two roads to stability: one is hegemony based on a country's
dominance; the other is equilibrium, which is another way of
describing the notorious balance of power. The trouble is
that the American body politic tends to reject both
approaches. Hegemony will prove physically draining; the
American public seems determined to reject the role of
global policeman which hegemony implies, and the course runs
counter to the moral convictions of the American people.

But balance of power has been historically rejected by the
American political and intellectual communities as a source
of endless tensions--though at crucial periods, such as in
deciding to enter the two world wars to preserve the global
balance of power, Americans have been prepared to overcome
their prejudice. Still, a call to rely on the national
interest is considered by many a revolutionary, if not a
reactionary, proposition. And even when an attempt is made

to apply the concept, the national interest continues to be
defined in sweeping, ideological terms.

Yet the reality is that the emerging world order will
have to be based on some concept of equilibrium, at least
some concept of balance among its various regions. It is
impossible for every participant in an international system
to be perfectly satisfied with every aspect and at all
times; that happy condition has never been achieved by
humanity. Still, it may be possible for the major players
to be sufficiently satisfied that they do not seek to
overthrow the international system by violence, terrorism,
economic warfare, or other methods so well elaborated in our
century.

But while post-Cold War foreign policy reflects some
traditional patterns, there are important differences as

10

well. For one thing, modern economics has changed the nature of incentives. Historically, nations could effect changes in the balance only by conquest. In our day, technology permits quantum changes in a society's power by changes entirely within its own territory. No conceivable conquest could augment a nation's power like the acquisition of nuclear weapons or the mastering of modern information technology. Thus the paradox: proliferation is a permanent temptation and a permanent danger while, at the same time, the cost of war, at least among major powers, has risen to near prohibitive levels.

Then, too, the elements of national strength are no longer homogeneous. Many economic powerhouses--especially in Asia and the Middle East--are politically fragile. Communications are instantaneous, and economies are global. Every day a trillion dollars moves in world financial

[v]

11

markets, only 5 percent of which is generated by commercial
transactions. Global well-being is becoming both
interconnected and precarious: a bank clerk in Singapore
managed to create $27 billion in derivatives in three days
and bring down a major international bank. But political
loyalties remain imprisoned in the nation state. And with
the breakup of old empires, conflicts have even shriveled to
the ethnic level where their intensity magnifies almost in
proportion as their global relevance is shrinking.

Not just the United States but every major nation finds
itself in a transitional stage. The traditional European
nation state lacks the scale to deal with the entire
spectrum of contemporary problems. Russia is living within
borders it has not known since Peter the Great. China is
emerging as a world power for the first time in several

12

centuries while its leadership is changing. Japan is
reversing a pattern of political withdrawal.

How is American foreign policy to be defined in such a
period? Theoretically, the United States could pursue a
pure interest policy in the manner of Britain throughout
most of the 19th century: a posture of "splendid isolation,"
maintaining good relations wherever possible but throwing
its weight to the side that confers certain advantages at a
specific moment (which, in the British case, was generally
the weaker side). This would be a latter-day version of the
European balance-of-power diplomacy.

There are, however, huge, probably insurmountable,
obstacles to such a strategy. The first is that, whereas
Britain conducted its policy primarily in Europe, we would
have to conduct it globally. Secondly, Britain had a

leadership group that had trained itself in the conduct of
public policy. America has neither such a leadership group
nor any similar tradition of hard-headed, purely interest-
oriented policy. Third, when communications are
instantaneous, economics global, and politics democratic, it
is probably not possible to conduct the same kind of cold-
blooded policy in every part of the world simultaneously.
Fourth, international stability is increasingly affected by
splinter groups with no interest in the global equilibrium
at all, usually ethnic groupings which, in fact, are using
the major powers' desire for global order to achieve their
own parochial objectives.

For the United States to practice its version of
"splendid isolation" on a global basis under these
circumstances would exhaust us physically and
psychologically. A nation founded by people who have

traditionally believed in the universal applicability of
their values cannot simply abandon the Wilsonianism that had
dominated 20th century American foreign policy.

Finding our way through this maze would be difficult
enough were Americans at one in assessing the international
situation. We are, however, divided, especially along
generational lines. The generation that won the Cold War
had its seminal experience in the Second World War and its
immediate aftermath. They believed in a constructive
American role and in the beneficent role of American power.
The generation whose seminal experience was the Vietnam War
holds a quite different view. They regard the Vietnam War
not only as a terrible mistake but as an indictment of
American power in general. Just as many who used the
outcome of America's role in World War I as rationale for
the nonintervention policy of the 1920s and 1930s, current

American policy debates--whether in the Balkans or the Caribbean, in Africa or Asia--can best be understood in the context of a generation that views the world through a lens largely provided by a local and unsuccessful conflict. They do so by abdicating a foreign policy role by fleeing into either extreme multilateralism or extreme nationalism.

That difference in perspective is sharpened by one of the fundamental transformations of human consciousness through which our period is living: the change of the process of learning from books to pictures and from reading to viewing, which roughly marks the borderline between the generations I have described. To learn from books, one requires concepts that relate seemingly disparate events to each other; pictures, on the other hand, teach by impressions which emphasize the mood of a moment. All this foreshortens the policy perspective and makes it more

vulnerable to fluctuating sentiments and transitory
occurrences.

