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There is no knowledge of cost, since all prices are fixed, many of them at 1928 levels! There are no entrepreneurs. Managers are politicians who negotiate a quota with a planning mechanism and with the ministries, all of whom have a vested interest in setting the quota as low as possible, because if they make too ambitious a quota, they all go down together. There is no incentive for innovation, except in the military field where there is no competition. Prime Minister Nakasone will remember when we were there Mr. Gorbachev told us that they had hundreds of thousands or millions, I don't remember exactly, of pairs of shoes in warehouses that nobody would buy. Now those of you who have seen Soviet stores may agree with me, I find it almost unimaginable what a shoe would look like that Soviet citizens wouldn't buy. It isn't that they arespoiled in the quality of consumer goods. And I have had this cynical view that maybe they made these shoes of unequal size. At any rate that could not happen in any normal society.

So they have a huge structural problem. And unlike China, which has an entrepreneurial tradition, and in which the central planning mechanism was never as firmly established, and in which there are overseas Chinese and Hong Kong, and Singapore, and Taiwan, from whom they can learn, there are no such factors in the Soviet Union. Gorbachev therefore has a systemic problem, and one does not have to ascribe to him Western pacifist philosophies to think that he might want a period of peace.

Secondly, he faces an objective, international environmental problem, And it is this: It has been said, scientifically, that the Soviet Union is the only country in the world entirely surrounded by hostile communist countries, and it is true.

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Further, every major country on the borders of, or close to the Soviet Union, is growing faster than the Soviet Union - Japan, China, India, Western Europe, and the United States. A prudent leader would therefore conclude that aggressive policies have already united all of these countries. A continuation of only further aggressive policies will tighten these bonds even more. A period of relaxation of tensions is in the national interest to prevent a continuation of this tacit coalition. So in my view, we ought to take Gorbehev seriously and not treat him as if he were one of us. Like some Western professor who has been besotted by pacifist philosophy. We ought to take him seriously as a statesman of a significant country who has drawn some logical conclusions.

And that is also even more important if one looks to other factors - the history of Communist Party leadership, and the history of Russia.

Choirboys do not become leaders in the Soviet Union. The penalty for failure in the leadership struggle is brutal. If you want job security in the Soviet Union you manage a factory, where you cannot fail. And if the history of the Soviet Union, Russia under czars and commissars, there has been uninterrupted expansion. From the Duchy of Moscovy to the center of Europe, and to the shores of the Pacific, every significant country at the borders of the Soviet Union and of the Russian Empire has been involved in a war with that country, and there has been an attempt to disintegrate it as a significant factor. There are many explanations. The Soviet Union and the Russian Empire have often been invaded.

My point is that the Russian concept of security has attempted to neutralize all the surrounding states. It has not in the past been content with equilibrium. And the United States, at the same time, has never had to deal with equilibrium, being because we have been so powerful. And yet, if I had to define the big foreign

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policy problem of our period, I would say it is: Can we negotiate a position of
equilibrium with the Soviet Union, - a balance of power in which the security of
everybody is, in fact, increased. And that must be put into concrete terms, which
This gets us to many of the issues that Professor O'Neill has already mentioned.
And I would like to address just a few of those.

First, what is the Soviet strategy? I don't think they know exactly what their
strategy is at this moment. But if one reads Soviet theoretical journals, it
seems to be that by removing the fear of the Soviet Union, they believe they can
disintegrate the American relationship with its allies, in both Europe and in
Asia. So from that point of view, it is not so much a strategy of coexistence,
but a strategy of political change. On the other hand, the United States has no
vested interest in fear of the Soviet Union. We have an interest that is a
realistic assessment, and therefore, if the real causes of fear can be removed,
it is obviously in the American as well as in the Soviet interests.

