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Principles for dealing with the Soviets ............ Henry Kissinger

Recession Warning ............ Paul Craig Roberts

The Risks of an Information Society ............ Richard Wilcox

Pat Garrity

The Philippines: Continued Political Instability Likely

## Principles for dealing with the Soviets

Theoretically the Soviets have what they would call "objective reasons" for a constructive East-West dialogue. The Soviet system is in trouble. Its leadership is in transition, its economy decrepit, its allies restive. By any rational calculation the Soviet Union should know that a continuation of its present course runs a large risk of confrontation. Its leaders cannot be so encapsulated in their prejudices as to believe that they can defeat America without our noticing it sooner or later. The longer the process lasts, the greater is the risk of some escalation.

A number of principles ought to govern Western approaches:

* Democracies have no reason to fear negotiations with a stagnant and brittle dictatorship. But neither should talk become an end in itself. The importance of a dialogue should therefore not be the subject of debate either within the countries of the alliance or between them. The debate should concern the subjects appropriate to an East-West dialogue, not the fact of it.

* There is need for calm in the domestic discourse of the various allies. There is a tendency to adjust the assessment of Soviet strength to preconceived notions. The Soviets are neither as powerful or cunning as the opponents of detente claimed; nor are they as close to disintegration as some self-proclaimed apostles of peace allege.

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o If we want to avoid the East-West dialogue dividing the alliance, or becoming an end in itself, the United States and its allies must agree on a long-term East-West strategy. This will have to include the whole gamut of East-West relations, including trade.

o Arms control cannot possibly carry the entire or even the principal burden of the East-West dialogue. If too much weight is put on arms control, it is more likely -- in Lord Carrington's words -- to expose the raw nuclear nerve of the alliance than to resolve it.

Still, even if attitudes should change, the subject is simply too difficult to permit a rapid resolution. And the best foreseeable outcome would be primarily symbolic. Some 20 thousand strategic warheads are in the arsenals of both sides. Even were the Soviets to accept our proposal to cut this total by half, the remaining warheads would be more than sufficient for catastrophe.

In short, arms control separated from a political dialogue cannot end the current tensions or even significantly ease them. Indeed, if the quest for arms control becomes too frantic it will turn into a weapon of Soviet political warfare. Or else it will become a safety valve that the Soviets turn off to increase Western nervousness and on to reduce the impact of a new act of aggression.

o The urgent need is for a serious political dialogue at the highest levels. The so-called confidence-building measures so beloved by professional diplomats cannot advance us very far. The opening of consulates or cultural exchange programs -- even the prenotification of maneuvers -- have at best a peripheral significance.

The problem is how to define the highest level. A premature summit meeting would involve exorbitant risks -- though Andropov's health almost surely excludes it in any event. Heads of state cannot talk freely at the summit; their constituencies are always with them mentally; sometimes they are even in the room. Summit meetings, moreover, leave little time for real discussion. They can put the finishing touches on

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agreements reached previously; they are not well suited
to breaking the ice.

One way to avoid this dilemma would be for each
side to designate a special representative enjoying the
full confidence of its head of government and foreign
minister. He should be authorized to conduct private,
exploratory conversations on their behalf, preferably
without publicity.

o So far, attempts to discuss political problems systematically have been dismissed as "linkage," and linkage is supposed to be bad because it is alleged to be an obstacle to arms control. By now we should have learned that the opposite is true. Arms control separated from any political context is likely to run into a dead end. The danger of war, after all, resides less in the existence of the weapons of mass destruction than in the minds of the men who are in a position to order their use. And such men will be driven by political conflicts, not systems analyses.

A serious dialogue must come to grips with how coexistence is to be defined. Abstract though this may sound, it is at the heart of the problem. No detente can be sustained if all it does is to give rise to a political offensive designed to unhinge the global balance of power.

I say this not to sabotage hopes for a dialogue but to define its essence. The Soviet Union must decide whether it is a country or a cause. It must be willing to define security in terms other than the impotence of potential adversaries. Some ground rules for coexistence are essential. Once that bridge is crossed, opportunities for increased cooperation in trade and culture would be high on the agenda. And out of such an exchange, progress on arms control would flow naturally, almost inevitably.

o Such a process requires the restoration of bipartisanship in the United States and an end to the constant "reassessments" that disquiet our friends and confuse, when they do not embolden, our adversaries. The national interest does not change every four or

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eight years; at some point it must be fixed in the
public mind.

