[Lc]

ON GORBACHEV
THE LEADER

No matter who becomes general secretary of the Soviet Union, our sages discover that he's a new type. When Yuri Andropov became general secretary, one read that he lived in a stone house, had Persian rugs on the floor, and read English novels. How they knew this about the head of the Soviet secret police they didn't tell us. Nor did they tell us the relationship between stone houses and peaceful intentions. When Konstantin Chernenko became general secretary, we were told that old men do not like adventures. Now Mr. Gorbachev is general secretary, and we are told young men don't like adventures.

We do not know what Mr. Gorbachev wants. We do know it is highly improbable that, in the Soviet Union, an unorthodox person is chosen to be head of the equivalent of a board of directors.

The Soviet system is so complex, in any event, that at the beginning of his term any general secretary is enormously constrained. It has taken every general secretary, including Stalin, five or six years before he has established himself. The last thing a Soviet leader can do is to return to Moscow and say: "I've just met the most charming American president, and we're going to make a concession to him that we have not previously considered." What he can do is to say that the balance in the world is such, and the needs of our country are such, that we need a period of tranquility; and on that basis of reciprocity we will make arrangements. That is possible. Indeed, I think there is as good a chance for that now as there has been in decades. The reason is not that Gorbachev

is a very peaceful man, which I do not know. The reason is the nature of the Soviet system.

ON THE SOVIET
POLITICAL SYSTEM

The U.S.S.R. claims to represent scientific materialism, the inevitable forces of history. Yet, in its 65 years, it has never had a legitimate succession. Every Soviet leader has died in office, with the exception of one who took a vacation without his colleagues and was replaced by a coup. No matter how incapacitated these leaders become, they are retained in office, because the succession struggle would be unmanageable and the impact on their governmental system of changing a leader would be disastrous. Under the Soviet system, depending on your job, you benefit from special amenities—all attained through the status of your position. So, of course, when you lose your job, you become a nonperson. Therefore, there is maximum incentive to cling to your position.

Imagine running a corporation in which neither the chairman nor the board of directors could be replaced except by death; because once you replace anyone, the subordinates at all levels would have to be changed as well. Why? Because power resides in the individual, not in the office, or in the system. That is what the Soviets are going through now with Gorbachev. And for that they need time.

ON THE SOVIET
ECONOMIC SYSTEM

In addition to the Soviet political system, there is the problem of the Soviet economy. Imagine an economy in which the cost of

nothing is established by the market—all prices are fixed by the state; managers do not know their customers; all factory production is distributed by the state at fixed prices to whomever is supposed to have it. And these prices are fixed either artificially low or artificially high. Those who have traveled in the Soviet Union and have tried to buy something in stores for foreigners, which have a very special status, know the nightmare of bureaucracy that is involved in acquiring an article.

This is a system which rewards quantity but not quality and one which is inherently incapable of modernizing itself, because every manager has an incentive to produce the maximum of what he can. But if he strays from what is approved, and tries to get new machinery for example, he has absolutely no way of knowing whether the other parts of the system will support him.

To illustrate, Pravda recently reported that a train had left a Soviet station in 1983 and had not yet arrived at its destination. The authorities said they could not find it, because the paperwork concerning that train was no longer available. Walking down the track did not seem to occur to anyone.

A Czech minister of planning who left Czechoslovakia in 1968 during its aborted revolution once described to me what it is like when you plan an economy. He said that when the government specified the tonnage of the locomotives that had to be produced, the factory managers produced the heaviest locomotives in the world, because that was the easiest way to meet the tonnage requirement. And when the authorities specified the number of locomotives to be produced, the facto-

FE
18

KISSINGER

IN FOREIGN POLICY, I DON'T THINK THE GOVERNMENT IN ANY ADMINISTRATION SEEKS ENOUGH OF THE PERSPECTIVE OF BUSINESSMEN.

FE 20

ready a Soviet success in their view, and it will become so in fact if we permit them to prevail regarding the nuclear issue and international political issues.

Regarding the nuclear issue, it was possible in the '50s and '60s to base the security of the free peoples on nuclear weapons, because first we had a monopoly and then we had a huge superiority. Even then, President Kennedy

thought he was facing Armageddon in the Cuban missile crisis— and he had only roughly a fourth of the weapons that both sides now have, and the Soviets had only a thirtieth. That is, in the '80s, both sides have well over 10,000 strategic weapons, as compared to 3,000 for the U.S. at the time of the missile crisis and 300 for the Soviets.

