Union, Vietnam. He created at that stage the detente that led the way to the Salt treaties and in the Arab Israeli war he invented almost or deserved to be credited with the term of 'Shuttle diplomacy'. For his

untiring work he has gained perspective given to almost no other person, we are extremely fortunate to have him with us tonight, extremely grateful that he has taken the time to come and share his thoughts with us. It is a pleasure and an honour to ask you now to welcome Dr. Henry Kissinger.

Senator Maurice Hayes, Director

Independent News & Media PLC.

Dr. Henry Kissinger, Mr. Michael McDowell and Ms. Mary Freehill, Lord Mayor of Dublin

3

government and that I speak for myself. I believe that foreign policy ought to be a bi-partisan effort and on many key issues I support our administration - and even where I don't, I try to help. I am not going to act as opposition, but the Ambassador represents the official, if not necessarily the correct, view on Foreign Policy.

I have been a Professor and I've been a policymaker. I've written books and have had to make decisions, and the perspective is not always the same. As an outsider, you can pick your subject, you can work on it for as long as is necessary and you have the privilege of changing your mind - in fact you get a lot of credit for changing your mind.

As a policymaker, problems present themselves, and the hardest thing in high

Mr. Liam Healy and Ms. Marian Finucane

LC

6

[L]C

His Excellency Ambassador Michael Sullivan and Dr. Henry Kissinger (Professor Thomas Mitchell in background)

8

Senator Maurice Hayes
and Mr. Sean Cromien

9

Mrs. Alison O'Reilly and Mrs. Chryss O'Reilly

> The relations of the Asian states to each other are more comparable to the relations of European nations to each other in the 19th Century

10

Mr. John Wilson

that no country would stray from the accepted moral and political dispensation. Later on in the century, people came to believe that the domestic structures didn't matter so much and there was a period of 100 years in which the balance of power provided the key to the equilibrium. And the reason that worked for that period is because no country felt fundamentally threatened in its survival by other nations. If you look at history, and this affects my own prejudice, when absolute moral claims were pushed to their limits, crusades resulted.

11

In the North Atlantic, the principle that democracies do not make war against each other essentially holds. Between the nations of Western Europe and the Western Hemisphere as well as between the nations of Europe, war amongst each other was, is, to all practical purposes, excluded – except in special regions like the Balkans in which

Dr. A.J.F. O'Reilly and Mrs. Nancy Kissinger

Lc

Mrs. Maureen Kenny

In this sense,
Europe and North
America and maybe the
whole Western Hemisphere
can be said to live in the 21st
Century. But in Asia, we are
dealing with conditions recalling the
19th Century. The relations of the Asian
states to each other are more comparable
to the relations of European nations to each
other in the 19th Century. There is no
sense of ideological community.

13

some of the characteristics of the religious wars of the 17th Century. I don't want to turn this into a history lecture, but I do want to stress the fact that, unless one can diagnose what sort of world one is living in, one will not be able to define rational objectives.

Mrs. Lynn Mitchell, Professor Thomas Mitchell and His Excellency Ambassador Bob Halverson

14

Dr. Henry Kissinger and
Mrs. Chryss O'Reilly

Now it is for these reasons that I'm uneasy
with the proclamations of those backing so-
called "ethical" foreign policies that insist
on intervention on a global basis, that reject
any concept of national interest, and that
thereby avoid the questions: How do you
define ethics? What sacrifices are we
willing to make? What risks are we willing
to run? Are we starting what will be
perceived in non-European parts of the
world as a new era of more sophisticated
colonialism?

Mrs. Hillary Hegarty, Mr. Gavin O'Reilly
and Dr. John Hegarty

15

1C

Dr. Martin Mansergh, Mrs. Alison O'Reilly and Mr. Gavin O'Reilly

When one speaks of capital flows, one obviously speaks of comparative advantage. And one of the comparative advantages of developing countries is low labour costs and absence of social safety nets - with a result that the process of industrialisation involves, in many cases, an increase in social tension as the gap between rich and poor widens. If one says that, therefore one should create social safety nets, the answer will be that that is precisely what one has to do away with if one wants to make the countries more competitive.

16

Mr. David Palmer

Bishop Jim Moriarty and Mr. Liam Healy

[L.C]

18

Mr. Michael D. Higgins TD

It is important to remember that crises have occurred at intervals of no more than three years since 1980, and when that happens, the prescriptions of the International Monetary Fund are for more austerity, for

Mrs. Barbara Scarlett, Dr. Henry Kissinger, Mrs. Nancy Kissinger and Mr. Earle Scarlett

19

Mrs. Eithne Healy, Mr. Austin Currie TD,
Mr. Liam Healy and Ms. Claire Faulkner

> The public does not forgive
disasters, even if they reflect
their own wishes, because they
want more from their leaders

20

Mr. John Meagher, Ms. Marianne Guimonde, Mr. Sheamus Smith and Ms. Sheila Hampson

Dr. Henry Kissinger

21

Dr. Patrick Hillery
and Mrs. Maedbh Hillery

Minister Jim McDaid TD, Mrs. Eithne Healy, Ms. Cathy Herbert, Mr. Liam Healy and Ms. Julie O'Neill

22

L.C.

They don't have to understand them because they can always evoke them again. So we have created a huge gap between knowledge and information that produces a congenital insecurity in which policy-makers need to be sort of confirmed every evening by the television commentators as to the correctness of their policies. But the public does not forgive disasters, even if they reflect their own wishes, because they

Mr. J.P.H. O'Reilly and Mrs. Rosemary O'Reilly

23

Mr. Joe Barry

Dr. Henry Kissinger

12th October 1999

Dr. Henry Kissinger, Mrs. Nancy Kissinger, Mr. Neil McCann,
Mrs. Mary McCann and Senator Feargal Quinn

24

NOV-01-1999 16:34

KAI DC

212 753 7248 P.04

THE following is the edited text of the lecture, 'Globalisation and World Order', delivered last night by Dr Henry Kissinger, Nobel prizewinner and former United States Secretary of State, at the Independent Newspapers Annual Lecture in Trinity College, Dublin.

Dr Kissinger began his speech by reflecting on the role of foreign policy makers.

> "As a policy maker problems present themselves. And the hardest thing in high office in the United States is to prevent the urgent from driving out the important.

> "Every day thousands of cables arrive in the State Department and servicing these cables takes more of your time than asking yourself about the strategy for the Middle East or many other interesting and important problems."

Dr Kissinger said that when he travelled around the world he was often asked what was American strategy.

> "Half the time there isn't any particular strategy. There are policy makers surviving and trying to keep from drowning with the plethora of demands that are made on them."

> "As a policy maker, also, there are certain risks you cannot run even if the idea behind them is brilliant because you only get one chance at a decision."

He said very often the American debate on foreign policy was presented as a dispute between idealists and realists.

Idealists were supposed to represent the moral point of view and to stand for ethical principles. Realists were supposed to be down in the pits working on power problems.

In the real world of decision makers that was a meaningless distinction.

Moral principles claimed universal validity to be immediately executed.

Most policy decisions dealt with intermediate steps and they were always partly unsatisfactory.

The final goal was almost never realised in a limited period of time.

Real policy making always involved a compromise between the necessary and the desirable.

Therefore, morality could not be treated as a cookbook in which there were recipes that could be applied to every conceivable concrete situation as a guide to immediate action.

On the other hand, power was itself very difficult to calculate.

> "The hardest job of any policy maker is to go from where he is to where he has never been and that requires a degree of moral conviction.

> "I would argue and it would be borne out by history that most leaders, whom in retrospect one identifies with having practised a certain kind of power politics, were really animated by a very strong moral conviction: maybe not a conviction one agrees with."

Dr Kissinger said he didn't accept the distinction between the ideal and the real.

It was one which didn't describe policy making as he understood it.

He recalled that he came into office at the end of a period which began with President Kennedy saying America would bear any burden and make any sacrifice anywhere in the world in the defence of liberty.

When he came into office there were riots in the street in which it was argued that America had no moral right to make any universal claims and that America needed to withdraw from the world and first cultivate its own domestic virtue before it could sally forth again.

Dr Kissinger said he had been influenced by a desire to prevent this isolation between the spirit of exultation and the mood of withdrawal, between over commitment and isolation.

The challenge was a peculiar problem for America because America was like no other major nation.

America never had a powerful neighbour and never faced a direct threat to its existence and had never known foreign occupation.

It had almost always been able to identify foreign policy with domestic policy.

At the end of World War II America didn't have to make the judgments that every European and Asian country he knew had to make throughout their history.

> "We could overwhelm every problem with resources and it coincided with the American view that if we could only make the world over in our image the problem of peace and war would solve itself almost automatically and this missionary spirit is still a dominant theme in American foreign policy, almost regardless of administration."

> "My view is that this is beyond our emotional, physical and intellectual resources."

> "No country can make the world over in its own image. The histories are too different and the experiences too varied."

