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Madam Chairman, it is an extraordinary honor for me to be asked to speak about an
economic topic. My only explanation for accepting is that our Chairman is one of the few
heros I have in this world and when he asks me to do something I do it and any inadequacies
of my presentation you must blame on him. Also, I will somewhat redefine my topic to get
closer to a subject I think about more consecutively than economics. So, I will talk first
about some of the philosophical points which Pierre raised and then I would like to make a
few foreign policy observations about the evolution of the new societies that are in the
process of transition.

It is true that capitalism is the only game in town right now, but it is one of the
interesting phenomena for someone who looks at these things from a more theoretical and
philosophical point of view that the version of capitalism which is being propagated by the
Harvard School of Economic Advisors and one or two Swedes is the version of mid-19th
century capitalism which produced socialism. I was in Russia at one point when an
American economist, abetted by a Swedish economist was telling the Russian Deputy Prime
Minister in December that they had to throw 25,000 businesses into bankruptcy by March,
thereby throwing millions into the street in the middle of the winter. If that advice had been
followed, which it wasn't, in a country that has no social safety net and the notion that the
market would take care of everything automatically was abandoned in the west, in the United
States at the time of the New Deal and in all European countries several decades earlier.
And yet that is substantially the version that the economists have been propagating in the East
European countries and in the former Soviet Union. This has had the curious result that first
of all, some of the disputes of the mid-19th century that produced Marxism have reappeared
under the aegis of western advisors and that in many former communist countries the
communist parties are gaining in strength as so-called democratic parties. This creates the
anomaly that the same people who, in some cases, were even in the secret police and, in all
cases, could not have achieved leadership within the communist party - they are at least
making their colleagues believe that they were devout believers - are now heading so-called
democratic communist parties, whatever that means. Even if they are sincere, I find it hard
to give a democratic content to what at least some of the communist leaders of the so-called
democratic parties of communism now maintain.

Moreover, capitalism establishes itself in the former socialist countries and if
capitalism becomes uniform around the world it will face everywhere the structural problems
of capitalism which are now emerging in western societies. Of these structural
unemployment is a very important one. It has been remarked on by others here that you can
have growth without an increase in employment, without significant increase in employment.
This is becoming a crucial factor, a crucial challenge of capitalism. And if it is solved by
redefining working hours then the problem of leisure and of having a big class of people that,
as in Roman times, needs bread and circuses becomes a growing social problem, so that even
when it succeeds then the problems in former communist countries will begin to merge with
the problems of western societies in which a structural crisis of capitalism of an unexpected
kind, namely of being able to produce without increasing employment or finding it more
advantageous to hire machines than to hire human beings, will become very crucial.

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A few weeks ago, I was in China and a number of Chinese leaders dealing with the economy talked about the problem of state enterprises. They know very well that many of them are uneconomic and they also face the problem that these enterprises present a social safety net, a social insurance system and an element of employment and, therefore, that to move too radically on purely economic grounds is bound to produce a political crisis. So to the extent that capitalism is put forward in its unadulterated, purely economic form, without the mitigating aspects of the political process that will be needed to deal with its tendency to monopoly and inequality, that self-interest cannot operate always in finding a reconciling principle, then a crisis of some kind is inevitable.

Thirdly, I believe that as Pierre has already hinted, there are some built-in obstacles to the institution of an international free trade system in which capital moves with absolute freedom and in which the economic considerations are the only element that produce economic decisions. It may be true that perfect free trade and total mobility produce the most good for the greatest number, but only on the average. In any particular region of the world some group will lose and in other regions of the world somebody will win. Those who lose, those territories from which industries and employment move will try to avoid this if they have a political process at their disposal and that is called protectionism. And I believe that the incentives in that direction will grow if only in the form of creating large regions, probably something like these three regions of which Pierre spoke. It seems to me that will be the trend of the European Union, maybe the trend of NAFTA, and it could emerge in Asia.

Let me go to another topic, the relationship of economic progress and peace. Market economics and democracy involve many cultural preconditions. Russia has had a different history from Europe; it has always had a state church; it has never had a separation of church and state; it has never had an enlightenment as a general aspect of society; it has not had a Reformation; it has not had capitalism in the western sense. And, therefore, the cold turkey application of market economics has the practical result of leading to chaos. Or to mafia-type organizations that operate like dictatorships and institute a system of order within their respective jurisdictions. There is, consequently, a big difference between the countries of Eastern Europe, which were part of the western tradition, and Russia, which has had a different tradition and which, moreover, is located in Asia and the Middle East at the same time.