President Reagan has a way

ON BUSINESS

The following comments were made by Dr. Kissinger during a press conference held during the 54th International Conference of FEI.

☐ The business community, with notable exceptions, does not adequately understand international politics. They understand the balance sheet, and so they tend to put a premium on promoting their line of trade. And that's what they're there for. Now, to the extent that the world has become interdependent and to the extent that business investments give us a stake in each other's country, the business community is creating links that are important. But outside the economic field, the business community knows no more than anyone else how to negotiate with the Soviets or what sort of long-range arms strategy should be pursued.

That is why I have always favored business leaders—and there are many really outstanding ones—organizing workshops in which promising executives would get together to intensify their education on international affairs. They won't become ex-

perts, but at least they will get a feel for the complexities involved. Perhaps, if every two months or so, executives were rotated through a one- or two-day seminar and were exposed to the issues, the prospects for international peace would be better served; because chief executives in our society do carry some weight, and it would be helpful if they had a better understanding of how geopolitical considerations affect the world they do business in.

☐ Do business and government understand each other? When I look back to my government period, I must say now I really did not know business very well. Very late in the game, I started meeting with some chief executives, but by that time it was in the last year or so of my period in office. On the treasury level, I'm sure business and government understand each other. But in foreign policy, I don't think the government in any administration seeks enough of the perspective of businessmen. Nor do I think businessmen address themselves sufficiently to the real problems of foreign policy. And this is a pity, because many of the ablest people in this country are in business.

[LC]

[L]

KISSINGER

THE SOVIET UNION
HAS A SYSTEM
WHICH REWARDS
QUANTITY BUT
NOT QUALITY AND
IS INHERENTLY
INCAPABLE OF
MODERNIZING
ITSELF...

ries produced the worst in the
world.

Three years ago when An-
dropov came into power, he insti-
tuted a system whereby a man-
ager, if he exceeded his quota,
could use the excess money to mo-
dernize his plant, and then use
the additional money the plant
made to invest again. The plan
was a total failure for two rea-
sons: No manager wanted to ad-
mit he could produce more, lest
this become his quota for the next
year. And secondly, he couldn't
buy anything with the money
that was generated, because you
cannot buy anything without an
allocation. And if you have an al-
location, you don't need money.
So it was a Catch-22 situation in
which it made no sense to im-
prove one's efficiency. Such a
system is bound to fall further
and further behind.

ON SOVIET
FOREIGN POLICY

It has been said that the Soviet
Union is the only country in the
world entirely surrounded by
hostile communist states. So in
foreign policy as well as in their
political and economic system,
the Soviets have problems, and
they want to gain time. But in
gaining time they follow very fa-
miliar strategies.

Strategy number one is to
present themselves as nice
people, wearing elegant clothes,
and speaking in a normal, civil-
ized fashion. And it does appear
to me that Americans have a ten-
dency to think that foreign policy
is a subdivision of theology, and
that the task of foreign policy is
conversion and not equilibrium.
There is always a great outcry
among some of us that says that
we have got to understand these

"reasonable" people. Thus, the
Soviets see this strategy as suc-
cessful.

Strategy number two con-
fronts them with a dilemma. In
order to modernize their econo-
my, Soviet authorities need the
support of the military and secret
police. These two institutions are
in competition with the outside
world and know the importance
of being flexible in foreign policy.
However, Soviet authorities also
need the support of the commu-
nist party, which doesn't care
that much about external compe-
tition, but rather wants to relieve
the internal pressure on the par-
ty. So the authorities try to navi-
gate between these two perspec-
tives. And the best way to do it is
to keep things unchanged.

Therefore, you see all Soviet
propaganda making two proposi-
tions: One, they have no political
problems in the world. Two, all
the world's problems are arms
control problems. In other words,
they don't want us to talk about
Cuban troops in Angola, Ethiopia,
and Nicaragua, or about Soviet
support for terrorist movements,
or about Soviet arms supplies to
Libya, Syria, and Cuba. Nor, of
course, do they want to discuss
Afghanistan or Cambodia. In-
stead, they want us to talk about
arms control. And they know that
the subject is so complicated that
it is almost impossible to explain.