> "When we try to tell China how to organise its internal affairs it is easy to forget that China had 14 imperial dynasties. 10 of which had individual histories longer than the entire

NOV-01-1999 16:34

KAI DC

212 753 7248 P.05

‘The hardest job of any policy maker is to go from where he is to where he has never been and that requires moral conviction’

history of the United States.

"The Chinese tend to believe that they managed to stagger through 4,800 years of their 5,000-year history without specific advice from the United States. And that therefore they may have done something relevant to their survival all on their own."

Dr Kissinger said we now have many discussions and we have had them for years about a new world order. But the fact was that there had always been world orders in periods of peace.

He said that if you looked at history when absolute moral claims were pushed to the limits you had crusades.

"I think you will find that crusades usually cost more lives than more limited policies based on more limited objectives."

Dr Kissinger said that in our period we had a peculiar challenge.

"In American mythology, if the whole world was democratic there would be peace. It may be true. There is no historic evidence because there have never been enough democratic countries on a global basis to test the proposition although it must be noted that many wars have been extremely popular when they started and that some of the worst excesses that we see in our present period seem to be approved by the populations that carry them out."

In the world today there were really three different kinds of international order existing side by side.

In the north Atlantic area. Dr Kissinger said he believed the principle that democracies did not make wars against each other was essentially correct.

Here the Wilsonian principles of the United States emphasising the importance of economics, free trade and international conciliation found their best expression.

He believed that in the evolution of the international order even greater cohesion in the north Atlantic region was extremely important.

Dr Kissinger said we must go beyond Nato to political structures that reflected this likely community of interests.

This was the world that Europe. North America and maybe the whole western hemisphere could be said to live in - on a 21st century level.

But when you looked at Asia you were dealing with the 19th century.

The relations of the Asian states to each other were more comparable to the relations of European nations to each other in the 19th century.

"There is no sense of ideological community. The nations of Asia consider each other as strategic rivals. We can lecture India or China or Pakistan to our hearts' content about the evils of nuclear proliferation."

"In the world in which they live to forego an element of power is really incomprehensible. They assess their relationships the way European nations did in the 19th century. And that is regardless of their domestic structures."

"India is the most democratic state in the developing world and nevertheless it is pursuing the policy that it has."

Turning to the Middle East. Dr Kissinger said we were dealing with a region that had some of the views of America, namely that the structure of the world must be changed, but

they didn't necessarily accept the proposition that it must be changed in a democratic direction.

Dr Kissinger said that unless one could diagnose what world one was living in one would not be able to define rational objectives.

In the US, there was currently a great debate about its relationship with China.

It was between those who would like to put China into the slot vacated by the Soviet Union as a permanent adversary of the United States and others who believed in a more co-operative relationship.

"I tend to support the administration which holds the latter view. Even though I have great difficulty with the way they explain it."

"Because they create the impression that they can somehow convert the Chinese by understanding them strenuously to our preferred domestic views. This I don't believe will happen."

"I believe co-operative relations with China - unless they challenge our fundamental national interests - are a key to peace and stability in Asia."

"It is for these reasons that I am uneasy about the proclamations of so-called ethical foreign policy that insists on a right of intervention on a global basis."

"That rejects any concept of national interest and that avoids thereby the question of how you define ethics and what sacrifices are you willing to make. what risks are you willing to run and are you starting what will be perceived in the non-European parts of the world as a new era of more sophisticated colonialism."

"This is why I have been uneasy about

NOV-01-1999 16:35

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almost all of these interventions because they
have not yet achieved the objectives which
were proclaimed for them and they have made
almost every situation, in my view, worse.

"I do not accept the proposition that there
is nothing you can do between total interven-
tion and total passivity. And, therefore, in the
political world we have to be careful not to
proclaim doctorates we are either unable to
carry out, unable to sustain or unable of
unwilling to sacrifice.

"Let me make some observations about the
economic world. Conventional wisdom holds
that in economics as in politics that we are
living now in a new global system.

"Let me incidentally point out here that I
am not an economist and I hope in the ques-
tion period you won't challenge me on eco-
nomic grounds. I am talking about the rela-
tionship between economics and politics.

"The argument about economic globalism is
based on these propositions. That we have
discovered a new form of permanent prosper-
ity. A form of prosperity that is open to
everybody. So that the poor have no right to
complain about their conditions because it is
their own fault, especially the poor nations.

"If they carried out the correct macroeco-
nomic policies they too would share in that
prosperity because capital moves freely and it
will go where it is most advantageous and
therefore universal prosperity is within the
grasp of any country willing to make the
necessary domestic adjustments.

"It is a theory that is sustained despite the
fact that there is very little evidence that it has
actually operated anywhere in the developing
world. I would like to raise the political side of
the problems.

"First of all, some countries are too small or
too poor to develop the critical mass needed
for self-sustaining growth. Some countries face
cultural obstacles. The US and other industrial
countries have been forming capital and
engaged in research for years and compound-
ing it annually.

"So this is an. advantage that even with
perfect policies is not so easy to match. When
one speaks of capital flows one obviously
speaks of comparative advantage. One of the
comparative advantages of developing coun-
tries is low labour costs, an absence of social
safety nets, with the result that the process of
industrialisation involves. in many cases, an
increase in social tensions.

"If one says, therefore, one should create
social safety nets, the answer will be that that
is precisely what one has to do away with if
one wants to make the countries more compet-
itive.

"Anybody familiar with the Chinese situa-
tion knows that the State enterprises in China
are their social safety net. That if they privat-
ise them they will have up to 50m to 100m
unemployed. Whether any country can take
the pain of such a decision is not self-evident.

"Then when one deals with the question of
capital flows it is important to distinguish
between equity capital and portfolio capital.

"When a multinational corporation has a
plant in a country it has to become a citizen of
that country in its attitudes if it ever wants to
benefit from its investment but speculative
investment has no such constraints.

"Speculative investment benefits whether the
market is going up or whether the market is
going down. Their task is to determine it and
in fact to help it along. I think there is over-
whelming evidence of the fact that it was the
speculative side of Asian investment not so
much that caused the southeast Asian crisis
but that compounded it.

"There are all kinds of corollaries that when
losses are incurred in one part of the develop-
ing world investments in other parts of the
developing world, not necessarily related to it,
are liquidated in order to provide the correct
balance sheet.

"And finally if one looks again at the record
one has to say that if you take today's Argen-
tina, they carried out the prescription of the
international system to the letter.

"They dollarised their economy, they con-
ducted a restrictive social policy and they now
have 20pc unemployment because their neigh-
bour devalued its currency for many other
reasons. So when a crisis occurs, and it is
important to remember that crises have
occured at intervals of no more than three
years since 1980, the prescriptions of the inter-
national system are for more austerity, for
more cuts in social services, for subordinating
everything to export and thereby in a way
undermining the conditions for political stabil-
ity.

"When we talk about the global system we
talk about an extraordinary decade in the
United States which has created unprece-
dented wealth, broadened the availability of
capital, funded the creation and broad distri-
bution of a wide variety of new technologies,
created markets for an endless array of good
and services.

"In America things can get no better. For
America these are the good old days. But it is
not a pattern that is so easy to duplicate.

"I deeply believe that the democratic system
is the best system of government. At any rate I
agree with Churchill it may not be the best but
nobody has come up with any better one. I
also believe that market economics have
proved themselves as a more reliable guide to
economic growth. But I also believe that it is
necessary to find some relationship between
economic growth and what is politically bear-
able.

"I would also urge some humility in
attempting to export our political institutions
around the world in a finite period of time.
They evolved over 600 years in the English
speaking world."

TOTAL P.06

NOV-11-1999 16:06

KAI DC

212 753 7248 P.02

Globalisation & World Order

By
Dr. Henry Kissinger

Mr. Chairman, the Provost, members of the diplomatic core, Ladies and Gentlemen:

Whenever I hear an introduction of such eloquence I am unfortunately reminded of an occasion at which a lady came up to me once at a reception. I understand you are a fascinating man, she said.

Fascinate me. It turned into one of the less successful conversations I have had. So I know I have a lot to live up to here.

Just one more introductory remark. For the emotional stability of the American ambassador, I want to make clear that he represents the view point of the American government and that I speak for myself. I believe that foreign policy ought to be a bi-partisan effort and on many key issues I support our administration - and even where I don't, I try to help. I am not going to opposition, but he represents the official, if not necessarily the correct, view on Foreign Policy.

It would like to speak to you from the perspectives that I have had in dealing with foreign policy, I've been a Professor and I've been a policymaker. I've written books and have had to make decisions, and the perspective is not always the same. As an outsider, you can pick your subject,

NOV-11-1999 16:06

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2

As a policymaker, problems present themselves. And the hardest thing in high office in the United
States is to prevent the urgent from driving out the important. Every day, thousands of cables
arrive in the State Department and servicing these cables takes more of your time than does
asking yourself about ~~a~~ strategy, for the Middle East or many of the other interesting and~~
important problems. When I travel around the world, I'm so often asked what the American
strategy is on this or that point. Half the time there isn't any particular strategy. They are really
just policy makers, surviving and trying to keep from drowning in the plethora of demands being
made on them. As a policymaker, there are also certain risks you cannot run even if the idea
behind them is brilliant, because you only get one chance at a decision.