A larger vision is especially needed for European-
American relations. An extraordinary phenomenon is
occurring in Europe: the adoption of a common currency by a
group of nations that has not brought about, as yet, the
accompanying institutions by which this common currency is
going to operate; and the concept of a free-standing Central
Bank not related to any political organization. The common
monetary policy is going to try to bring about coherence in
interest rates, labor mobility, and even our regional
disparities. A European currency will surely come into
being. After that, the difficulties I have described will
either cause it to implode or bring about strengthened common
political institutions. For anyone following European
developments in the entire post war period, one can only

17

17

hope that this project reaches the fruition its founders envision. And its failure would create an extraordinary crisis, since it is the only political project to which any really creative thought is being given in so many European capitals. But if it succeeds, the relationship between Europe and the United States in the political field would become a serious challenge. The conventional wisdom of the entire post-war period has been that the two pillars, Europe and the United States, can only benefit from the strengthening of each other and that cooperation will emerge automatically from this accumulation of power-as if transatlantic relations were a kind of joint stock company in which the various members vote in proportion to their shares in it. But in the real world, it is not going to happen this way. In the real world, if the common currency succeeds, there will be years during which the inevitable political companion organizations are elaborated.

Two approaches to US-European relations dominated the Cold War period: the Gaullist approach, for which reflected the necessities of a country which had gone through tremendous difficulties in the War and in the colonial period and which thus needed to reaffirm its identity. The second approach was the British, which reflected a nation more secure in its identity and hence willing to define cooperation as the merging of mutual interests.

When the United States had the dominant role in security and when there was only one visible international challenge, it made some sense to try to achieve European identity by trying to wrest it from the United States. In the current period, nothing is simpler than to convince Americans that they have no special interest in Europe. The tasks which Europe has before it now are so manifold that

[47]

19

they don't have to be granted by the United States-such
issues as the participation of the Central European
countries in the European Union. There is no need for the
United States to take a position or to involve itself.

Whether Europe should follow a multiple geometry or be more
closely integrated makes a difference in the relations
between Europe and the United States but it cannot and
should not be affected significantly by American
pronouncements. As Europe expands, a more flexible approach
will probably be the most effective. There is no sense in a
rigid separations between an exclusively European and
exclusively American concerns. What we ultimately need is a
dialogue between what has emerged in Europe and what is
beginning to emerge in America similar to the one that had
characterized the post-War period.

I served in government during the tragic period of the Vietnam War, in which America had engaged itself in a distant enterprise for what I believe were the noblest motives. But we did not understand the limitations of our reach. We applied our principles to regions we had never studied on the basis of the belief that they had universal applicability. Having thus launched ourselves on the basis of universal principles, we found that universallity is a dangerous claim. Those of us who wanted to extrigate on the basis of the practicality of the situation were assaulted by others who wanted to turn extrication into a great moral issue on the failings of America.

Now, once again, there are many who believe that all we need to do is to restore the pristine innocence of our early period, when we were protected by two great oceans. But economics was not yet global then, and we could choose our

involvements. Therefore, our political parties are now very
split. In my day, difficult as it was, there was a coherent
body of opinion which transcended parties and usually was
able to achieve a great deal of support--whether the
administration was Democrat or Republican. Today, every
party is split into a radical and an extreme conservative
wing. Neither administration nor opposition has found a
clear intellectual foothold. Each is looking for some issue
to turn foreign policy into an aspect of domestic politics.

What we must do is try to reestablish some national
consensus. We must not be embarrassed to ask what our
national interest is. Without it, we have no yardsticks.

Of course, our national interests included the preservation
of not just our well-being, but also of our values. All of
life, including foreign policy, involves a balancing of
various considerations, and it is important to have some

22

convictions about one's society and its role in the world.

The President and the Secretary of State get to deal with
the 50.1 against the 49.9 cases, and they resolve them on
the basis of assessments that cannot be proven at the time a
decision is taken. Therefore statesmanship depends, in an
ultimate sense, on moral convictions. A people can proclaim
ultimate goals; a statesman, must achieve his goal <u>brutally and</u>
<u>slowly</u> stages. Every step is imperfect in relations to the
absolute value; it is history that supplies the absolute.

That is the dilemma. And that is what we now face. And
therein will reside the ultimate test of leadership.

23

Festschrift for Helmut Schmidt

10/6/98 - Draft 1

In the period in which Helmut Schmidt [and I] each
started our political apprenticeship--in the Fifties--the
necessity for American leadership was axiomatic. There was
an all encompassing threat: much of Europe was suffering
the effects of war and various forms of foreign occupation.
America, emerging from isolation, found its dominant
position a heady experience. And major achievements are to
America's credit: the recovery of Japan; the reintegration
of defeated enemies into the community of nations; the
global nature of the world economy, among others.

But the world, and with it America, finds itself in
dramatically different circumstances from those of the Cold
War period. And America does so on the basis of historical

experiences which are in fact unique. Populated almost
exclusively by immigrants, the United States is the only
country that has never experienced a powerful neighbor along
its borders, and therefore has never had to face the
security issues confronted by less favored nations. The
Americans' perception of foreign policy was always one of
nearly limitless choice and, above all, of having the
ability to participate or to withdraw from international
engagements at will. Every American initiative of the
postwar period was presented to the American public as
having a terminal date, after which America could again
withdraw, allowing the postulated underlying harmonious
pattern of the world to reassert itself.

Much of America's foreign policy has traditionally been
presented in alternately psychiatric and theological terms:
either as a means by which relations among nations could be

conducted as they might be if they were relations among
individuals, or when that did not seem possible, as a
crusade to destroy or, even better, to convert antagonists
to the American perception of international affairs. In
that sense, the Cold War and victory in the Cold War were a
culmination of America's perception of the special mission
of international affairs.

How many historical examples, if any, can be recalled
where a nation's leaders stated goals that, some forty years
later, were practically all achieved? That is the position
in which America finds itself at the end of the Cold War.
But what Americans have not sufficiently understood is that
foreign policy knows no plateaus; even the greatest
achievement--perhaps especially the greatest achievement--
leads to a decline if it is not the building block of a new
advance.