Professor O'Neill referred to the fact that I and others have been critical of
some of the efforts of recent years. I have been critical on two grounds. One,
that too much emphasis has been placed on the personal relationship of leaders.
I do not believe foreign policy can be based on personalities. Secondly, I do
not believe it is in the interest of the Western countries to have nuclear
weapons in any case, in any country, or the principal, subject of negotiations. Even if every
agreement is more or less balanced, since the West depends more on nuclear
weapons than the East does, the progressive de-legitimization of nuclear weapons
weakening the defensive position of the West more than it does that of the East,
leaving aside the additional problems that Professor O'Neill mentioned, which get

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us into too esoteric a discussion for my purposes.

Now again, I would distinguish here what happens in Europe from what happens in Asia. From Europe there is a real imbalance of military force. —In Asia, there is also an imbalance of conventional forces. But for the Soviet Union to destroy a number of the size of China, or to launch an attack on an island power like Japan, would require an effort of such massive proportions, that I believe a balance in Asia iscloser at hand than it has been, in fact, in Europe. Europe now pays the price for decades of conceptual neglect and leaving too much to the United States. If everything is left to the American nuclear deterrent at a time of declining reliance on nuclear weapons, a gap opens up, and now the process of reductions of conventional forces, is, i n a sense, two other issues.

First, there really does not exist a conceptual basis for conventional disarmament. Everybody talks about equal forces, and defense deployment, yet where in history does one find any evidence that this has ever worked? Almost all wars in Europe have been fought between roughly equal forces. Most victories that I know anything about in European wars (I haven't studied Asian wars) have been achieved by roughly equal forces. In fact, German forces in the two world wars were numerically, and in equipment, inferior to those of their opponents on every front, but they succeeded by concentration, generalship, and many intangible elements. So simply counting the number of forces is no guarantee of deterrence, and, indeed, since the aggressor can concentrate, and the defender has to spread himself, there is an inherent advantage in attack. Secondly, even separating forces requires analysis, whether it adds to warning time, or whether it really inhibits an attack. And adding to warning time is useful only if, (a) the warning

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is believed, which is rare; and (b) if you can do something about it - that is,
if you have units you can move, I don't want to get too technical, but
simply want
to point out that if we are serious about conventional arms control in Europe, we
need a military doctrine about the defense of Europe that everybody practices.
And it will have to be a very peculiar type of military doctrine, since everybody
is committed to reduction. Since reductions will in fact be negotiated, we need
to know not only what level we are targeting today, but whether each foreseeable
can, in fact, maintain its capability for future
level of reduction in fact maintains defense.

In my experience in government, which I do not believe has changed, whenever
there is a reduction people don't analyze what's left; they analyze the
reduction. After they say; this reduction doesn't make any decisive difference,
and that's how they justify it.) The reduction may not make any difference, but
what's left after there must be some point at which it makes a difference. I am
sure that all this requires some solid analysis, and that's on the purely
military point. We have a political point, which is, perestroika. It has
already produced major uncertainties within the Soviet system. It has created
major demoralization of communist parties in Eastern Europe. After all, when you
hear from the Soviet leader that every Soviet leader since Lenin has been either
a criminal or a fool, it does not inspire confidence in the historical validity
of a system that was imposed by foreigners.

Now the result of this has been two-fold, neither of which has been very
comforting for the Soviet Union. In countries like Poland or Hungary, the
Communist Party has lost a great amount of its legitimacy. But even in countries
like Eastern Germany, which does not accept reform, the result is that the East

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Germans argue that since they never followed the Soviet model to begin with, they
should not have to follow reform either. In other words, national communism. Now to
the extent that the Soviets succeed in creating a neutralist sentiment in West
Germany, and a nationalist sentiment in East Germany, and to the extent that
Eastern Europe is in turmoil anyway, there will occur a political crisis in the
Europe east of the Rhine. It is therefore unavoidable that a political dialogue
has to be combined with arms control.