I say all of this because, making one more general point, very often the American debate on
foreign policy is presented as a dispute between idealists and realists. Idealists are supposed to
represent the moral point of view and to stand for ethical principles; and realists are supposed to
be down in the pits working out the actual problems, and they see the relationship of societies as
a struggle for power.

In the real world of decisionmakers, that is a meaningless distinction. Moral principles claim
universal validity ~~immediately~~ and are to be immediately executed. Most policy decisions deal
with intermediate steps and are always partly unsatisfactory. The final goal is almost never
realised in a limited period of time, so real policymaking always involves a compromise between
the necessary and the desirable. That means that morality cannot be treated as a cook book in
which there are recipes that can be applied to every conceivable concrete situation as a guide to
immediate action.

NOV-11-1999 16:06

KAI DC

212 753 7248 P.04

I came into office at the end of a period which began with President Kennedy saying America would bear any burden and make any sacrifice anywhere in the world in the defence of liberty. When I came into office, there were riots in the streets in which it was argued that America had no moral right to make any universal claims and that America needed to withdraw from the world and first cultivate its own domestic virtues before it could sally forth again. I have been influenced by a desire to prevent this isolation between the spirit of exaltation and the mood of withdrawal, between over-commitment and isolationism. Whether or not one believes that the period in which I was active met this test is not as important as remembering that this challenge remains with us. And that it is a particular problem for America, because America is like no other major nation. Its history has a clear-cut beginning, its population made up almost entirely of immigrants. It has never had a powerful neighbour, has never faced a direct threat to its existence. It has never known foreign occupation and has, almost always (except in the South and the Civil War), been able to identify foreign policy with domestic policy.

At the end of World War II - and I am of the generation for whom that war was the formative experience - the United States first became engaged in international affairs on a permanent basis. We had 50% of the world's gross national product and we had the atomic monopoly. We did not have to make the sorts of judgements every European country and every Asian country have had to make throughout their histories. We could overwhelm every problem with resources, which coincided with the American view that, if we could only make the world over in our image,

NOV-11-1999 16:07

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[Y]

the problem of peace and war would solve itself almost automatically. This missionary spirit is still a dominant theme in American foreign policy, almost regardless of the administration. My view is that this is beyond our emotional, physical and intellectual resources. No country can make the world over in its own image; the histories are too different and the experiences too varied.

When we try to tell China how to organise its internal affairs, it is easy to forget that China had fourteen imperial dynasties, ten of which had individual histories longer than the entire history of the United States. The Chinese tend to believe that they managed to stagger through forty eight hundred years of their five thousand year history without specific advice from the United States and that, therefore, they may have done something relevant to their survival all on their own. Hence they are not so loquacious to one ignorant of their philosophy.

So we now have many discussions - and we've had them for years - about a new world order. But the fact is, there have always been world orders in periods of peace. In periods of peace there is some agreement either on what constitutes a just, domestic arrangement or an agreement that domestic arrangements don't matter in questions of peace and war, only the demands nations make on each other.

At the beginning of the 19th Century that conviction was that conservative or legitimate rulers were the key to stability. The Holy Alliance was organised for what today we would call an ethical foreign policy, namely to make sure that no country would stray from the accepted moral and political dispensation. Later on in the century, people came to believe that the domestic structures didn't matter so much and there was a period of 100 years in which the balance of power provided the key to the equilibrium. And the reason that worked for that period is because no country felt fundamentally threatened in its survival by other nations. If you look at history, and this affects my own prejudice, when absolute moral claims were pushed to their limits, you got crusades. And I think you will find that crusades usually cost more lives than did more limited policies based on more limited objectives.

NOV-11-1999 16:07

KAI DC

212 753 7248

[Y]

5

In the North Atlantic, I believe that the principle that democracies do not make war against each other essentially holds. Between the nations of Western Europe and the Western Hemisphere as well as between the nations of Europe, war amongst each other war is, to all practical purposes, excluded - except in special regions like the Balkans in which these are not really national wars but ethnic and religious conflicts. Here the Wilsonian principles of the United States, emphasising the importance of economics, free trade and international conciliation, find their best expression. And for this reason, I believe that, in the evolution of the international order, even greater cohesion in the North Atlantic region is extremely important and that we must go beyond NATO to political structures that reflect this possible or, in my view, likely community of interest.

So this is the world. In this sense, Europe and North America and maybe the whole Western Hemisphere can be said to live in the 21st century. But when you look at Asia, you're dealing with the 19th Century. The relations of the Asian states to each other are more comparable to the relations of European nations to each other in the 19th century. There is no sense of ideological community. The nations of Asia consider each other strategic rivals. We can lecture India and Pakistan or China to our hearts' content about the evils of nuclear proliferation. In the world in which they live, to forego an element of power is nearly incomprehensible. They assess their

NOV-11-1999 16:07

KAI DC

212 753 7248 P.07

relationships in the way European nations did in the 19th Century and that is regardless of their domestic structures. After all, India is the most democratic state in the developing world, yet it nevertheless pursues the policy of nuclear annihilation.

If we look at the Middle East, we are dealing with a world that has some of the views of the Americans, namely that the structure of the world must be changed. But they don't necessarily accept the proposition that it must be changed in a democratic direction. This is where fundamentalism challenges our philosophical convictions and where the impact of this sort of approach on us has some of the characteristics of the religious wars of the seventeenth century. I don't want to turn this into a history lecture, but I do want to stress the fact that, unless one can diagnose what sort of world one is living in, one will not be able to define rational objectives.

In the United States, there is now evolving a great debate about our relations with China, a debate between those who would like to put China into the slot vacated by the Soviet Union as a permanent adversary of the United States, and others who believe in a more co-operative relationship. Now I tend to support the Administration, which holds the latter view, even though I have great difficulty with the way they explain it, creating the impression that they can somehow convert the Chinese to our preferred domestic views. This I don't believe will happen, but I do believe that permanent hostility between the West and China will create permanent tensions even if all the Asian countries attempt to manoeuvre between us for their maximum advantage. Thus co-operative, though not necessarily close, relations with China are vital. Unless they challenge our fundamental national interest, they are a key to peace and stability in Asia.

NOV-11-1999 16:08

KAI DC

212 753 7248

7

This is why I have been uneasy about almost all of these interventions. They have not yet achieved the objective which they proclaim and they have, in my view, made almost every situation worse. Nor do I accept the proposition that there's nothing you can do in between total intervention and total passivity. In the political world, we have to be careful not to proclaim doctrines we are either unable to carry out, unable to sustain or are unable or unwilling to sacrifice for.

Now let me make some observations about the economic world. Conventional wisdom holds that, in economics as in politics, we are now living in a new global system. Incidentally, let me point out here that I'm not an economist and that I hope that in the question period you won't challenge me on economic grounds. What I'm talking about is the relationship between economics and politics, and indeed I might tell you that, when I was Secretary of State, the then Secretary of the Treasury commented that my knowledge of economics was one of the best arguments against universal suffrage had ever encountered. (He immediately proved his own knowledge of politics by calling the Shah of Iran, at the height of the energy crisis, "a nut". When I called him up to complain, he said "you political people always get so excited. I'm going to have this problem solved by evening." By evening, he put out a statement saying that "when I called the Shah of Iran a nut," - thereby repeating it a second time - "I was quoted out of context". The poor Shah went to his grave without knowing in what context he could be called a "nut" without offence.)

The argument about economic globalism is based on this prophesy that we have discovered a new form of permanent prosperity, a form of prosperity that is open to everybody so that the poor have no right to complain about their condition because it's their own fault, especially in the poor nations. If they carried out the correct macroeconomic policies, they too could share in that prosperity because capital moves freely and it will go where it is most advantageous. And that puts universal prosperity within the grasp of any country willing to make the necessary domestic adjustments. This theory is sustained despite the fact that there is very little evidence that it has actually upgraded, anywhere, the developing world.

NOV-11-1999 16:08

KAI DC

212 753 7248 P.09

[Y]

8

When one speaks of capital flows, one obviously speaks of comparative advantage. And one of the comparative advantages of developing countries is low labour costs and absence of social safety nets - with a result that the process of industrialisation involves, in many cases, an increase in social tension. If one says that, therefore, one should create social safety nets, the answer will be that that is precisely what one has to do away with if one wants to make the countries more competitive.

Now anybody familiar with the Chinese situation knows that the state enterprises in China are their social safety net. If they privatise them, they will have up to 50 to 100 million unemployed. Whether any country can take the pain of such a decision is not self-evident.

But speculative investment has no such constraints. Speculative investment benefits whether the market is going up or the market is going down. The task is to determine if any factor will help it along. I think there is overwhelming evidence of the fact that it was the speculative side of Asian investments that compounded the South East Asian crisis.