Now for the first time in its history, America will be
obliged to conduct a global foreign policy in the absence of
an overwhelming ideological or strategic enemy, and in a
world from which it can neither withdraw nor dominate.
Thus, the classic maxim of American foreign policy--the
invocation of an overwhelming crisis transmuted into large-
scale enterprises--does not apply.

There is no historical precedent for the post-Cold War
world. Never before has every part of the world
participated simultaneously in international affairs.
Either they lived in ignorance of each other--in the same
sense that, in the 16th century, China and Europe in effect
lived in different worlds--or they had no significant
capacity to interact with each other. In the 18th and 19th
centuries, world history, indeed, until the middle of the

20th century, was dominated from Europe and then from the
north Atlantic. Today, every part of the world participates
in international affairs. Major powers are developing in
different regions and this presents new challenges. One-how
does now define a major power under present conditions? And
secondly-how do we manage their interaction? Third-for the
first time in history, events can be observed as they occur.
Communications straddle the globe in real time. Fourth--the
world is linked integrally, not only by communications, but
by economics. A few years ago, an obscure bank clerk in
Singapore brought down one of the oldest banks in England
and nearly sparked an international financial crisis.
Indeed, for any student of economic affairs, there are two
nightmares. One--that the systems break down because of
different conceptions by different parts of the system. But
even worse, that everybody comes to the same conclusion

simultaneously and rushes to the same side of the boat and
capsizes it.

This globalization is one of the fundamental challenges
to American leadership. Free-market capitalism remains the
most effective instrument for economic growth and for
raising the standard of living of most people. But just as
the reckless laissez-faire capitalism of the 19th century
spawned Marxism, so the indiscriminate globalism of the
1990s may generate a worldwide assault on the very concept
of free financial markets. Globalism views the entire world
as one market in which the most efficient and competitive
prosper. It accepts--and even welcomes--that the free
market will relentlessly sift the efficient from the
inefficient, even at the cost of periodic economic and
social dislocation.

But the extreme version of globalism neglects the inevitable mismatch between the world's political and economic organization. Unlike economics, politics divides the world into national units. And while political leaders may accept a certain degree of suffering for the sake of stabilizing their economies, they cannot survive as advocates of near-permanent austerity on the basis of directives imposed from abroad. The temptation to seek to reverse--or at least to buffer--austerity by political means becomes overwhelming. Protectionism may well prove ineffective in the long term but, for better or worse, political leaders respond to more short-term cycles.

Even well-established free-market democracies do not accept limitless suffering in the name of the market, and have taken measures to provide a social safety net and to

curb market excesses by regulation. The international
financial system does not as yet have these firebreaks. Nor
is there much of a recognition that it needs them. There is
no more important task than to relate the economic to the
political order and to give globalization a humane
dimension.

Paradoxically this occurs while the United States is
the only remaining military superpower. But military power
by itself represents a simplistic assessment of the emerging
international reality. For the issues susceptible to
solution by military action are in decline. The kind of
power in which the United States excels is less and less
relevant to most foreseeable international crises. The
current world contains six or seven major global players
whose ability to affect nonmilitary decisions is essentially
comparable. In such an international order, there are only

[4]

12

CJD

14

CYD

16

A larger vision is especially needed for European-
American relations. An extraordinary phenomenon is
occurring in Europe: the adoption of a common currency by a
group of nations that has not brought about, as yet, the
accompanying institutions by which this common currency is
going to operate; and the concept of a free-standing Central
Bank not related to any political organization. The common
monetary policy is going to try to bring about coherence in
interest rates, labor mobility, and even our regional
disparities. A European currency will surely come into
being. After that, the difficulties I have described will
either cause it to implode or bring about strengthened
political institutions. For anyone following European
developments in the entire post war period, one can only

The President and the Secretary of State get to deal with
the 50.1 against the 49.9 cases, and they resolve them on
the basis of assessments that cannot be proven at the time a
decision is taken. Therefore statesmanship depends, in an
ultimate sense, on moral convictions. A people can proclaim
ultimate goals; a statesman, must achieve his goal
stages. Every step is imperfect in relations to the
absolute value; it is history that supplies the absolute.
That is the dilemma. And that is what we now face. And
therein will reside the ultimate test of leadership.

23

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456

some hostile country, we would be outmatched. Therefore, for the first time in our history, we face a realistic challenge to the balance of power and we now have a national interest to prevent this marshaling from happening.

We also live in circumstances for which there is no historical precedent. Never before has every part of the world participated simultaneously in international affairs. Either they lived in ignorance of each other—in the same sense that, in the 16th century, China and Europe in effect lived in different worlds—or they had no significant capacity to interact with each other. In the 18th and 19th century, world history, indeed, until the middle of the 20th century, was dominated from Europe and then from the north Atlantic. Today, every part of the world participates in international affairs. Major powers are developing in different regions and this presents new challenges. One—how does one define a major power under present conditions? And secondly—how do we manage their interaction? Third—for the first time in history, events can be observed as they occur. Communications straddle the globe in real time. Fourth—the world is linked integrally, not only by communications, but by economics. A few years ago, an obscure bank clerk in Singapore brought down one of the oldest banks in England and nearly sparked an international financial crisis. Indeed, for any student of economic affairs, there are two nightmares. One—that the systems break down because of different conceptions by different parts of the system. But even worse, that everybody comes to the same conclusion simultaneously and rushes to the same side of the boat and capsizes it. It is an even worse danger. How, under those conditions, can one deal with the automaticity of the systems we have developed?

No part of this paper may be reproduced without the explicit written permission of the OU Press, the editors, and the co-authors.

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defeated our enemies in the war and then brought them back to the community of nations as our equals. I would like to think that only Americans would have done that." I think he was right. That was our historic experience and our historic achievement.