ON ARMS CONTROL

The Soviets have made great pro-
gress in one category. They have
created the impression that cer-
tain things are possible in the re-
duction of offensive forces—pro-
vided we give up any attempt at
strategic defense. That is what
most of our domestic debate is
about right now. So that is al-

MAR. '86

19

[LC]

sometimes of putting his proposals in a form that outrages the intellectuals. However, that does not mean that he is not right. And today he has hold of the right idea: You cannot resolve the nuclear issue by playing with offensive forces alone. Even if you did exactly what the Soviets propose and cut offensive forces by half, you would be left with nearly twice as many forces as President

Kennedy had; and while you would be at a slightly less expensive level, you would not have improved the situation.

I myself do not understand why one has to put defensive weapons into a special category. The Soviets have 10,000 missiles to use against airplanes, plus more than 10,000 fighter planes. If we said to them that, in the name of stability, you must scrap

all of those defensive weapons so that the airplanes we rely on can fly in more easily, everyone would say that we were mindless. But why is it stabilizing for them to have defense against aircraft, and we cannot have defense against the missiles they rely on? Yet, that is the basic Soviet proposal.

Our current negotiations should seek to establish not any

That is why in my last year as Secretary of State I met regularly with a group of about 20 CEOs. I wonder now whether something like that should not be institutionalized, whether one should not send assistant secretaries out periodically to various regions of the country to meet with business and other community leaders. During my service in the Department of State, I visited 37 states and met with the community leaders. I learned about their concerns. But my visits were usually only once to those states, and some followup would have been desirable.

□ The premier of China, Zhao Ziyang, is trying to achieve one of the great changes in our era. I think he will go down as a titan if he succeeds. He is attempting to move a communistic, centrally planned economy towards not a capitalist economy, but a market-oriented economy. And this means there are 30 to 40 million party members in China against whose vested interest he is moving. In a country whose people are very entrepreneurial but also very individualistic as well, such modernization achieved without splintering the country is an extremely difficult task, and the re-

turns are not as yet all in.

Mr. Andropov wanted to modernize Russia within the existing system. But the Chinese have been smart enough to know that that will not work with them. So they are creating banks and various means of capital formation. They're even decentralizing the investment process. And the result, of course, will inevitably be some level of corruption, some unemployment, and some factories closing. You have to remember that the idea of governing a billion people is almost unimaginable.

I took a boat trip down the Yangtze three years ago, and it was an absolutely fascinating experience to stop at the river towns and to see the tremendous initiative of the ordinary peasants. In Russia the people are much more dependent on the central state authority. The Chinese leaders also are more self confident than the Russians. The Russians deep down know they're not a loveable people.

□ The international economic system has to be revised. It is geared to everybody increasing their own exports. But that can't be. If everybody increases their exports, who's going to buy

everything? If you look at the potential markets available, you can't say of Latin America, Southeast Asia, Japan, China, that they are all going to increase their exports, and thus all will prosper. Somebody will suffer. In democratic countries, the groups that do get hurt will go to the political process to seek a remedy. This will mean great pressures for protectionism, for quotas and similar measures. I wrote recently regarding our trade negotiations with Japan that it appears there is going to be an industry-by-industry effort to close their access to the U.S. market. I felt it would be a lot wiser to set an import target to make clear what imbalance we will tolerate, and beyond that impose certain penalties. This would give the Japanese an opportunity to negotiate with their own people rather than force us to negotiate with them about quotas or limits.

To sum up, I don't think that the present trading system can continue for the rest of this century. Change will have to be negotiated. I used to say that about the imbalance of the national debt, and was roundly criticized. But now we're facing up to it, and I think the same will happen with trade.

MAR. '86
21

[L]

KISSINGER

particular level of defense but merely that the principal of defense be admitted. And we should ask ourselves: What combination of offensive and defensive forces is least likely to give incentives to nuclear war? It is a tough problem. I'm not saying there are simple answers. But what the Soviets are trying to do is to freeze the status quo for eternity. And that, sooner or later, will producenocifism in the rest of the world.

ON INTERNATIONAL
POLITICAL ISSUES

Nor can we let the Soviets prevail in the discussion of international political issues. There is no law of nature that I know of that says Cuban troops have the right to be in Angola, Ethiopia, and Nicaragua. There are as many Cubans and other intelligence people in Nicaragua today as there were in the entire Nicaraguan army before the Sandanistas assumed power. Likewise, there is no law of nature that says the Soviet army has the right to march into neighboring countries. The Soviets have the largest territory in the world. They have a right to have their security respected, yes. But they do not have a right to overthrow, in the name of security, every unfriendly government that is near them.