6

NOV-11-1999 16:08

KAI DC

212 753 7248

[Y]

9

And there are all kinds of corollaries: that when losses are incurred in one part of the developing world, investments in other parts of the developing world, not necessarily related to it, are liquidated in order to provide the correct balance sheets.

So, and finally, if one looks again at the record, one has to say that, if you take today's Argentina, they carried out the prescriptions of the international system to the letter. They dollarised their economy, they conducted a restrictive social policy and they now have twenty per cent unemployment because their neighbour devalued its currency, for many other reasons.

Thus when a crisis occurs, and it is important to remember, that crises have occurred at intervals of no more than three years since 1980, the prescriptions of the international system are for more austerity, for more cuts in social services, for subordinating everything to exports and thereby in a way undermining the conditions for political stability.

When we talk about the global system, we talk about an extraordinary decade in the United States that has created unprecedented wealth, broadened the availability of capital, funded the creation and brought distribution of a wide variety of new technologies, and created markets for an endless array of goods and services. In America, where things can get no better, these are the good old days. But it is not a pattern so easy to duplicate in other societies as we see by following, literally, what in America is the result of a long evolution of a well developed regulatory system, a clear legal and political framework, and the kind of rapacious - you can't even call it capitalism - rapacious economics to which this leads.

NOV-11-1999 16:09

KAI DC

212 753 7248 P.11

10

I also believe that market economics have proved themselves as a more reliable guide to economic growth. But it is necessary to find some relationship between economic growth and what is politically bearable. I also would urge some humility in attempting to export our political institutions around the world in a finite period of time. They evolved over six hundred years in the English speaking world, and when one looks at countries like Indonesia - formed out of 15,000 islands and based on having been governed by one colonial power - the question of how to reconcile unity and diversity, which is the key to modern democracy (how much unity do we need and how much diversity can we stand?) is bound to receive a totally different answer. Excessive self-righteousness leads to the tendency to ignore the dangers, to wait until an explosion occurs and then to rely on this principle of intervention.

I don't think the situation in Timor should ever have been permitted to reach a point where the only way out was foreign intervention. It had to be known that, in the middle of an Indonesian election campaign in which all the domestic institutions were up for grabs, one could not also challenge the unity of the country without a high risk of battle. Again, I would not accept the proposition that the choice was one of either doing that or doing nothing.

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11

would not be able to read every book ever written and we knew that we would not be able to remember every book we ever read. So we had to develop concepts which enabled us to recognise comparable phenomena and to project them into the future. The generation brought up on computers and books and pictures has no such necessity. They can evoke the answers they need. They don't have to remember them. They don't have to understand them because they can always evoke them again. So we have created a huge gap between knowledge and information that produces a congenital insecurity in which policymakers need to be sort of confirmed every evening by the television commentators as to the correctness of their policies. But the public does not forgive disasters, even if they reflect their own wishes, because they want more from their leaders. So this is the challenge that I see in the issue of globalism and world order.

11

TOTAL P.12

NOV-11-1999 16:06

KAI DC

Globalisation & World Order

By
Dr. Henry Kissinger

I would like to speak to you from the perspectives that I have had in dealing with foreign policy, I've been a Professor and I've been a policymaker. I've written books and have had to make decisions, and the perspective is not always the same. As an outsider, you can pick your subject,

NOV-11-1999 16:06

KH1 DC

212 753 7248

[Y]

2

As a policymaker, problems present themselves. And the hardest thing in high office in the United
States is to prevent the urgent from driving out the important. Every day, thousands of cables
arrive in the State Department and servicing these cables takes more of your time than does
asking yourself about a strategy for the Middle East or many of the other interesting and
important problems. When I travel around the world, I'm so often asked what the American
strategy is on this or that point. Half the time there isn't any particular strategy. They are really
just policy makers, surviving and trying to keep from drowning in the plethora of demands being
made on them. As a policymaker, there are also certain risks you cannot run even if the idea
behind them is brilliant, because you only get one chance at a decision.

In the real world of decisionmakers, that is a meaningless distinction. Moral principles claim
universal validity immediately and are to be immediately executed. Most policy decisions deal
with intermediate steps and are always partly unsatisfactory. The final goal is almost never
realised in a limited period of time, so real policymaking always involves a compromise between
the necessary and the desirable. That means that morality cannot be treated as a cook book in
which there are recipes that can be applied to every conceivable concrete situation as a guide to
immediate action.

NOV-11-1999 16:06

KAI DC

212 753 7248

[Y]

I came into office at the end of a period which began with President Kennedy saying America would bear any burden and make any sacrifice anywhere in the world in the defence of liberty. When I came into office, there were riots in the streets in which it was argued that America had no moral right to make any universal claims and that America needed to withdraw from the world and first cultivate its own domestic virtues before it could sally forth again. So I have been influenced by a desire to prevent this isolation between the spirit of exaltation and the mood of withdrawal, between over-commitment and isolationism. Whether or not one believes that the period in which I was active met this test is not as important as remembering that this challenge remains with us. And that it is a particular problem for America, because America is like no other major nation. Its history has a clear-cut beginning, its population made up almost entirely of immigrants. It has never had a powerful neighbour, has never faced a direct threat to its existence. It has never known foreign occupation and has, almost always (except in the South and the Civil War), been able to identify foreign policy with domestic policy.

At the end of World War II - and I am of the generation for whom that war was the formative
experience - the United States first became engaged in international affairs on a permanent basis.
We had 50% of the world's gross national product and we had the atomic monopoly. We did not
have to make the sorts of judgements every European country and every Asian country I know
has had to make throughout their histories. We could overwhelm every problem with resources,
which coincided with the American view that, if we could only make the world over in our image,

3

NOV-11-1999 16:07

KHI DC

212 753 7248

[Y]

4

At the beginning of the 19th Century that conviction was that conservative or legitimate rulers were the key to stability. The Holy Alliance was organised for what today we would call an ethical foreign policy, namely to make sure that no country would stray from the accepted dispensation. Later on in the century, people came to believe that the domestic structures didn't matter so much and there was a period of 100 years in which the balance of power provided the key to the equilibrium. And the reason that worked for that period is because no country felt fundamentally threatened in its survival by other nations. If you look at history, and this affects my own prejudice, when absolute moral claims were pushed to their limits, you got crusades. And I think you will find that crusades usually cost more lives than did more limited policies based on more limited objectives.

NOV-11-1999 16:07

KAI DC

212 753 7248

P.06

[Y]

5

5

relationships in the way European nations did in the 19th Century and that is regardless of their domestic structures. After all, India is the most democratic state in the developing world, yet it nevertheless pursues the policy it has.

In the United States, there is now evolving a great debate about our relations with China, a debate between those who would like to put China into the slot vacated by the Soviet Union as a permanent adversary of the United States, and others who believe in a more co-operative relationship. Now I tend to support the Administration, which holds the latter view, even though I have great difficulty with the way they explain it, creating the impression that they can somehow convert the Chinese to our preferred domestic views. This I don't believe will happen, but I do believe that permanent hostility between the West and China will create permanent tensions even between the Asian countries. These will then attempt to manoeuvre between us for their maximum advantage. Thus co-operative, though not necessarily close, relations with China are vital. Unless they challenge our fundamental national interest, they are a key to peace and stability in Asia.

NOV-11-1999 16:08

KH1 DC

212 753 7248

P.08

[Y]

Now let me make some observations about the economic world. Conventional wisdom holds that, in economics as in politics, we are now living in a new global system. Incidentally, let me point out here that I'm not an economist and that I hope that in the question period you won't challenge me on economic grounds. What I'm talking about is the relationship between economics and politics, and indeed I might tell you that, when I was Secretary of State, the then Secretary of the Treasury commented that my knowledge of economics was one of the best arguments against universal suffrage he had ever encountered. (He immediately proved his own knowledge of politics by calling the Shah of Iran, at the height of the energy crisis, "a nut". When I called him up to complain, he said "you political people always get so excited. I'm going to have this problem solved by evening." By evening, he put out a statement saying that "when I called the Shah of Iran a nut," - thereby repeating it a second time - "I was quoted out of context". The poor Shah went to his grave without knowing in what context he could be called a "nut" without offence.)

The argument about economic globalism is based on this prophesy: that we have discovered a new form of permanent prosperity, a form of prosperity that is open to everybody so that the poor have no right to complain about their condition because it's their own fault, especially in the poor nations. If they carried out the correct macroeconomic policies, they too could share in that prosperity because capital moves freely and it will go where it is most advantageous. And that puts universal prosperity within the grasp of any country willing to make the necessary domestic adjustments. This theory is sustained despite the fact that there is very little evidence that it has actually upgraded, anywhere, the developing world.

NOV-11-1999 16:08

KH1 DC

212 753 7248 P.09

[Y]

8

Now anybody familiar with the Chinese situation knows that the state enterprises in China are their social safety net. If they privatise them, they will have up to 50 to 100 million unemployed. Whether any country can take the pain of such a decision is not self evident.