Today, we live in a more complex world. We do not have a clear-cut enemy. We do not confront an overwhelming military challenge. We do not confront an overwhelming ideological challenge. The question we have to answer is, what are we trying to do and why? And we do that under extremely difficult circumstances. I served in government during the tragic period just of the Vietnam War, in which America had engaged itself in a distant enterprise for what I believe it was the noblest of motives. But we did not understand the limitations of our reach. We applied our principles to regions we had never studied and on the basis of the belief that they had universal applicability. Having thus launched ourselves on the basis of universal principles, it is a dangerous thing to do. Those of us who wanted to extricate on the basis of the practicality of the situation were assaulted by those who wanted to turn it into a great moral issue on the failings of America, which is what the protest movement was really about and where I parted company. So Vietnam was the watershed.

But now, we find ourselves in this situation. There are many who believe that all we need to do is to restore the pristine innocence of our early period, when we were protected by two great oceans. But economics was not yet global, and we could choose our involvements. Therefore, our political parties are now very split. In my day, difficult as it was, there was a body of men who preferred a less stable administration which could appeal to the opposition and usually achieve a great deal of support--whether the administration was Democrat or Republican. Today, every party is split into a radical and an extreme conservative wing. Neither administration nor opposition has

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found a clear foothold. Each is looking for some issue to turn foreign policy into an aspect of domestic politics, which is a long term disaster. What we must do is try to reestablish some national consensus. We must not be embarrassed to ask what our national interest is. Without it, we have no yardsticks. Of course, our national interest includes the preservation of not just our well being, but also of our values. All of life, including foreign policy, involves a balancing of various considerations and it is important to have some convictions about one's society and its role in the world. The President and the Secretary of State get to deal with the 50.1 against the 49.9 cases, and you do so on the basis of assessments that you cannot prove at the time you make them. Therefore it depends, in an ultimate sense, on your convictions. Also, as a statesman, you must achieve your goal in stages. You cannot reach it in one jump. Every step is imperfect in relation to the absolute value. That is the dilemma. And that is what we now face. It becomes more complicated when we consider that in different parts of the world we face different issues.

With respect to Europe and the Western Hemisphere, we are dealing with countries with comparable histories, similar values, countries which do not look at each other as strategic opponents. In these regions, we can practice the methods with which we are most familiar, and I strongly feel that we have neglected building on the cohesion of the Western Hemisphere and the North Atlantic area.

In relation to Russia, we deal with a more complex case—a country of continental size and of quite different background. One is communist, historically imperialist, whose identity has been tied up with expansion. One of the disputes in American policy with respect to Russia is that some believe our challenge must be to bring about democracy in Russia. I would certainly like to see that happen. I also believe that, historically, the Russian tragedy has been that they

SEP-28-1998 13:51

P.01/05

CAUTION: This material is strictly embargoed. Its use is authorized
only by subscribers of the HENRY KISSINGER column. With the
exception of these paid subscribers, its contents must not under
any circumstance be quoted, excerpted, summarized, paraphrased or
in any way published, in whole or in part. Precautions should be
taken to prevent the disclosure of the contents of this material to
third parties prior to publication.

For Release Sunday, October 4, 1998

IMF NO LONGER SUITED FOR DEALING WITH ECONOMIC CRISES

By Henry Kissinger

(c) 1998, Los Angeles Times Syndicate What began 15 months ago
as a currency crisis in Thailand and then spread across Asia, now
threatens the industrialized world.

No government and virtually no economists predicted the crisis,
understood its extent or anticipated its staying power. A series of
IMF rescue packages has not arrested its spread and threatens the
political institutions implementing them. In Indonesia a regime
tainted by cronyism has been overthrown. But in Brazil, the crisis
threatens what is arguably the most reform-minded government in
decades.

What was treated at first as a temporary imbalance is becoming a
crisis of the world's financial system. In the past 20 years two
Mexican crises, in 1982 and 1994, spread to most of Latin America;
the Asian crisis of 1997 has already infected Eastern Europe, South
Africa and Latin America. Each crisis has been more extensive and
has spread more widely than its predecessor.

Free-market capitalism remains the most effective instrument for
economic growth and for raising the standard of living of most
people. But just as the reckless laissez faire capitalism of the
19th century spawned Marxism, so the indiscriminate globalism of
the 1990s may generate a worldwide assault on the very concept of
free financial markets. Globalism views the entire world as one
market in which the most efficient and competitive prosper. It
accepts -- and even welcomes -- that the free market will
relentlessly sift the efficient from the inefficient, even at the
cost of periodic economic and social dislocation.

But the extreme version of globalism neglects the inevitable
mismatch between the world's political and economic organization.
Unlike economics, politics divides the world into national units.
And while political leaders may accept a certain degree of
suffering for the sake of stabilizing their economies, they cannot
survive as advocates of near-permanent austerity on the basis of
directives imposed from abroad. The temptation to seek to reverse
-- or at least to buffer -- austerity by political means becomes
overwhelming. Protectionism may well prove ineffective in the long
term but, for better or worse, political leaders respond to more
short-term cycles.

SEP-28-1998 13:52

P.02/05

KISSINGER 09-28-98

needs them.

Ours is the first period experiencing a genuinely global economic system. Markets in different parts of the world interact continuously. Modern communications enable them to respond instantaneously. Sophisticated credit instruments provide unprecedented liquidity. Hedge funds, the trading departments of international banks and institutional investors possess the reach, power and resources to profit from market swings in either direction, and even to bring them about. It is market stability that they find uncongenial.