And it is time for our European allies to abandon
the charade that their principal foreign policy goal is
to moderate an intransigent America -- a role more
appropriate for neutrals than allies.

o Finally, we in the West must be prepared to face
the fact that, even with our best efforts, a thaw in
East-West relations may simply not be in the cards. It
is possible that Andropov is too ill and his colleagues
too preoccupied with succession issues to change their
intransigent course.

Perhaps the emergence of the secret police in
leadership positions means that the Soviets are
applying intelligence methods to the conduct of foreign
policy. They may have come to the conclusion that a
relentless political and psychological offensive will
wear down the democracies and they may be far from
discouraged when they study some Western
pronouncements. Or perhaps the whole Soviet system is
frozen in inertia.

If any of these hypotheses turns out to be
accurate we have no choice except to stand on our best
proposals, thoughtfully devised. The West need not
panic at a period of deadlock. Its economy, for all
its shortcomings, is more vital, its governmental
structure stabler, and its overall power greater. The
alliance can thus face a period of holding firm with
confidence -- provided it preserves its unity.

These extracts are taken from the address that Dr.
Kissinger, CSIS counselor, presented at the
conference on "The Future of NATO and Global Security,"
held by CSIS in Brussels in January 1984.

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Recession Warning

The U.S. economy may be heading toward recession, not expansion, in 1984 as a result of an overly restrictive monetary policy that bears a striking resemblance to the one that preceded the 1981 recession.

The recent sharp slowdown in economic activity has been optimistically interpreted as a sign of a sustainable recovery. But, if 1981 is a guide, the slowdown is a sign of an economy headed toward recession. December's "strong" retail sales were reportedly up only 0.1 percent. And, although financial writers are explaining the decline in the leading indicators as an indication that the economy "has moved from recovery to expansion," sensitive material prices have been a negative factor in the leading indicators for three months in a row.

Watch M1 Growth

As in 1981, there is an amazing disinclination to see what monetary policy is writing on the wall. The U.S. Treasury has found that despite variations in the definition of M1, changes in M1 growth rates have a major impact on real GNP one to two quarters later. On the other hand, neither M2 nor M3 track well with the economy. In 1981, while M1 growth collapsed and the economy fell into recession, M2 and M3 grew at 9.2 percent and 11.6 percent annual rates.

M1 and the 1981 Recession

In March 1981 the U.S. Treasury's Office of Economic Policy noted: "The monetary base has been flat since mid-November. It had been growing at an 8 to 9 percent annual rate for the last several years and 10 percent this past summer and early fall. There is no recent parallel for such an abrupt slowdown." The sharp slowdown in monetary base growth soon pulled down M1 growth. By October 1981 M1 had been flat for six months and the economy was in recession.

The Reagan tax cuts were thus overwhelmed by one of the tightest monetary policies in the postwar era-- although they moderated the severity of the recession

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and gave an added kick to the recovery that began after the Fed's massive outpouring of money from the summer of 1982 until the spring of 1983.

## 1983 -- Monetary Restraint Again

Last spring monetary policy changed direction again. Growth in the monetary base sharply decelerated, and M1 growth collapsed in the summer. By the middle of December 1983, growth in M1 had fallen to a 1.5 percent annual rate during the previous four months -- down from 13.5 percent growth during the preceding 12 months.

The U.S. Treasury's monetary model predicted in December that the slowdown in M1 growth would cause 1984 real GNP growth to drop to 2.0 percent in the second quarter and to zero in the third and fourth quarters. If the Fed soon accelerates money supply growth, the slowdown underway might not be as severe. But the deceleration in money during 1983 has already taken substantial growth out of the economy.

It is essential that the Fed abandon its roller coaster pattern of explosive monetary growth and then severe restraint, which is jeopardizing economic recovery in 1984 as it did in 1981. It is also essential that economists, businessmen, and government officials stop wringing their hands over deficits that allegedly threaten to overheat the economy and bring back inflation while, in fact, monetary restraint is pushing the economy back toward recession.

Paul Craig Roberts
William E. Simon Chair in Political Economy

This material is drawn from a longer analysis that appears in the February 6, 1984 issue of *Business Week*.

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The competitive pressure to find faster, more efficient ways to move information is creating risks for business that are just beginning to be appreciated by government, management, and those who might want to abuse the system.

EFT Networks

The financial community now moves the equivalent of the entire annual federal budget through its electronic funds transfer (EFT) networks every two to four hours, utilizing the most modern telecommunications and automated information processing equipment. The Bank of America alone moves $120 billion per day.