6

So, and finally, if one looks again at the record, one has to say that, if you take today's Argentina, they carried out the prescriptions of the international system to the letter. They dollarised their economy, they conducted a restrictive social policy and they now have twenty per cent unemployment because their neighbour devalued its currency for many other reasons.

Thus when a crisis occurs, and it is important to remember that crises have occurred at intervals of no more than three years since 1980, the prescriptions of the international system are for more austerity, for more cuts in social services, for subordinating everything to exports and thereby in a way undermining the conditions for political stability.

When we talk about the global system, we talk about an extraordinary decade in the United States that has created unprecedented wealth, broadened the availability of capital, funded the creation and brought distribution of a wide variety of new technologies, and created markets for an endless array of goods and services. In America, where things can get no better, these are the good old days. But it is not a pattern so easy to duplicate in other societies by following, literally, what in America is the result of a long evolution of a well developed regulatory system, of a clear legal and political framework and the kind of rapacious - you can't even call it capitalism - rapacious economics to which this leads.

10

I also believe that market economics have proved themselves as a more reliable guide to economic growth. But it is necessary to find some relationship between economic growth and what is politically bearable. I also would urge some humility in attempting to export our political institutions around the world in a finite period of time. They evolved over six hundred years in the English speaking world, and when one looks at countries like Indonesia - formed out of 15,000 islands and based on having been governed by one colonial power - the question of how to reconcile unity and diversity, which is the key to modern democracy (how much unity do we need and how much diversity can we stand ?) is bound to receive a totally different answer. Excessive self-righteousness leads to the tendency to ignore the dangers, to wait until an explosion occurs and then to rely on this principle of intervention.

10

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Globalisation & World Order

By

Dr. Henry Kissinger

Mr. Chairman, the Provost, members of the diplomatic core, Ladies and Gentlemen, whenever I hear an introduction of such eloquence I am unfortunately reminded of an occasion where somebody came up to me at a reception once and said 'I understand you are a fascinating man', said the lady. 'Fascinate me'. It turned into one of the less successful conversations which I had and I know I have a lot to live up to here.

I have been cautioned by many people at the reception not to speak too long because this is a group that likes to challenge speakers, and so I will leave a fair amount of time for questions because I must point out, I was a great admirer of President DeGaule and especially of the way he handled press conferences. He did not believe that he should let French Journalists prescribe the subject that he should speak about. So he arrived with four or five prepared answers and no matter what the question was he worked his way through his answers now we will see what happens later.

And just one more introductory remark, for the emotional stability of the American ambassador who actually hasn't shown up yet, oh here he is, alright for your emotional stability, I want to make clear that he represents the view point of the American government, and I speak for myself.

Normally I believe that foreign policy ought to be a bi-partisan effort and on many key issues I support our administration and where I don't I try to help

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them. I am not going to opposition but he represents the official, if not necessarily correct view, on Foreign Policy.

Now I would like to speak to you from the perspectives that I have had in dealing with foreign policy, I've been a Professor and I've been a policy maker, I've written books and I have had to make decisions, and the perspective is not always the same. As an outsider you can pick your subject, you can work on it for as long as necessary and you have the privilege of changing your mind, in fact you get a lot of credit for changing your mind.

As a policy maker problems present themselves, and the hardest thing in high office in the United States is to prevent the urgent from driving out the important. Every day, thousands of cables arrive in the State department, and servicing these cables takes more of your time than asking yourself about the strategy for the Middle East or many other interesting and important problems and when I travel around the world I'm so often asked what is American strategy in this or that point? Half the time there isn't any particular strategy. They are policy makers, surviving and trying to keep from drowning with a plethora of demands that are made on them. As a policy maker also there are certain risks you cannot run even if the idea behind them is brilliant, because you only get one chance at a decision.

I say all of this because, making one more general point, very often the American debate on foreign policy is presented as a dispute between idealists and realists. Idealists are supposed to represent the moral point of view and to stand for ethical principles, and realists are supposed to be down in the pits working on power problems and they see the relationship of societies as a struggle for power.

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In the real world of decision makers that is a meaningless distinction, moral principles claim universal validity immediately, to be immediately executed. Most of policy decisions deal with intermediate steps, they are always partly unsatisfactory, the final goal is almost never realised in a limited period of time, so real policy making always involves a compromise between the necessary and the desirable and therefore morality cannot be treated as a cook book in which there are recipes that can be applied to every conceivable concrete situation as a guide to immediate action.

On the other hand power is itself very difficult to calculate and the hardest job of any policy maker is to go from where he is, to where he has never been and that requires a degree of moral conviction.

So, I would argue, and it would be borne out by history, that most leaders, whom in retrospect one identifies with having practised a certain kind of power politics, were really animated by a very strong moral conviction. Maybe not a conviction one agrees with but all I want to say is that this distinction between the ideal and the real is one I don't accept and is one that does not describe policy making as I understand it.

I came into office at the end of a period which began with President Kennedy saying America would bear any burden and make any sacrifice anywhere in the world in the defence of Liberty. And when I came into office there were riots in the street in which it was argued that America had no moral right to make any Universal claims and that America needed to withdraw from the world and first cultivate its own domestic virtues before it could sally forth again. And so I have been influenced by a desire to prevent this isolation between the spirit of exaltation and the mood of

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withdrawal, between over-commitment and isolationism. And whether one believes that the period in which I was active met this test is not as important as to remember that this challenge remains with us. And it is a peculiar problem for America, because America is like no other major Nation. It's history has a clear cut beginning, it's population is almost entirely emigrants, it has never had a powerful neighbour, it has never faced a direct threat to its existence, it has never known foreign occupation. It has almost always, except for the South and the Civil War been able to identify foreign policy with domestic policy.

At the end of the war, World War II - and I am of the generation, when I say 'the war', that was my formative experience - at the end of World War II, when the United States first became engaged in international affairs on a permanent basis, we had 50% of the world's gross national product, an atomic monopoly. We did not have to make the judgements that every European country and every Asian country that I know had to make throughout their history. We could overwhelm every problem with resources, and it coincided with the American view that if we could only make the world over in our image the problem of peace and war would solve itself almost automatically. And this missionary spirit is still a dominant theme in American foreign policy almost regardless of administration and my view is that this is beyond our emotional, physical and intellectual resources. No country can make the world over in its own image, the histories are too different and the experiences too varied.

When we try to tell China how to organise its internal affairs it is easy to forget that China had fourteen imperial dynasties, ten of which had individual histories longer than the entire history of the United States. And the Chinese tend to believe that they managed to stagger through forty eight

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hundred years of their five thousand year history without specific advice from the United States and that therefore they may have done something relevant to their survival all on their own.

So we now have many discussions and we've had them for years about a new world order, but the fact is there has always been world orders in periods of peace. In periods of peace there is some agreement either on what constitutes a just, domestic arrangement or an agreement that domestic arrangements don't matter to the question of peace and war, but only the demands nations make on each other.

At the beginning of the 19th Century that conviction was that conservative or legitimate rulers were the key to stability and the holy alliance was organised for what today we would call an ethical foreign policy namely to make sure that no country would stray from the excepted dispensation. Later on in the century people came to believe that the domestic structures didn't matter so much and there was a period of 100 years in which balance of power provided the key to the equilibrium. And the reason that worked for that period is because no country felt fundamentally threatened in it's survival by other nations, and if you look at history, and this affects my own prejudice, when absolute moral claims are pushed to their limits you have crusades and I think you will find that crusades usually cost more lives than more limited policies based on more limited objectives.

But I don't want to argue the relative merits of the various approaches, I'd like to point out that in our period we have a peculiar challenge. In American mythology if the whole world were democratic there would be peace. This may be true, there's no historic evidence because there has never been enough democratic countries on the global pages to test the

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But the challenge all of us face and especially American policy makers is this. In the world today, there are really three different kinds of international order existing side by side.

In the North Atlantic, I believe that the principles that democracies do not make war against each other are essentially correct. Between the nations of Western Europe and the Western Hemisphere and between the nations of Europe, among each other war is to all practical purposes excluded except in special regions like the Balkans where they are not really national wars but ethnic conflicts and religious conflicts. Here the Wilsonian Principles of the United States, emphasising the importance of economics, free trade and international conciliation find their best expression. And for this reason, I believe that in the evolution of the international order even greater cohesion in the North Atlantic region is extremely important and that we must go beyond Nato to political structures that reflect this possible, or in my view, likely community of interest.

So this is the world. So in this sense Europe and North America and maybe the whole Western hemisphere can be said to live in the 21st century. But when you look at Asia you're dealing with the 19th Century. The relations of the Asian states to each other are more comparable to the relations of European nations to each other in the 19th century. There is no sense of ideological community, the nations of Asia consider each other as strategic rivals. We can lecture India and Pakistan or China to our hearts content

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about the evils of nuclear proliferation. In the world in which they live, to forego an element of power is nearly incomprehensible. They assess their relationships in the way European nations did in the 19th Century and that is regardless of their domestic structures and after all India is the most democratic state in the developing world and nevertheless its pursuing the policy that it has.