Broadly speaking, direct foreign investment benefits from the well-being of the societies in which it operates; it runs the risks and is entitled to the benefits of the host country. By contrast, modern speculative capital benefits from exploiting emerging trends before the general public does. It drives upswings into bubbles and down cycles into crises, and in a time-frame that cannot be significantly affected by the kind of macroeconomic remedies being urged on the political leaders.

For example, when Asian credit-worthiness began to fall, financial institutions and fund managers holding the debt were tempted to sell Asian currencies short, thereby accelerating devaluation and compounding the difficulty of repaying debt. Speculators were acting rationally, but the result was a deeper, more vicious and more intractable crisis.

To maintain their overall performance, speculators, as losses mounted in Asia, were driven to cash in their holdings in Latin America and thereby spread the crisis. The capacity of smaller countries to deal with these massive capital flows is not equal to the temptations offered by the system. Regulators in the United States, Europe and Japan have not succeeded in dampening the increased volatility of the market. And small and medium-sized countries are defenseless in the face of it.

The speculators will argue that they are only exploiting weaknesses in the market, not causing them. My concern is that they have a tendency to turn a weakness into a disaster. If Brazil is driven into deep recession, countries like Argentina and Mexico, heretofore committed to free-market institutions, may be overwhelmed.

The crisis in Brazil is a case in point. Despite a reform-minded and on the whole efficient government, Brazil faces a crisis partly because, as one of the largest and most liquid emerging markets, it is one of the easiest from which to withdraw. If these trends are not arrested, global flows of capital will be impeded by a plethora of national or regional regulations, a process that has already begun.

The International Monetary Fund, the principal international institution for dealing with the crisis, too often compounds the political instability. Forced by the current crisis into assuming functions for which it was never designed, the IMF has utterly failed to grasp the political impact of its actions. In the name of free-market orthodoxy, it usually attempts -- in an almost academic manner -- to remove all at once every weakness in the economic system of the afflicted country, regardless of whether these caused

1

For the first time in its history, America will be obliged to conduct a global foreign policy in the absence of an overwhelming ideological or strategic enemy and in a world from which it can neither withdraw nor dominate. Thus, the classic maxim of American foreign policy--the invocation of an overwhelming crisis transmuted into large-scale enterprises--does not apply.

Paradoxically this occurs while the United States is the only remaining superpower. But military power by itself represents a simplistic assessment of the emerging international reality. For the issues susceptible to solution by military action are in decline. The kind of power in which the United States excels is less and less relevant to most foreseeable international crises. On the other hand, economics and technology are becoming much more evenly crucial. Even a cursory glance at the condition of the dollar makes it clear that the relative economic position of the United States is not what it was even ten years ago.

The current world contains six or seven major global players whose ability to affect nonmilitary decisions is essentially comparable. In such an international order, there are only two roads to stability: one is hegemony based on a country's dominance; the other is equilibrium, which is another way of describing the notorious balance of power. The trouble is that the American body politic tends to reject both approaches. Hegemony will prove physically draining; the American public seems determined to reject the role of global policeman which hegemony implies, and the course runs counter to the moral convictions of the American people. But balance of power has been historically rejected by the American political and intellectual communities as a source of endless tensions--though at crucial periods, such as in deciding to enter the two world wars to preserve the global balance of power, Americans have been prepared to overcome their prejudice. Still, a call to rely on the national interest is considered by many a revolutionary, if not a reactionary, proposition. And even when an attempt is made to apply the concept, the national interest continues to be defined in sweeping, ideological terms.

2

practice, this requires a balancing of dissatisfactions. It
is impossible for every participant in an international
system to be perfectly satisfied with every aspect and at
all times; that happy condition has never been achieved by
humanity. Still, it may be possible for the major players
to be sufficiently satisfied that they do not seek to
overthrow the international system by violence, terrorism,
economic warfare, or other methods so well elaborated in our
century.

But while post-Cold War foreign policy reflects some
traditional patterns, there are important differences as
well. For one thing, modern economics has changed the
nature of incentives. Historically, nations could effect
changes in the balance only by conquest. Modern technology
permits quantum changes in a society's power by changes
entirely within its own territory. No conceivable conquest
could augment a nation's power like the acquisition of
nuclear weapons or the mastering of modern information
technology. Thus the paradox: proliferation is a permanent
temptation and a permanent danger while, at the same time,
the cost of war, at least among major powers, has risen to
near prohibitive levels.

Communications are instantaneous, and economies are
global. Every day a trillion dollars moves in world
financial markets, only 5 percent of which is generated by
commercial transactions. Global well-being is becoming both
interconnected and precarious: a bank clerk in Singapore
managed to create $27 billion in derivatives in three days
and bring down a major international bank. But political
loyalties remain imprisoned in the nation state. And with
the breakup of old empires, conflicts have even shriveled to
the ethnic level where their intensity magnifies almost in
proportion as their global relevance is shrinking. Such
dichotomies complicate the evaluation and, even more, the
operation of any conceivable balance of power under modern
conditions.

3

spectrum of contemporary problems. Russia is living within
borders it has not known since Peter the Great. China is
emerging as a world power for the first time in several
centuries while its leadership is changing. Japan is
reversing a pattern of political withdrawal.

4

The generation whose seminal experience was the Vietnam War
holds a quite different view. The Vietnam War—the defining
experience of their generation—is viewed not just as a
terrible mistake but as an indictment of American power in
general. Just as many who used the outcome of America's
role in World War I as rationale for the nonintervention
policy of the 1920s and 1930s, current American policy
debates—whether in the Balkans or the Caribbean, in Africa
or Asia—can best be understood in the context of a
generation that views the world through a lens largely
provided by a local and unsuccessful conflict. They do so
by abdicating a foreign policy role by fleeing into either
extreme multilateralism or extreme nationalism.

Washington only accentuates the problem.