ON A FUTURE
OUTLOOK

If we stick to our principles, we will achieve a breakthrough in our current negotiations. I do not accept the argument that the Soviets will wait for the end of President Reagan's presidency to negotiate. That is over three years away. Moreover, in our process, a new president will need another

15 to 18 months to organize his policies. That means there will be three or four congressional elections before negotiations can take place. They cannot gamble, if they're wise, on an outcome which no American can foresee, much less they.

In fact, we have a great opportunity to achieve a breakthrough in negotiations in 1986. There are some very positive underlying forces at work. At the same time, we must remember that agreements are made on the basis of reality, not on the basis of personality.

President Reagan should say to the new Soviet leader, not in these words: Let's avoid the numbers game. Let's stop pretending that we can settle our differences at a television press conference. Rather, let's ask ourselves where we want to be 15 years from now, and work back from that. Why can't we instruct our negotiators about the first step, of where we want to be 15 months from now. Then we meet again in 15 months, working on a program of progress in the meantime.

Also, the President should establish some ground rules on political conduct. It cannot go on, he should say, that everything Moscow claims on its side of the line is sacrosanct and everything on our side of the line is subversive. If those two things could be achieved, and they are achievable, then we can make great progress in our negotiations.

And that is why President Reagan faces a great opportunity, partly because of his policies, partly because of trends in the Soviet Union that are coming to a head right now, and perhaps most of all, because the solution of these problems is largely in our own hands.

IN FACT, WE HAVE A
GREAT OPPORTUNITY
TO ACHIEVE A
BREAKTHROUGH
IN NEGOTIATIONS
IN 1986.

FE
22

Current Issues

KISSINGER
ON EAST/WEST RELATIONS

Is Mikhail Gorbachev a new type of Soviet leader? How are he and President
Reagan going to get along in the coming year? The following report excerpts
some remarks by Henry A. Kissinger at the 54th International Conference of
FEI. It is of particular interest in light of future summit meetings that are
now scheduled. Dr. Kissinger has served in many government positions,
including that of Secretary of State from 1973 to 1977. He received the Nobel
Peace Prize in 1973.

ON GORBACHEV THE LEADER

No matter who becomes general secretary of the Soviet Union, our sages discover that he's a new type. When Yuri Andropov became general secretary, one read he lived in a stone house, had Persian rugs on the floor, listened to jazz music, and read English novels. How they knew this about the head of the Soviet secret police they didn't tell us. Nor did they tell us the relationship between stone houses and peaceful intentions. Then Konstantin Chernenko became general secretary, and we were told old men do not like adventures. Now Gorbachev is general secretary, and we're told young men do not like adventures.

We do not know what Gorbachev wants. We do know, however, this. It is highly improbable that, in a co-opting system like the Soviet Union, an unorthodox person is chosen to be head of the equivalent to the board of directors.

[L.C.]

The Soviet system is so complex, in any event, that at the beginning of his
term any general secretary is enormously constrained. It has taken every
general secretary, including Stalin, five or six years before he has
established himself. The last thing a Soviet leader can do is go home to
Moscow and say: I've just met the most charming American president, and we're
going to make a concession to him that we have not previously considered.
What he can do is to say the balance in the world is such, and the needs of
our country are so, that we need a period of tranquility. And on that basis
of reciprocity we will make arrangements. That is possible. Indeed, I think
there is as good a chance for that now as there has been in decades. The
reason is not that Gorbachev is a very peaceful man, which I do not know. The
reason is the nature of the Soviet system.

Here is a state that claims to represent scientific materialism. The
inevitable forces of history. Yet in 60 plus years of its existence it has
never had a legitimate succession. Every Soviet leader has died in office,
except one who took a vacation without his colleagues and was replaced by a
coup. No matter how incapacitated these leaders become, they are kept in
office. Because the succession struggle would be unmanageable and the impact
on their governmental system of changing that leader would be disastrous.

Imagine running a corporation in which neither the chairman nor the board of
directors can ever be replaced, except by their deaths. Because once you
replace anybody, all the subordinates at all levels have to be changed as
well. Why? Because power resides in the individual, not in the office, not
in the system. That's what the Soviets are going through now with Gorbachev.
And for that they need time.

-2-

[L]

ON THE SOVIET ECONOMIC SYSTEM

Imagine an economy in which the cost of nothing is established by the market. All prices are fixed by the state. Managers do not know their customers. All factory production is distributed by the state at fixed prices to whomever is supposed to have it. And these prices are fixed either artificially low or artificially high. Those who have traveled in the Soviet Union and have tried to buy something in stores for foreigners, which have a very special status, know the nightmare of bureaucracy that is involved in acquiring an article.