Then if we look at the Middle East we deal with a world that has some of the views of the Americans, namely that the structure of the world must be changed. But they don't necessarily accept the propositions that it must be changed in a democratic direction. This is where fundamentalism challenges our philosophical convictions and where the impact of these nations, of this sort of approach on us has some of the characteristics of the religious wars of the seventeen century. I don't want to turn this into a history lecture, but I want to stress the fact that unless one can diagnose what world one is living in, one will not be able to define rational objectives.

In the United States there is now evolving a great debate about our relations with China, between those who would like to put China into the slot vacated by the Soviet Union as a permanent adversary of the United States and others who believe in a more co-operative relationship. Now I tend to support the Administration, which holds the latter view even though I have great difficulty with the way they explain it, because they create the impression that they can somehow convert the Chinese, by understanding them strenuously to our preferred domestic views. This I don't believe will happen, but I do believe that a notion, permanent hostility between the West and China will create permanent tensions even between the Asian countries that will then attempt to manoeuvre between us for their maximum advantage, and I believe that close relations, not close, but co-

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operative relations with China, unless they challenge our fundamental
national interest, are a key to peace and stability in Asia.

Now it's for these reasons that I'm uneasy by the proclamations of so called
'ethical' foreign policies that insist on a ride of intervention on a global basis,
that reject any concept of national interest, and that avoid thereby, the
question of how do you define ethics?, what sacrifices are you willing to
make?, what risks are you willing to run?, and are you starting what will be
perceived in non European parts of the world as a new era of more
sophisticated colonialism?

This is why I have been uneasy about almost all of these interventions
because they have not yet achieved the objective which will proclaim for
them and they have made almost every situation in my view worse and I do
not accept the proposition that there's nothing you can do between total
intervention and total passivity. Therefore, in the political world we have to
be careful not to proclaim doctrines we are either unable to carry out, unable
to sustain or are unable or unwilling to sacrifice for them.

Now let me make some observations about the economic world.
Conventional wisdom holds in economics, as in politics, that we are living
now in a new global system - and let me incidentally point out here that I'm
not an economist and that I hope that the question period you won't
challenge me on economic grounds. I'm talking about the relationship
between economics and politics and indeed I might tell you when I was
Secretary of State, then Secretary of Treasury once said that my
knowledge of economics was one of the best arguments against universal
suffrage he had ever encountered. He immediately proved his knowledge of
politics by calling the Shah of Iran at the height of the energy crisis 'a nut'.

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And when I called him up to complain, he said you political people always get so excited, I'm going to have this problem solved by evening. By evening he put out a statement saying when 'I called the Shah of Iran a nut', thereby repeating it a second time, 'I was quoted out of context'. The poor Shah went to his grave without knowing in what context he could be he could be called a 'nut' without offence.

But the argument about economic globalism is based on these prophesies, that we have discovered a new form of permanent prosperity, a form of prosperity that is open to everybody so that the poor have no right to complain about there condition because it's there own fault, especially the poor nations. If they carried out the correct macro economic policies they too would share in that prosperity because capital moves freely and it will go where it is most advantageous and therefore universal prosperity is within the grasp of any country willing to make the necessary domestic adjustments.

It is a theory that is sustained despite the fact that there is very little evidence that it has actually upgraded anywhere in the developing world.

And I would like to raise the political side of the problem. First of all some countries are too small or too poor to develop the critical mass needed for self sustaining growth. Some countries face cultural obstacles. The United States and other industrial countries have been forming capital and engaged in research for nearly 50 years and compounding it annually. So this is an advantage that even with perfect politics is not so easy to match.

When one speaks of capital flows, one obviously speaks of comparative advantage and one of the comparative advantages of developing countries is

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low labour costs and absence of social safety nets, with a result that the process of industrialisation involves in many cases, an increase in social tension. If one says, therefore one should create social safety nets, the answer will be, that that is precisely what one has to do away with if one wants to make the countries more competitive.

Now anybody familiar with the Chinese situation knows that the state enterprises in China are their social safety net. If they privatise them, they will have up to 50 to 100 million unemployed and whether any country can take the pain of such a decision is not self evident.

Then when one deals with the question of capital flows it is important to distinguish between equity capital and portfolio capital. When a multi-national corporation invests in a plant in a country it has to become a citizen of that country in its attitudes if it ever wants to benefit from its investment.

But speculative investment has no such constraints. Speculative investment benefits whether the market is going up or the market is going down. Their task is to determine if any factor will help it along and I think there is overwhelming evidence of the fact that it was the speculative side of Asian investments not so much the cost of South East Asian crisis that compounded it.

And there are all kinds of corollaries that when losses are incurred in one part of the developing world, investments in other parts of the developing world, not necessarily related to it, are liquidated in order to provide the correct balance sheets.

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So, and finally if one looks again at the record, one has to say that if you take today's Argentina, they carried out the prescriptions of the international system to the letter. They dollarised their economy, they conducted a restrictive social policy and they now have twenty per cent unemployment because their neighbour devalued its currency for many other reasons.

So and finally when a crisis occurs, and it is important to remember that crises have occurred at intervals of no more than three years since 1980, the prescriptions of the international system are for more austerity, for more cuts in social services, for subordinating everything to exports and thereby in a way undermining the conditions for political stability.

When we talk about the global system we talk about an extraordinary decade in the United States, which has created unprecedented wealth, broadened the availability of capital, funded the creation and brought distribution of a wide variety of new technologies, created markets for an endless array of goods and services. In America things can get no better, for America these are the good old days but it is not a pattern so easy to duplicate in other societies by following literally, what in America is the result of a long evolution of a well developed regulatory system, of clear legal and political framework and the kind of rapacious, you can't even call it capitalism, rapacious economics to which this leads.

So I want to go back to my original point. I deeply believe that the democratic system is the best system of government. At any rate I agree with Churchill it may not be the best but nobody else has come up with any better one.

[Y]

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I also believe that market economics have proved themselves as a more reliable guide to economic growth. But I also believe that it is necessary to find some relationship between economic growth and what is politically bearable, and I also would also urge some humility in attempting to export our political institutions around the world in a finite period of time. They evolved over six hundred years in the English speaking world and when one looks at countries like Indonesia, formed out of 15,000 islands, based on having governed by one colonial power, the question of how to reconcile unity and diversity, which is the key to modern democracy - how much unity do we need and how much diversity can we stand? It's bound to be given a totally different answer and excessive self righteousness leads to a tendency to ignore the dangers, to wait until an explosion occurs and then rely on this principle of intervention.

I don't think the situation in Timor should ever have been permitted to reach a point where the only way out was foreign intervention. It had to be known that in the middle of an Indonesian election campaign, in which all the domestic institutions were up for grabs, then one could not also challenge the unity of the country without a high risk over the battle. And again I would not accept the proposition that it was either that or doing nothing.

So I return to my original point. Any policy maker will want to contribute to a better and more stable earth. Modern policy makers living in a nuclear age, have a particular nightmare because on the one hand they do not want to tempt universal destruction, but on the other hand if they turned themselves into pacifists they precisely tempt Universal destruction at the hands of the most ruthless.

[Y]

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Modern policy makers live in a world in which decisions are made often by middle level people sitting on computer terminals that can produce vast flows of capital that can have profound consequences on their societies and the problem is how to control the world in which they live. Modern policy makers are the product of an educational system quite different from the one in which my generation grew up, the generation that grew up on books - when they studied knew they would not be able to read every book that's ever been written and they knew they would not be able to remember every book they ever read - so they had to develop concepts which enabled them to recognise comparable phenomena and to project them into the future. The generation brought up on computer and books and pictures have no such necessity. They can evoke the answers they need. They don't have to remember them. They don't have to understand them cause they can always evoke them again. So we have created a huge gap between knowledge and information and it produces a contrinital insecurity in which policy makers need to be confirmed every evening by the television commentators about the correctness of their policies. But the public does not forgive disasters even if they reflected their own wishes because they want more from their leaders. So this is the challenge that I see, the issue of globalism and world order.

I have a Chinese friend who has summed this up, he is a Singaporcan friend who has summed this up in an alleged Chinese proverb. I say alleged because I'm not sure there are as many Chinese proverbs as they lay upon us. But that proverb goes something like this. When there is turmoil under the heavens little problems are dealt with as if they were big problems and big problems are not dealt with at all. When there is order under the heavens big problems are reduced to little problems and little problems should not obsess us. Our challenge is whether we can distinguish little problems from

[V]

November 4, 1999 Thursday

1. Pres. Samaranch would like to speak with you. He can be reached today via the cell phone of his assistant at (41-79)210-2584 or tomorrow in Barcelona at (34-93)339-3666

✓ 2. Prof. Douglas Brinkley would like to talk with you next week for 5 minutes for a profile he is doing on Holbrooke for "Talk" magazine. Tina Brown suggested he speak with you. He's interested in what kind of diplomat Holbrooke is, what is his style and effectiveness. He's looking for just "one quote". 228/463-0131 "yes"

3. Office of Secy. Gen. Kofi Annan has asked for a copy of your Dublin speech. Gina says the transcript is not as good as the outline speech you prepared beforehand and thinks it would be better to use that one, with the notation that you strayed from the text in delivery, than to work on the actual transcript. Now that Kofi Annan has asked for it, it raises the question.