Now in America, whenever somebody doesn't want to face an issue he pulls out an old slogan, and I have been accused of wanting a new Yalta. It stands to reason that what I am proposing is to de-Yalta Europe, not to have another Yalta. To-undo some of the consequences of Yalta. But to-do it in a way that does not lead to an explosion. Now that is a challenge to which I cannot possibly now give an answer. But it requires dealing with yet another Soviet proposal. The Soviets have put forward the concept of a Europe from the Urals to the Atlantic, which has been widely welcomed in Europe as a creative one. I think it is a symptom of Western escapism. How is it possible to conceive of a Europe from the Urals to the Atlantic? What happens to the Soviet Union from the Urals to Vladivostock. Where is that? What is its status? It means in effect, that Europe becomes an appendage to the Soviet Union. Now some Europeans say Americans can have a room in this European home. Extremely generous of them. But it is not conceivable that the United States accepts a lesser status in Europe than the Soviet Union - where the Soviet Union is an organic part of Europe but the United States is a guest that can visit from-time-to-time. That is in-fact the dissociation of Europe from the United States. I am not saying that the United States needs an superior status in Europe from the Soviet Union. But it is an important political

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issue for European problem. Whether the frontier of Europe begins at the Soviet-Polish front border - the present West - or at the European border is not just a theoretical problem. These are policy issues that need to be addressed.

To return to Asia, I think there is relatively easier to conduct negotiations. That is because Japan, it seems to me, has a clearly articulated concept of its national interest. Many people in the economic field would argue that this concept of the national interest is, perhaps,degined to accuse the Japanese of excessive sentimentality in the conduct of their relations with foreigners - and I say that as a compliment, not as a criticism. I think that China, too, has not survived for 3000 years of uninterrupted history by doing short-sighted, things. And while everybody seems to be fascinated by the Gorbachev visit to Beijing, the reality is that the Chinese know very well who expanded where in Asia in the last century. They know the United States was the least expansionist country of all the ones they have to deal with. We are also the furthest away. I do not believe that the Chinese will gamble their future on the goodwill of any Soviet leader. Certainly, the objective conditions for a relaxation of tensions in Asia require less complex decisions than in Europe.

This is because Japan, it seems to me, has a clearly articulated concept of its
national interest. Many people in the economic field would argue that this
concept of the national interest is, too clearly articulated. I would never
accuse the Japanese of excessive sentimentality in the conduct of their relations
with foreigners - and I say that as a compliment, not as a criticism. I think that
China, too, has not survived for 3000 years of uninterrupted history by doing
short-sighted, things. And while everybody seems to be fascinated by the
Gorbachev visit to Beijing, the reality is that the Chinese know very well who
expanded where in Asia in the last century. They know the United States was the
least expansionist country of all the ones they have to deal with. We are also the
furthest away. I do not believe that the Chinese will gamble their future on the
goodwill of any Soviet leader. Certainly, the objective conditions for a relaxation of
tensions in Asia require less complex decisions than in Europe.

So let me return to my starting point. I think Gorbachev has asked important questions. When I stress that he has motives other than personal goodwill, I say this as a hopeful, not as a critical, comment. It is better for us that we do not make Gorbachev some sort of supernatural being. It is not only better for us psychologically, it is better for us in the day-to-day conduct of foreign policy because either it does not represent Soviet interests, or it is built on quicksand. Our obligation in the West is now to take what he says seriously, but to give it

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concrete content that reflects realistic objectives that protect the legitimate security interests of both sides. The Russian state and the Soviet state are entitled to legitimate security interests. They are not entitled to imposing their rule over every foreign country that they can reach on ideological grounds.

Some of the proposals of Gorbachev may have a purely tactical objective, and our duty to turn them into a strategic and historic reality can be explored further.

I am not pessimistic. On the contrary, I believe that the conditions that produced this peace offensive are real. We do not have to accept the definition of how to deal with it from the side which is in the greatest trouble. We, the nations of the West, should work together on a serious concept, and negotiate it over the years ahead, and then I believe that conditions exist, if not for a permanent, for a long period of tranquility. Thank you very much.