This is a system which rewards quantity but not quality. A system which is inherently incapable of modernizing itself, because every manager has an incentive to produce the maximum of what he can. But if he strays off what is approved and tries to get new machinery, for example, he has absolutely no way of knowing whether the other parts of the system will support him.

A train left a Soviet station in 1983, Pravda reported, and has not yet arrived at its destination. This was in a Soviet newspaper in 1985. And the authorities said they could not find it, because the paperwork concerning that train is no longer available. Walking down the track did not seem to occur to anyone.

A Czech minister of planning who left Czechoslovakia in 1968 during their aborted revolution has described what it is like when you plan an economy. He said that when the government specified the tonnage of the locomotives that had to be produced, the factory managers produced the heaviest locomotives in the world, because that was the easiest way to meet the tonnage requirement. And when the authorities specified the number of locomotives to be produced, the factories produced the lousiest locomotives in the world.

-3-

[L.C.]

Three years ago when Andropov came into power, he instituted a system whereby a manager, if he exceeded his quota, could use the excess money to modernize his plant, and then use the additional money the plant made to invest again. The plan was a total failure. For two reasons. No manager wanted to admit he could produce more, lest this become his quota for next year. And secondly, he couldn't buy anything with the money that was made. Because you cannot buy anything without an allocation. And if you have an allocation, you don't need money. So it was a Catch-22 situation in which it made no sense to improve your efficiency.

ON SOVIET FOREIGN POLICY

It has been said that the Soviet Union is the only country in the world entirely surrounded by hostile communist states. So in foreign policy as well as in their political and economic system, the Soviets have problems, and they want to gain time. But in gaining time they follow very familiar strategies.

Strategy number one is to present themselves as nice people, wearing elegant clothes and speaking in a normal, civilized fashion. Now, forgive me, but it does appear that Americans have a tendency to think that foreign policy is a subdivision of theology. And that the task of foreign policy is conversion and not equilibrium. There is always a great outcry among some of us that says, we've got to understand these "reasonable" people. Thus, the Soviets see this strategy as successful.

Strategy number two confronts them with a dilemma. In order to modernize their economy, Soviet authorities need the support of the military and of the secret police. Now, these two Soviet institutions are in competition with the

-4-

[L]

But Soviet authorities also need the support of the communist party, which doesn't care that much about external competition, but rather wants to relieve the internal pressure on the party. So the authorities try to navigate between these two perspectives. And the best way to do it is to keep things unchanged.

Therefore, you see all Soviet propaganda making two propositions. One, they have no political problems in the world. Two, all the world's problems are arms control problems. In other words, they don't want us to talk about Cuban troops in Angola, Ethiopia, and Nicaragua. About Soviet support for terrorist movements. About Soviet arms supplies to Libya, Syria, and Cuba. Nor, of course, about Afghanistan or Cambodia. Instead, they want us to talk about arms control. And they know that arms control is so complicated that it's almost impossible to explain.

ON ARMS CONTROL

The Soviets have made great progress in one category. They have created the impression that certain things are possible in the reduction of offensive forces--provided we give up any attempt at strategic defense. And that is what most of our domestic debate is about right now. So that is already a Soviet success in their view, and it will become so in fact if we permit them to prevail regarding the nuclear issue and international political issues.

Regarding the nuclear issue, it was possible in the '50s and '60s to base the security of the free peoples on nuclear weapons. Because first we had a monopoly and then we had a huge superiority. Even then, President Kennedy

-5-

thought he was facing Armagedon in the Cuban missile crisis--and he had only a
fifth of the weapons that both sides now have, and the Soviets had only a
twentieth. That is, in the '80s, both sides have well over 10,000 strategic
weapons, as compared to 3,000 for the U.S. at the time of the missile crisis
and 300 for the Soviets.

President Reagan has a way sometimes of putting his proposals in a form that
drives intellectuals up a wall. However, that doesn't mean he isn't right.
And today he has hold of the right idea. You cannot resolve the nuclear issue
by playing with offensive forces alone. Even if you did exactly what the
Soviet proposal says, and you cut offensive forces by half, you would be left
with 2 1/2 times as many forces as Kennedy had; and while you would be at a
slightly less expensive level, you would not have improved the situation.