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10/10/99

Outline of Speech at Trinity College, Dublin; text not
exact and subject to change.

Globalization and World Order

Our period, with its temptation towards triumphalism, has
proclaimed that it is establishing a new political world order,
implying that it is the first time in history that such an event
has occurred; and that - more justifiably - it represents the
first truly global economic system, indeed that it is precisely
the global aspect of the economic system that guarantees
permanent economic progress and political stability.

I would like to raise some questions about these
propositions.

First, political world orders exist in all periods of
relative tranquility. They define the nature of just arrangements
and procedures for settling disputes. They are usually perceived
to have the following attributes:

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- Some judgement about the impact of domestic institutions on the international order: either the conviction that domestic institutions determine whether peace is possible - the current view regarding the spread of democratic values; or the belief that peace depends primarily on the equilibrium of forces - in other words, that domestic structures are irrelevant to questions of peace and war, and that all that matters is the ability of states to project their power abroad. Each point of view has prevailed, depending in fact on how the domestic structures interacted.

The 17th century was an age in which domestic notions of justice were perceived as the key to international stability - hence the attempts to impose a particular version of religion on the populations of Europe, leading to the devastations of the Thirty Years War. Reaction to that devastation resulted in the elaboration of the concept of sovereignty, based on the principle of non-interference in the domestic affairs of states.

The 18th and 19th centuries, dominated by concern with

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equilibrium and the balance of power, were substantially
independent of domestic structures and concentrated on the power
of states.

The ideological wars of the 20th century were, in the end,
about domestic structures. The "ethical" foreign policy of the
contemporary period seeks to impose humanitarian standards
regardless of notions of sovereignty, and to extend jurisdiction
to acts committed in other countries. There are, in fact, three
different types of foreign policy being practiced in the
contemporary world:

**Humanitarian-Democratic** in the North Atlantic area and, to some extent, the Western Hemisphere. War between these states is nearly impossible, though they reserve the right to intervene globally on behalf of human rights, even when their security is not being threatened.

**Balance of power** in Asia where states consider themselves strategic rivals but adhere to the principle of non-intervention in domestic affairs.

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**Revolutionary policy** which insists on ideological uniformity and rejects sovereignty, but is based on religious and political principles hostile to the democratic one.

All this is occurring at a moment when communications are instantaneous, politics national and ethnic, economics global in its implications, and leaders are driven largely by media and domestic politics. It is against this background that I want to discuss globalization as it applies to the economic world.

## Globalization

Some questions about globalization:

The conventional wisdom holds that, the world economy being truly global, every country has the opportunity to participate in the general well-being, provided it practices the correct macroeconomic policy. The global economic system works to the benefit of everybody who follows the rules of the game.

In my view, this assessment is, at best, only partially true. The global economic system benefits, above all, the developed countries; the developing countries lag behind and not

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only because of inadequate policies on their part.

The developing world faces the following challenges:

- Some countries are too small or too poor to develop the critical mass needed for self-sustaining growth.

- For some, there are cultural obstacles.

- The United States and the other industrial democracies have compounded the allocation of resources to technology and capital formation for over a generation, a lead no developing nation has as yet been able to approximate, much less overcome.

- In the end, the process of development depends on capital flows. But the developing countries can compete for these largely by offering low labor costs and few exactions for social services. Though even these low wages may be higher than what is available in the villages, movement to the cities destroys the family and cultural support system. Thus the process of development begins by widening the gap between rich and poor in each country. The challenge is whether the political system can stand the cost of development. So far, the evidence on this

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subject is ambiguous. And if a social safety net is created, it
will reduce the comparative advantages of cheap labor.

- This is compounded by the propensity of the global system
to produce financial crises every few years. Each crisis has been
more severe than the preceding one, and more global. Nor does
carrying out the prescriptions of the global economic system
immunize the country against crisis - see Argentina and to some
extent Brazil.

- The remedies of the IMF are invariably austerity, widening
the social gap within each country and compounding political
instability.

- Another complicating factor is the role of speculative
capital, which moves rapidly to take advantage of whatever cycle
dominates (whether up or down) but which is substantially out of
the control of the host country.

- Thus in the medium-term, the elements of dislocation of
the globalization process may outweigh the long-term benefits. As
Professor Stiglitz has pointed out: "What are developing

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countries to make of the rhetoric in favor of rapid
liberalization when rich countries - with full employment and
strong safety nets - argue that they need to impose protective
measures to help those of their own citizens adversely affected
by globalization?"

- The basic challenge is that what is called globalization
is really another name for the dominant role of the United
States. During the past decade, the United States has created
unprecedented wealth; broadened and deepened the availability of
capital; funded the creation, development and broad distribution
of a wide variety of new technologies; created markets for an
endless array of goods and services (many of which are produced
abroad); and improved its distribution of income. In economic
terms, it can get no better: full employment, rising real wages,
increasing productivity, low inflation, increasing wealth and
non-stop growth. For America, these are the good old days.

Since no model anticipated the extent and duration of the
boom, no prediction of the future path of the economy has

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ultimate validity. A recession or prolonged stock market crash
could undo some of the achievements, especially for the world
economy. Success of this magnitude inevitably inspires imitation.
To stretch the point a bit, it is not the preaching of the
Treasury and the IMF that has persuaded countries to move towards
market economics, it is the seemingly endless upward surge in the
New York stock market. The important point is what is being
imitated.

At the macro level, the US policy "model" has combined
conservative fiscal and monetary policies, government
intervention through regulation rather than ownership or control,
and dramatic deregulation of financial institutions, in the
context of an established legal framework. At the micro level, US
business practices assume that capital is relatively cheap, that
people are expensive, that successful competition is more about
lowering costs than increasing prices and that technology is the
key to productivity improvement. In turn, this reduces the
importance of traditional notions of comparative advantage,

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especially those based on factors like labor (because the labor content of most productive processes is relatively low and falling) and natural resources (silicon chips matter more than wood chips).

The only problem is that this model is uniquely appropriate to the circumstances of the United States at the turn of the 20th century. Yet our policymakers and our business schools enthusiastically are in the business of exporting it, with the sort of mixed results that should have been expected. The extreme case is easy: Russia is no closer to being a free market economy than it is to being a democracy, despite all the lectures, billions of dollars and endless crises. But even in countries where some of the preconditions should have existed - in Southeast Asia and South America - the results are spotty at best.

In one important sense, the very success of the United States is the problem. The equation is simple: growth requires capital, capital seeks the highest possible returns with the

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lowest possible risks and the US offers the best tradeoff between risk and return. In a world dependent on private sector saving and private sector investing, the money is going to go where it is most productive. And that does not mean Russia or Brazil or Nigeria; it means New York or California.

(This is about financial capital flows. Direct foreign investment to build plants or equipment should be thought of differently. The plant may be in Brazil, but the business is in the United States or Germany, or wherever.)

Without capital, countries and companies cannot grow; if they cannot grow, they cannot create jobs; if they do not create jobs, politicians quickly lose their appetite for the kind of profound austerity reforms that the successful US model presumes. Ironically, this vicious circle can only be broken if the US becomes a less attractive magnet for capital. But that suggests an even more vicious circle: if the United States finally has a recession or the stock market collapses, it would likely pull the rest of the world economy down with it. And the problem is

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compounded because few leaders in the industrialized countries
have experience with how to deal with recession, and because the
American investor has not lived through a prolonged fall in stock
prices.

There are different solutions to the apparent dilemma for
different players. For countries, the long-term solution is to
embed the macroeconomic reforms in a context of the rule of law,
judicial reform, and the professionalization of public
bureaucracies, and to build more sophisticated local capital
markets. The short-term solution is to try to become as much a
"part" of the United States (i.e., NAFTA or dollarization) or
Europe as possible, but this option is open to very few.

For companies, the only way to survive is to become either
global or local; the companies on the cusp will disappear. For
example, a Mexican manufacturer who produces glass or steel or
components for the auto industry and who does not have access to
capital at the same cost as his US- or European-based competitors
will sooner or later fail, since he has no other competitive

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advantage. But a Mexican owner of radio stations can prosper since, like the United States, Mexico limits foreign ownership of radio and television. He can pay the Mexican cost of capital; he can compete for audience with the best local and international content; and he can benefit from a rising advertising market as the US economy pulls the Mexican economy along in its wake.