3

are in fact unique. Populated almost exclusively by immigrants, ours is the only country that has never experienced a powerful neighbor along its borders, and therefore has never had to face the security issues confronted by less favored nations. The Americans' perception of foreign policy was always one of nearly limitless choice and, above all, of having the ability to participate or to withdraw from international engagements at will. Every American initiative of the postwar period was presented to the American public as having a terminal date, after which America could again withdraw, allowing the postulated underlying harmonious pattern of the world to reassert itself.

How many historical examples, if any, can be recalled where a nation's leaders stated goals that, some forty years later, were practically all achieved? That is the position in which America finds itself at the end of the Cold War. But what Americans have not sufficiently understood is that foreign policy knows no plateaus; even the greatest achievement--perhaps especially the greatest achievement--leads to a decline if it is not the building block of a new advance.

For the first time in its history, America will be obliged to conduct a global foreign policy in the absence of an overwhelming ideological or strategic enemy, and in a world from which it can neither withdraw nor dominate. Thus, the classic maxim of American foreign policy--the invocation of an overwhelming crisis transmuted into large-scale enterprises--does not apply.

military

3

relevant to most foreseeable international crises. On the other hand, economies and technology are becoming much more crucial. Even a cursory glance at the condition of the dollar makes it clear that the relative economic position of the United States is not what it was even ten years ago.

No The current world contains six or seven major global players whose ability to affect nonmilitary decisions is essentially comparable. In such an international order, there are only two roads to stability: one is hegemony based on a country's dominance; the other is equilibrium, which is another way of describing the notorious balance of power. The trouble is that the American body politic tends to reject both approaches. Hegemony will prove physically draining; the American public seems determined to reject the role of global policeman which hegemony implies, and the course runs counter to the moral convictions of the American people. But balance of power has been historically rejected by the American political and intellectual communities as a source of endless tensions--though at crucial periods, such as in deciding to enter the two world wars to preserve the global balance of power, Americans have been prepared to overcome their prejudice. Still, a call to rely on the national interest is considered by many a revolutionary, if not a reactionary, proposition. And even when an attempt is made to apply the concept, the national interest continues to be defined in sweeping, ideological terms.

Yet the reality is that the emerging world order will have to be based on some concept of equilibrium, at least some concept of balance among its various regions. In practice, this requires a balancing of dissatisfactions. It is impossible for every participant in an international system to be perfectly satisfied with every aspect and at all times; that happy condition has never been achieved by humanity. Still, it may be possible for the major players to be sufficiently satisfied that they do not seek to overthrow the international system by violence, terrorism, economic warfare, or other methods so well elaborated in our century.

But while post-Cold War foreign policy reflects some traditional patterns, there are important differences as well. For one thing, modern economics has changed the nature of incentives. Historically, nations could effect changes in the balance only by conquest. In our day, technology permits quantum changes in a society's power by changes entirely within its own territory. No conceivable conquest could augment a nation's power like the acquisition

4

of nuclear weapons or the mastering of modern information
technology. Thus the paradox: nuclear proliferation is a
permanent temptation and a permanent danger while, at the
same time, the cost of war, at least among major powers, has
risen to near prohibitive levels.

Then, too, the elements of national strength are no
longer homogeneous. Many economic powerhouses--especially
in Asia and the Middle East--are politically fragile.
Communications are instantaneous, and economies are global.
Every day a trillion dollars moves in world financial
markets, only 5 percent of which is generated by commercial
transactions. Global well-being is becoming both
interconnected and precarious: a bank clerk in Singapore
managed to create $27 billion in derivatives in three days
and bring down a major international bank. But political
loyalties remain imprisoned in the nation state. And with
the breakup of old empires, conflicts have even shriveled to
the ethnic level where their intensity magnifies almost in
proportion as their global relevance is shrinking. Such
dichotomies complicate the evaluation and, even more, the
operation of any conceivable balance of power under modern
conditions.

Not just the United States but every major nation finds
itself in a transitional stage. The traditional European
nation state lacks the scale to deal with the entire
spectrum of contemporary problems. Russia is living within
borders it has not known since Peter the Great. China is
emerging as a world power for the first time in several
centuries while its leadership is changing. Japan is
reversing a pattern of political withdrawal.

5

nor any similar tradition of hard-headed, purely interest-oriented policy. Third, when communications are instantaneous, economics global, and politics democratic, it is probably not possible to conduct the same kind of cold-blooded policy in every part of the world simultaneously. Fourth, international stability is increasingly affected by splinter groups with no interest in the global equilibrium at all, usually ethnic groupings which, in fact, are using the major powers' desire for global order to achieve their own parochial objectives.

That difference in perspective is sharpened by one of the fundamental transformations of human consciousness through which our period is living: the change of the process of learning from books to pictures and from reading to viewing which roughly marks the borderline between the generations I have described. To learn from books, one requires concepts that relate seemingly disparate events to each other; pictures, on the other hand, teach by impressions which emphasize the mood of a moment. All this foreshortens the policy perspective and makes it more

6

All these factors have shaped the argument between the advocates of a national interest-based philosophy and the so-called multilateralists. The first point of view states that America should base its foreign policy on a clear perception of the national interest, evoking some of the resistances I have sketched earlier. Most of us who embrace this proposition do not interpret the national interest in the extreme version described above. We would argue that the national interest, properly understood, has to encompass the relevance of our values to other societies; indeed, that forming an international consensus was part of America's interest. But we would also insist that objectives essential for American security or American values should be pursued alone, if necessary. While we would prefer some international support, in the extreme, we would be prepared to act alone.

The opposing point of view considers the American role in the Cold War to have been presumptuous, excessive, and even potentially evil, and seeks to discipline American power by reining it in through international institutions. Though the proponents of this view now present themselves as internationalists, they generally derive America's international role on a multilateral consensus.