## Question and Answer Session

**Dr. Inoki:** It seems to me that the United States, with its technological superiority, has decisively won the Cold War. The Soviet Union lost the race due to the shortcomings of the command economy which were pointed out by Ludwig von Mises and Friedrich von Hayek in the 1920s. The Soviet Union cannot catch up with the West without abandoning the command economy. Therefore it seems to me the West had better do nothing, and just wait and see for five years or so. The West should not act quickly to take advantage of Soviet inferiority to settle the Middle Eastern problem. My question is - am I too optimistic, or do you agree with my point?

**Dr. Kissinger:** I think you are essentially correct, that the West has won the Cold War. I think that Soviet ideology has lost its conviction, even in the Soviet Union, and even more so, outside. And I think the balance of forces

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between the Soviet Union and the outside world will shift more and more against
the Soviet Union if the outside world conducts itself with any degree of
rationality. On the other hand, I do not believe it is possible to do nothing,
because of public opinion, and because of the way governments now function. And
also because the disintegration of an empire also creates huge foreign policy
problems. So I think the problem is to manage this process in such a way that it
does not lead to an explosion, in-fact, so-that it leads to a constructive
outcome. But I agree with you that the West does not need to be nervous, and
it
does not need to be so anxious. We should not say that we have to be nervous, and
Soviet leader. That is, I agree with very strongly. The negotiations have to
justify themselves on their intrinsic merit, and not on these abstruse attempts
to see which Soviet leader we can support.

Mr. Saeki: I would like to introduce a few questions for Dr. Kissinger.

1. You mention the need to be coolly objective to see what Gorbachev does. Does that mean that the Soviet Union under Gorbachev is easier for the West to have a dialogue with than the Soviet Union under Brezhnev? The stability of a Gorbachev administration is going to be affected by how we respond to the Soviet Union and therefore shouldn't we act on tactical matters, and by doing so, help improve Gorbachev's situation?

2. The issue of untied loans from Western banks to the Soviet Union is one that's been hotly debated in the U.S. Congress - whether or not untied loans to the Soviet Union should be a target of regulation because of security issues.
President Bush seems to be more cautious about this than the previous president,

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Mr. Reagan. What is your view?

3. Dr. Kissinger, if you were Prime Minister of Japan, where would your emphasis be during the next ten years in the political, economic and foreign relations spheres with regard to the easing of tension between superpowers as the economy becomes more globalized?

4. If you were the General-Secretary of the Soviet Communist Party, when would you return the Northern Islands, and under what political and military conditions?

Dr. Kissinger: The first question is about Gorbachev being easier to deal with than Brezhnev, that we have an interest in maintaining him; and, that how we conduct our negotiations will be an element in maintaining him. Of course, I dealt with Brezhnev. And I must tell you I don't recognize the Brezhnev that is now coming into public view as the Brezhnev I dealt with. One has to distinguish the Brezhnev before 1976 and afterwards, because his strokes he was making against us, and you cannot deal with him as a major policy figure.

In the 1970-1976 period, when I saw him in action, I thought he was interested in detente. Now he was interested in detente, in a Russian way. I wouldn't want to be weaker than Brezhnev, but he genuinely sought a relaxation of tensions. Now his attitude was somewhat different from Gorbachev's. Gorbachev seems to believe in a very daring diplomacy. Brezhnev seems to have been more interested in maintaining what he had, and to have the status quo accepted rather than trying

to undermine our side and pay some price on his side. The second big difference
has to do with ~~everybody says~~ Brezhnev became very adventurous in the Third World. He did
become very adventurous in the Third World after the U.S. impeached its
president, after our Congress cut its military budget and drove us out of
Vietnam, and, in general, produced paralysis in our foreign policy. I don't know
whether that Brezhnev's adventurism would have existed without those
conditions. When you have a weak hand in foreign policy and are driven into
offensive postures, you get in trouble. That was the situation in the mid-
70s. In the late 70s, again, we had a weak presidency, and I don't think
Brezhnev was so much in control. I am not trying to defend him, but I think we
have to take a realistic view. I think Brezhnev wanted a period of relaxation
and for the same reasons that Gorbachev wants one now.