So we have to be careful to speak about market economics leading to democracy and democracy leading to peaceful foreign policy. It does not appear to me that Russia is moving toward a democracy in the western sense and to the extent that its government believes it needs public support it may be tempted by a nationalistic policy hard to distinguish from some of the traditional policies of the Czars or of Gromyko. What Gravcheck proposed at the NATO conference last week was, more or less, what Gromyko would have proposed and did propose, a Russian veto and Russian predominance in Eastern Europe up to the old demarcation line. This tendency is almost inherent in the system which has created so many frustrations and so many humiliations that the best way for the leadership to establish any

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kind of authority is to conduct a very active and more or less, traditional foreign policy. So, with respect to the former communist states, I would draw a dividing line as far as democracy is concerned at the Polish border with Russia. And I think it becomes extremely important to connect the East European countries to Europe and to define Europe in some concrete manner and not as some mish-mash of arrangements that go from Vladivostok to Vancouver based on a vapid set of slogans.

The so-called partnership for peace with NATO will wind up with diminishing NATO, dissolving European identity and liberating the worst Russian tendencies. Russia has been an empire for 400 years. For 400 years no neighbor of Russia has felt secure. Peace and stability will not be achieved by intervening in the political process in Moscow, which we do not understand fully anyway. It will require some reaction to the current tendency of Russian foreign policy to make independence so unendurable for the former members of the Soviet Union until they come back home to Russia and accept some sort of Russian domination, as Schevernadze had to do in Georgia, as they are being forced to do in Azerbaijan, as Belarus is being forced to do and as the Ukraine is being subjected to. When that is achieved, there will be a demand for a veto over the policies of Eastern Europe. And the stronger Russia gets, the more this will be true. And it is, therefore, imperative for the West to define what they mean by Europe, what they mean by an Atlantic relationship.

This does not mean that one cannot have good relationships with Russia - quite the contrary. It means that whether Russia has become democratic or not, it should abandon imperial pretensions. Russia contains eleven time zones and has a population of over 200 million. So, it would not be asking something excessive of them to develop their eleven time zones and for the first time in Russian history to do something with their population. If that is achieved, then, real geopolitical transformations can occur but if it is not achieved we are going to go back to historic crises. Historically foreign policy in Russia was conducted in two departments: the foreign office, which conducted policy for everything west of Warsaw that Russian armies could not reach and where they conducted a more or less traditional foreign policy, with a heavy interventionist character, but nevertheless, more or less traditional; the second was the Asiatic department, to which belonged all the Balkans, Turkey, Central Asia, Korea and Manchuria. The Asiatic department never appealed to European congresses. They always acted unilaterally and it usually required from the 19th century the British fleet showing up in Istanbul or the Austrians threatening them on the flank before they stopped unilateral activities. So, the conclusion I draw is one, that as capitalism spreads it will produce first the normal crisis of capitalism that we know from the 19th century which needs a social safety net, but secondly, it will also produce, as it already is doing in western societies, a crisis produced by a level of production that was unimaginable before and that makes employment a political challenge in all capitalist societies. And the more former communist countries in fact become capitalist, the more they will approach our problems in that respect. So there is no automatic relationship between the method of production and a peaceful foreign policy.

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Let me say a few words about China, which I think is in a different category. The system in China has not disintegrated. The Chinese decided that they could not have political and economic upheaval at the same time and they concentrated, therefore, on an economic revolution which, in my view, has gone much further than the Russian revolution and which has its own momentum. Under the impact of this revolution, it is quite probable that the communist party of China will become less Marxist and more like the PRI in Mexico, a government party that produced social stability and reconciled different points of view.

I believe that this is an evolution which which we should not try to interfere with too much. Altogether, I believe that there is a danger that the west, especially the United States, is much too intrusive in insisting on its political and moral preferences be imposed by pressure on other societies with a totally different background.

Now what will have to take place in Asia is the evolution of the relationship between Russia, Japan, China and, to some extent, India and South-East Asia that has more similarities to the European equilibrium of the 19th century than to the European Union. And this requires a greater understanding of foreign policy than what has been characteristic of certainly the United States recently and less reliance on the automatic operation of economic systems. Those are my random observations caused by the Chairman on a topic that I would not have selected if he had given me a free choice. Thank you very much.