The consequence, it seems to me, may be that the big are going to continue to get bigger and more international (but not necessarily more global). The rush to size among very large companies has already moved beyond the United States to Europe; it will certainly push yet further (e.g., the acquisition of the Argentine oil company, YPF, by Spain's Repsol). The "bigger" are going to pick off the large Asian, Latin and African companies; the latter will survive to the extent that they themselves can become less Asian, Latin or African - at least with regard to access to cheap capital. Thus, South African Breweries moves its stock registration to London and Mexico's Cemex buys Spanish companies to let it raise capital as a European. However, there

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are very few "graduates;" most South African companies are still
as South African as they ever were, and most of Mexico is still
Mexico - even if both countries are radically different (and
radically better off) than they were in the not distant past.

But, again, these economic and market changes are driven
more by access to low cost capital than by any profound
reordering of the dynamic of the world economy. At the moment,
this means playing by rules that are largely set in the United
States. That will continue as long as our boom continues or until
the Europeans create a capital market that is as broad, as deep,
as transparent and as dependable. The former could end with a
sustained recession, although I do not expect it to; the latter
is a way off, although the successful launch of the euro and the
emergence of a euro bond market bring it within the realm of
possibility.

I do not pretend to have answers to all these questions but
if the international community does not find means to deal with
them, the early 21st century could find itself beset

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by the same sort of social conflict that characterized the
beginning of the 20th century.

## Conclusion

- The problem of political world order thus requires some reconciliation between the principles of sovereignty and humanitarian intervention, and between parts of the globe pursuing different concepts of international order.

- Globalist economic policy requires some reconciliation between the market and what is socially and politically bearable.

- Some agreed relationship between equity and speculative investment.

- Some means of dealing with crises that mitigates austerity.

-Trade policies that take into account the concern of developing countries with their special problems, especially agriculture and extractive industries.

- A recognition by the United States that its fiscal and monetary policies affect the global system and not solely the

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1

10/10/99

Globalization and World Order

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institutions determine whether peace is possible - the current
view regarding the spread of democratic values; or the belief
that peace depends primarily on the equilibrium of forces - in
other words, that domestic structures are irrelevant to questions
of peace and war, and that all that matters is the ability of
states to project their power abroad. Each point of view has
prevailed, depending in fact on how the domestic structures
interacted.

The 18th and 19th centuries, dominated by concern with
equilibrium and the balance of power, were substantially
independent of domestic structures and concentrated on the power

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of states.

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[Y]

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principles hostile to the democratic one.

Globalization

In my view, this assessment is, at best, only partially
true. The global economic system benefits, above all, the
developed countries; the developing countries lag behind and not
only because of inadequate policies on their part.

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- In the end, the process of development depends on capital flows. But the developing countries can compete for these largely by offering low labor costs and few exactions for social services. Though even these low wages may be higher than what is available in the villages, movement to the cities destroys the family and cultural support system. Thus the process of development begins by widening the gap between rich and poor in each country. The challenge is whether the political system can stand the cost of development. So far, the evidence on this subject is ambiguous. And if a social safety net is created, it will reduce the comparative advantages of cheap labor.

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- Thus in the medium-term, the elements of dislocation of the globalization process may outweigh the long-term benefits. As Professor Stiglitz has pointed out: "What are developing countries to make of the rhetoric in favor of rapid liberalization when rich countries - with full employment and

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Since no model anticipated the extent and duration of the boom, no prediction of the future path of the economy has ultimate validity. A recession or prolonged stock market crash could undo some of the achievements, especially for the world

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LYA

8

At the macro level, the US policy "model" has combined conservative fiscal and monetary policies, government intervention through regulation rather than ownership or control, and dramatic deregulation of financial institutions, in the context of an established legal framework. At the micro level, US business practices assume that capital is relatively cheap, that people are expensive, that successful competition is more about lowering costs than increasing prices and that technology is the key to productivity improvement. In turn, this reduces the importance of traditional notions of comparative advantage, especially those based on factors like labor (because the labor content of most productive processes is relatively low and

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In one important sense, the very success of the United States is the problem. The equation is simple: growth requires capital, capital seeks the highest possible returns with the lowest possible risks and the US offers the best tradeoff between risk and return. In a world dependent on private sector saving

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[Y]

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Without capital, countries and companies cannot grow; if they cannot grow, they cannot create jobs; if they do not create jobs, politicians quickly lose their appetite for the kind of profound austerity reforms that the successful US model presumes. Ironically, this vicious circle can only be broken if the US becomes a less attractive magnet for capital. But that suggests an even more vicious circle: if the United States finally has a recession or the stock market collapses, it would likely pull the rest of the world economy down with it. And the problem is compounded because few leaders in the industrialized countries have experience with how to deal with recession, and because the

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11

For companies, the only way to survive is to become either global or local; the companies on the cusp will disappear. For example, a Mexican manufacturer who produces glass or steel or components for the auto industry and who does not have access to capital at the same cost as his US- or European-based competitors will sooner or later fail, since he has no other competitive advantage. But a Mexican owner of radio stations can prosper since, like the United States, Mexico limits foreign ownership of

OCT-10-99 SUN 12:24

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FAX NO. 5617450358

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[Y]

12
radio and television. He can pay the Mexican cost of capital; he
can compete for audience with the best local and international
content; and he can benefit from a rising advertising market as
the US economy pulls the Mexican economy along in its wake.

The consequence, it seems to me, may be that the big are
going to continue to get bigger and more international (but not
necessarily more global). The rush to size among very large
companies has already moved beyond the United States to Europe;
it will certainly push yet further (e.g., the acquisition of the
Argentine oil company, YPF, by Spain's Repsol). The "bigger" are
going to pick off the large Asian, Latin and African companies;
the latter will survive to the extent that they themselves can
become less Asian, Latin or African - at least with regard to
access to cheap capital. Thus, South African Breweries moves its
stock registration to London and Mexico's Cemex buys Spanish
companies to let it raise capital as a European. However, there
are very few "graduates;" most South African companies are still
as South African as they ever were, and most of Mexico is still

OCT-10-99 SUN 12:24

GOLDHAMMER

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[Y]

13

But, again, these economic and market changes are driven more by access to low cost capital than by any profound reordering of the dynamic of the world economy. At the moment, this means playing by rules that are largely set in the United States. That will continue as long as our boom continues or until the Europeans create a capital market that is as broad, as deep, as transparent and as dependable. The former could end with a sustained recession, although I do not expect it to; the latter is a way off, although the successful launch of the euro and the emergence of a euro bond market (as opposed to eurobond market) brings it within the realm of possibility.

I do not pretend to have answers to all these questions but if the international community does not find means to deal with them, the early 21st century could find itself beset by the same sort of social conflict that characterized the beginning of the 20th century.

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[Y]

14

<u>Conclusion</u>

- A recognition by the United States that its fiscal and monetary policies affect the global system and not solely the national interest.

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- Thus in the medium-term, the elements of dislocation of the globalization process may outweigh the long-term benefits. As Professor Stiglitz has pointed out: "What are developing countries to make of the rhetoric in favor of rapid liberalization when rich countries - with full employment and strong safety nets - argue that they need to impose protective measures to help those of their own citizens adversely affected by globalization?"

800

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key to productivity improvement. In turn, this reduces the importance of traditional notions of comparative advantage, especially those based on factors like labor (because the labor content of most productive processes is relatively low and falling) and natural resources (silicon chips matter more than wood chips).

[Y]

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10/10. 99

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States is the problem. The equation is simple: growth requires capital, capital seeks the highest possible returns with the lowest possible risks and the US offers the best tradeoff between risk and return. In a world dependent on private sector saving and private sector investing <u>they could be separated, of course</u> - the money is going to go where it is most productive. And that does not mean <u>China</u> or Russia or Brazil or Nigeria; it means New York or California.

Without capital, countries and companies cannot grow; if they cannot grow, they cannot create jobs; if they do not create jobs, politicians quickly lose their appetite for the kind of <u>ambitious</u> reforms that the successful US model presumes. Ironically, this vicious circle can only be broken if the US becomes a less attractive magnet for capital. But that suggests

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an even more vicious circle: if the United States finally has a recession or the stock market collapses, it would likely pull the rest of the world economy down with it. And if the problem is currently because few traders in industrialized countries know how

There are different solutions to the apparent dilemma for different players. For countries, the long-term solution is to embed the macroeconomic reforms in a context of the rule of law, judicial reform, and the professionalization of public bureaucracies, and to build more sophisticated local capital markets. The short-term solution is to try to become as much a "part" of the United States (i.e., NAFTA or dollarization) or Europe as possible, but this option is open to very few, and is imperfect.

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013

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I do not pretend to have answers to all these questions but
if the international community does not find means to deal with
them, the early 21st century could find itself beset?

1

Globalization and World Order

Our period, with its temptation towards triumphalism, has
proclaimed that it is establishing a political world order for
the first time in history. And that - more [justifiably] - it
represents the first truly global economic system, indeed that it
is precisely the global aspect of the economic system that
guarantees permanent economic progress and political stability.

First, political world orders are not novel. They exist in
all periods of relative tranquility. They define the nature of
just arrangements and procedures for settling disputes. They are
usually perceived to have the following [attributes]:

- Some relationship of the components to domestic institutions. Either the conviction that domestic institutions determine whether peace is possible - the current view regarding