Emphasis on multilateral diplomacy was one of President Clinton's campaign themes; Undersecretary of State Peter Tarnoff, in May 1993, insisted that America was losing the capacity to act alone while UN Ambassador Madeleine Albright has described Administration policy as "assertive multilateralism." The implication of such statements is that the national interest is on the whole defined by the attainable global consensus.

The trouble is that excessive reliance on multilateral diplomacy is proving starkly at variance with the realities of ethnic conflict, rampant nationalism and the emergence of multiple centers of power sketched earlier. In this fragmented world, excessive multilateralism leads either to abdication (as in Bosnia) or to sacrifices not tolerated by the American public because they are not perceived to reflect basic US interests (as in Somalia).

To be sure, only extreme and unrealistic nationalistic isolationism could categorize the national interest and international consensus as polar opposites. In the real

7

world, the difference is one of nuance: whether to start
with the national interest and exercise American leadership
to shape multilateral views; or whether the definition of
the national interest should be made dependent on the
emergence of a multilateral consensus. Yet on this very
nuance depends the possibility of a dynamic American foreign
policy.

Let me now apply these principles to two foreign policy
areas: Europe and Asia. There are many other policy areas
deserving of your attention, among them the Western
Hemisphere, nuclear proliferation or the Middle East. Given
the limitations of time, I shall deal with these areas on
another occasion as it is in Europe and Asia that our
foreign policy seems to me in deepest trouble.

US European Policy

For over a generation, the Atlantic Alliance has been
the bipartisan bedrock of American foreign policy, uniting
the oldest functioning democracies with genuinely
pluralistic systems and economies based on the market. In
the end, the nations of the Atlantic area need each other in
their own self-interest. Without America, Europe turns into
a peninsula at the tip of Eurasia, unable to find
equilibrium much less unity and at risk of gradually
subsiding into a role similar to that of ancient Greece in
relation to Rome--the only outstanding question being
whether America or Russia will play the role of Rome.
Without Europe, America will become an island off the shores
of Eurasia, condemned to a kind of pure balance-of-power
politics difficult to reconcile with its national genius.
Without America, Europe's role will shrink. Without Europe,
America's path will be precarious and lonely; after all, we
fought two world wars to prevent the domination of Europe by
potentially hostile powers.

A major American role in Europe is a prerequisite for
European coherence. Without it, the European Union would
founder on the fear of German domination; France would see
reinsurance in a Russian option; historic European
coalitions would form, compounding their traditional
tenuousness with irrelevance; Germany would be tempted into
a nationalist role, Russia into revisionism.

An American presence in Europe provides a measure of
equilibrium. It gives France assurance against German
hegemony and Germany a security anchor against Russian

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title.33pt8chap22.doc

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1

Now For the first time in its history, America will be
obliged to conduct a global foreign policy in the absence of
an overwhelming ideological or strategic enemy, and in a
world from which it can neither withdraw nor dominate.
Thus, the classic maxim of American foreign policy--the
invocation of an overwhelming crisis transmuted into large-
scale enterprises--does not apply.

Paradoxically this occurs while the United States is
the only remaining military superpower. But military power
by itself represents a simplistic assessment of the emerging
international reality. For the issues susceptible to
solution by military action are in decline. The kind of
power in which the United States excels is less and less
relevant to most foreseeable international crises. The
current world contains six or seven major global players
whose ability to affect nonmilitary decisions is essentially
comparable. In such an international order, there are only
two roads to stability: one is hegemony based on a country's
dominance; the other is equilibrium, which is another way of
describing the notorious balance of power. The trouble is
that the American body politic tends to reject both
approaches. Hegemony will prove physically draining; the
American public seems determined to reject the role of
global policeman which hegemony implies, and the course runs
counter to the moral convictions of the American people.
But balance of power has been historically rejected by the
American political and intellectual communities as a source
of endless tensions--though at crucial periods, such as in
deciding to enter the two world wars to preserve the global
balance of power, Americans have been prepared to overcome
their prejudice. Still, a call to rely on the national
interest is considered by many a revolutionary, if not a
reactionary, proposition. And even when an attempt is made
to apply the concept, the national interest continues to be
defined in sweeping, ideological terms.

2

But while post-Cold War foreign policy reflects some traditional patterns, there are important differences as well. For one thing, modern economics has changed the nature of incentives. Historically, nations could effect changes in the balance only by conquest. In our day, technology permits quantum changes in a society's power by changes entirely within its own territory. No conceivable conquest could augment a nation's power like the acquisition of nuclear weapons or the mastering of modern information technology. Thus the paradox: proliferation is a permanent temptation and a permanent danger while, at the same time, the cost of war, at least among major powers, has risen to near prohibitive levels.

[Y]

4

difficulties when they were discussed in the European Community and necessitating Britain to take a position with respect to them. That kind of relationship must be preserved, either by Britain or by a European Union that articulates its own identity.

We are now in the period when an extraordinary phenomenon is occurring: the adoption of a common currency by a group of nations that has not brought about, as yet, the accompanying institutions by which this common currency is going to operate; and the concept of a free-standing Central Bank not related to any political organisation. The British monetary policy is going to try to bring about coherence in interest rates, labour mobility, and even our regional disparities. It is not one with respect to which the United States needs to take a position, or with respect to which it needs to give advice to countries that are perfectly capable of making their own decisions as to what their national interest requires. Obviously, there are really only two ways this decision can go.