EFT networks are particularly vulnerable to physical disruption because they utilize common carrier lines, where minimal security precautions exist. Electronic jamming would be relatively easy, passive monitoring even more so. Indeed, critical information about the giants of the financial world could be gained by someone with only rudimentary skills and readily available equipment.

Fortunately, these vulnerabilities have not been seriously exploited, but the risks remain high and insurance protection minimal. Lloyd's of London's maximum coverage is only $25 million, although the potential losses involved in EFT systems are far greater. Other industries share many of these same vulnerabilities to intentional or unintentional disruption, espionage, or theft.

Management Concerns

The high-level manager concerned about teleprocessing vulnerabilities faces a bewildering problem. Although potential risks are enormous, near-term risks are very difficult to gauge, and the technical knowledge needed to evaluate security systems is considerable. There are fierce competitive pressures to cut costs and a variety of other high

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priority problems with much more clear-cut consequences. Finally, there are still no laws that specifically deal with computer crimes, although several are pending.

Improving Information Security

Although the problems are serious, they are not insurmountable. At the Los Alamos National Laboratory, security has been improved by encrypting information and sending it through satellite links rather than more vulnerable land lines or microwave systems. Implementing such a system requires "planning, dollars, and clout," in the words of Lara Baker, R&D program manager of Los Alamos's security division.

The simplest way to improve teleprocessing security is through redundancy: backup data bases (which must be updated to be useful), alternative communication routes, physically dispersed data bases, substitutable computer hardware, and so on. For sensitive information, data encryption is useful. Most firms specializing in computer security can help organizations perform risk assessments needed to determine cost/risk trade-offs.

In the long run, teleprocessing security would be improved by

* partial federal insurance against catastrophic failure;

* tax incentives to industry for disaster preparation;

* a specific government organization for the prevention or management of network disruptions;

* further development of security standards by business organizations.

So far, top management officials, terrorists, and criminals have not fully grasped the security problems that are involved in the new teleprocessing networks.

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The murder of former Philippine Senator Benigno Aquino at the Manila airport on August 21, 1983 rocked the Philippines and may yet culminate in political shock waves that could transform the Philippine political landscape.

Aquino's murder catalyzed the previously faction-ridden and ineffective Philippine opposition, thrusting President Ferdinand Marcos on the political defensive at a time when his health and even his legendary political sagacity appear at a low ebb.

Martyrdom, Recession, and ...

In death, Aquino has been nearly deified -- as was Jose Rizal, the Philippine national hero garroted by the Spanish in 1896. The image of a secular Christ-like martyr whose suffering awakens the national conscience has powerful roots in the collective Philippine mind.

Economics has reinforced mysticism in creating problems for the Marcos regime. At least $400 million in capital have fled the Philippines since Aquino's murder. Another $600 million of supposed foreign exchange reserves were discovered never to have existed. Business failures, layoffs, high inflation, and tight money are forecast for 1984, with imports projected to be down 25 percent -- to about $5 billion.

... The Succession

Finally, Marcos, 66 years old and reportedly suffering from a kidney problem, remains the greatest political question mark. His death prior to presidential elections scheduled for 1987 would probably lead to great political confusion.

The possible candidates to succeed Marcos in such a circumstance -- Senators Diokno, Laurel, Tolentino, Salatonga, and others -- have a certain shopworn quality about them. Elections for the presidency and vice presidency may follow as stipulated within 60 days, but even unhampered elections are unlikely to

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resolve the question of who wields real political power. Above all, the question of the role of the redoubtable First Lady, Imelda Marcos, would be unresolved in the event she herself did not contest the presidency.

In any event, if Marcos passed from the scene the temptation would be strong for his partisans to stage a coup to preserve the system Marcos built -- and their position in it. A coalition of military and policy figures could undoubtedly seize power and attempt to rule by force. But this would likely be the prelude to only greater confusion, factionalism, and the loss of coherence and consensus in the political system.

## The Marcos Legacy -- A Breakdown in Legitimacy and Authority?

Ferdinand Marcos has dominated the Philippine scene so completely since he declared martial law in 1972 that his eventual departure seems destined to leave a gaping hole in authority. The system of governance and the political institutions he established were designed to facilitate his personal rule. Whether this structure will be suitable for the needs and abilities of his successors can only be answered by time. In the months since the Aquino murder, however, the hitherto effective Marcos political structure has shown signs of decay and ossification. Pressures for political and economic reform are mounting in an atmosphere of lessened public confidence in the Marcos leadership. The prognosis for political stability in the Philippines is not favorable.

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