Now to the more important question. Should we help Gorbachev by the way we
respond to him? That depends on what you mean by that question. I would put it
this way: Should we make concessions to Gorbachev that we would not have made to
Brezhnev? To that I say no. We should make ~~the same~~ concessions to any Soviet
leader depending on his foreign policy behavior, not on his domestic behavior.
What successes does he need in foreign policy? If he needs a genuine agreement
that genuinely improves security for both sides, and that genuinely lowers
tension, we should do it. We should not refuse to make it because he's in
difficulty. But if he wants unilateral concessions, to pay him ~~back~~ for being more
obliging in his personal conduct, or in order to pay for his domestic reform, we
~~we should not do it~~. The domestic reform of the Soviet Union is primarily a Soviet
problem, ~~it is not our~~ problem. The theory that if they reform they will become
more peaceful — I don't know whether that's true, I don't know whether it is

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untrue. I don't know enough about it. Nobody knows enough about it. If they become stronger with an unchanged foreign policy, it is not true. If you argue that if countries have more interdependence they become more peaceful, maybe it's true. But we ought to remember that before World War I there was, in effect, free trade in Europe - no visas, free communication - and they still managed to get a pretty good war started. So I think we should separate the unquenchable desire for reforming other people from the conduct of foreign policy. If Gorbachev wants concessions from us, he should offer concessions in return. And then, of course, we should make agreements. But he cannot ask us to pay him for reforming his economy which they have made a mess of without our help. We cannot give up fundamental security interests because he wants to institute perestroika.

Now for the second question - untied loans to the Soviet Union - it is really a subdivision of the previous question. There is one school of thought that says we have an interest in building up the Soviet Union, because a rich Soviet Union will be loving. This is more peaceful than a poor Soviet Union. It is a new theory of international relations - that a strong adversary is better for you than a weak adversary. Two groups of people hold these views: intellectuals, who have abstract theories unrelated to historical experience, and businessmen, who daily prove that Marx's view that businessmen understood their political interests very well, was absolutely untrue.

My view is that loans to the Soviet Union should be made on the basis of the status of our political relationship. If our political relations improve, then loans should be easier to get. If political relations do not improve, I do not

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see any point in it. But I've come to another view after observing the Soviet Union, an additional view. I used to think, and I still think, that this desire to give untied loans is an example of the Western application. But under the present system, I don't think any amount of loans can change the Soviet system. What they need is a systemic change; they will not be able to use the loans with the present managerial and ministerial setup. And any businessman who puts in money hoping to get anything back will be, in my view, severely disappointed. This being the case, the only justification for loans can be political. And therefore they should only be given in return for a change in Soviet conduct.

And what would I do as a Japanese prime minister? I think most people would agree that I would not be the typical Japanese prime minister and even in my advanced stages of megalomania, I do not believe that I would be completely eligible to be considered for that position. Anyway, I think your politics are too rough for me to be able to survive here.

When will the Soviets give back the four northern islands? If foreign policy were entirely logical, I think they should give them back. It would be a fairly easy gesture. On the other hand, once the Soviets start giving back: territory they've acquired, they will have a real problem, because there are a lot of claimants on territory that the Soviets have acquired in the last fifty years, not to speak of territory that the Russians acquired in the last 150 years. So I think this will be an inhibiting feature. I personally believe that the fact the Soviets have agreed to discuss the subject means that they must be willing to do something. I do not think they would have agreed to discuss the subject unless they were willing either to change the status of the islands in some way, or to

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give back one or two, or to make some ~~adjustment. Otherwise it would be~~
foolhardy ~~for them to discuss it~~ thus, ~~simply to have a-stalemate. I interpret their~~
willingness to negotiate as a sign that some definite progress ~~will be made in a~~
measurable time.