A European currency will surely come into being. After that, the difficulties I have described will either cause it to implode or bring about strengthened political institutions. For anyone following European developments in the entire post war period, one can only hope that this project reaches the fruition its founders envision. And its failure would create an extraordinary crisis, since it is the only political project to which any really creative thought is being given in so many European capitals. But if it succeeds, and I repeat I would hope that it succeeds, the relationship between Europe and the United States ~~and~~ the relationship of Britain to Europe in the political field would become a serious challenge. The conventional wisdom of the entire post-war period has been that the two pillars, Europe and the United States, can only benefit from the strengthening of each other and that cooperation will emerge automatically from this accumulation of power -

as if transatlantic relations were a kind of joint stock
company in which the various members vote in proportion to
their shares in it. But in the real world, it is not going
to happen this way. In the real world, if the common
currency succeeds, there will be years during which the
inevitable political companion organisations are elaborated
and in that period, of the challenges which I mentioned,
only one will not wait to be addressed.

I have mentioned Asia. We see in all the media today
the challenges of the Gulf - of which the crisis in Iraq is
only a tip of an iceberg, and in which the question of how
we tame fundamentalists and which countries are relevant to
order and progress has not been fully addressed. The
economic crisis in South East Asia and its impact elsewhere
raises the challenge that the gap between global economics
driven only by economic considerations and the political
organisation of regions and countries runs the risk of
political reactions to periodic crises which will make the
present concept of globalisation harder and harder to
sustain.

And this raises the need either for warning systems to
prevent these crises or will generate attempts, perhaps
misguided attempts, to distinguish between speculation and
investment; and while I do not claim to have answers to
these challenges, I do claim that there is a need to
address these and other foreseeable challenges, first of
all in a transatlantic framework. Right now, the western
nations have demonstrated an extraordinary capacity for
material progress, but they have also shown symptoms of the
re-emergence of the almost original sin of western
civilisation, which is the propensity towards internal
civil war. The embarrassment of one side of the Atlantic
in a region can be seen as an opportunity for the other,
but it could also be treated as a challenge to common
efforts and reason for a more creative response. I would

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I do not agree with those who say that America should shift its "special relationship" to Germany. That would not be helpful to Germany and it would not be meaningful for the United States because we should not have a special Continental partner. Nor do I know of any German leader who aspires to that. It is moreover not meaningful because, what is really needed is to give America help and cooperation with Europe in the transition I have described towards its conduct of a global policy [geared not to enemies or the security danger of potential threats, but to global opportunities.]

There have been, as I said, two approaches to European/American relations. One was the Gaullist approach for which, in my writings, I have shown great sympathy because it reflected the necessities of a country which had gone through tremendous difficulties in the War and in the colonial period and which thus needed to reaffirm its identity. The second approach was the British approach which reflected a nation more secure in its identity and hence sought to establish a pattern of cooperation that was quite difficult to challenge because, over time, it came to reflect the convictions of both sides and was based on common interests. The British approach also reflected a historic tradition of global foreign policy whereas the French approach was more geared to calculations of the margins on which stability depended in central Europe, particularly as long as Germany was divided.

My basic argument is this:

In the period of the Cold War, when the United States had the dominant role in security and when there was only one visible international challenge, it made some sense to define European identity by trying to wrest it from the United States. In the current period, nothing is easier than to have America turn away from Europe; nothing is simpler than to convince Americans that they have no special interest in Europe. The tasks which Europe has before it now are so manifold that they don't have to be granted by the United States - such issues as the participation of the Central European countries in the European Union. There is no need for the United States to take a position or to involve itself. Whether Europe should follow a multiple geometry or be more closely integrated makes a difference in the relations between Europe and the United States but it cannot and should not be affected significantly by American pronouncements. As Europe expands, a more flexible approach will probably be the more effective. But that is my personal conviction, on which I would not insist.

What is important is not to make rigid separations between areas that are exclusively European and areas that are exclusively American. What we ultimately need is a dialogue

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between what has emerged in Europe and what is beginning to emerge in America, similar to the one that had characterised the post-War period. I think it would be a continuation of the Western civil war that started in 1914 if Europe and America were now to concern themselves in the kind of debate which is not at all impossible.

In America, we need to give a priority to European relations. This has frankly been lacking, not just in terms of day-to-day policy but actions that at times seem quite unnecessary. Thus I believe that the debate about NATO membership ought not to be permitted to fester indefinitely. It does not mean the end of foreign policy, just putting this issue out of the way. Unlike the days of the Cold War, it is no longer possible to build an Atlantic relationship exclusively on security issues.

There was a period in which I thought that the next phase of American foreign policy should be to concentrate on building a Western Hemisphere Community. I still think that is an important enterprise but I believe more and more that what we now need to do is to create some goal for the North Atlantic nations so that, in the challenges which I have tried to describe, we can again act within a common framework. We should seriously begin to examine the idea of some form of North Atlantic free trade association, or free trade agreement, to which whatever America builds in the Western Hemisphere could be related and which would enable us - in the foreseeable turmoil in other parts of the world and in the shifts of emphasis and conflicts that will inevitably arise as new powers emerge - to act with some purpose and direction.

I am back to where I started. A succession of American leaders of both political parties, many of them not known for excessive sentimentality (which is anyway not a trait that enables one to rise easily to the Presidency), have over a period of more than a generation considered it natural that, on major issues, Britain and the United States would seek to cooperate; and would have a level of consultation which, though never formalised, was central to the formation of policy in both parties in both countries. Now, the challenge is whether this can be done in terms of European/American relations as well, and that is where Britain's experience can make a seminal contribution. Europe no longer needs to wrest its identity from the United States - we are back to 1947 in that respect. Therefore my hope is - whether our intellectual community agrees with it or not - that the nations of the North Atlantic representing a comparable civilisation in a world in which democracy and economic progress are our hope but not our guarantee, can again, this time on a global basis, do what they attempted so successfully a generation ago.

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