I myself do not understand why one has to put defensive weapons into a special
category. The Soviets have 10,000 missiles to use against airplanes, plus more
than 10,000 fighter planes. If we said to them, in the name of stability you
must scrap all of those defensive weapons so that the airplanes we rely on can
fly in more easily, well, everybody would say we were crazy. But why is it
stabilizing for them to have defense against aircraft, and we cannot have
defense against the missiles they rely on? Yet that is the basic Soviet
proposal.

Our current negotiations should seek to establish not any particular level of
defense but merely that the principal of defense be admitted. And we should
ask ourselves: what combination of offensive and defensive forces is least
likely to give incentives to nuclear war? It is a tough problem. I'm not

[L]

saying there are simple answers. But what the Soviets are trying to do is to
freeze the status quo for eternity. And that, sooner or later, will produce
pacifism in the rest of the world.

ON INTERNATIONAL ISSUES

If we stick to our principles we will achieve a breakthrough in our current negotiations. I do not accept the argument that the Soviets will wait for the end of President Reagan's presidency to negotiate. That is over three years away. Moreover, in our process, a new president will need another 15 to 18 months to organize his policies. That means there will be three or four congressional elections before negotiations can take place. They cannot gamble, if they're wise, on an outcome which no American can foresee, much less they.

-7-

[L]

ON SPECIFIC PROPOSALS

President Reagan should say to the Soviet leader, not in these words: Let's stop throwing numbers around. Let's stop pretending that we can settle our differences at a television press conference. Let's ask ourselves where do we want to be 15 years from now, and work back from that. Why can't we instruct our negotiators about the first step, where we want to be 15 months from now. Then we meet again in 15 months, working like the devil in the meantime.

Also, the President should establish some ground rules on political conduct. It cannot go on, he should say, that everything you claim on your side of the line is sacrosanct and everything on our side of the line is subversive. If those two things could be achieved, and they are achievable, then we can make great progress in our negotiations.

And that is why President Reagan faces a great opportunity. Partly because of his policies. Partly because of trends in the Soviet Union that are coming to a head right now. And perhaps most of all, because the solution of these problems is largely in our own hands.

-8-

KISSINGER ON BUSINESS

+ The business community, with notable exceptions, does not understand international politics. They understand the balance sheet, and so they tend to put a premium on promoting their line of trade. And that's what they're there for. Now, to the extent that the world has become interdependent and to the extent that business investments give us a stake in each other's country, the business community is creating links that are important. But quite honestly, outside the economic field, the business community knows no more than anyone else how you negotiate with the Soviets or what sort of long range arms strategy you should pursue.

That is why I have always favored business leaders--and there are some really
outstanding ones--organizing workshops in which promising executives get
together to receive an education on international affairs. They won't become
experts, but at least they will get a feel for the complexities involved.
Perhaps, if every two months or so, executives rotated through a one- or
two-day seminar and were exposed to these issues, international peace would be
better served. Because CEOs in our society do carry some weight, and it would
be helpful if they had a better understanding of how geopolitical
considerations affect the world they do business in.

+ Do business and government understand each other? When I look back to my
government period, I must say now I really did not know business very well.
Very late in the game, I started meeting with some CEOs, but by that time it
was in the last year or so of my period in office. Now, on the treasury level
and so forth, I'm sure business and government understand each other. But in

[LC]

foreign policy, I don't think the government in any administration seeks enough the perspective of businessmen. Nor do I think businessmen address themselves sufficiently to the real problems of foreign policy. And this is a pity, because many of the ablest people in this country are in business.

That is why in my last year as Secretary of State I met regularly with a group of about 20 CEOs. I wonder now whether something like that should not be institutionalized, whether one should not send assistant secretaries out periodically into various regions of the country to meet with business executives and other community leaders. During my service in the Department of State, I visited 37 states and met with the community leaders. And I learned about the concerns in these communities. But I did it only once in those states, and some followup would have been desirable.

+ The premier of China, Zhao Ziyang, is trying to achieve one of the great changes in our era. I think he will go down as a titan if he succeeds. He is attempting to move a communistic, centrally planned economy into, not a capitalist economy, but a market-oriented economy. And this means there are 30 to 40 million party members in China against whose vested interest he is moving. In a country whose people are very entrepreneurial but also very individualistic, such modernization without splintering the country is an extremely difficult task, and the returns aren't all in.

-2-

inevitably be some level of corruption, some unemployment, and some factories closing. You have to remember that to govern a billion people is almost unimagineable.

I took a boat trip down the Yangtze three years ago, and it was an absolutely fascinating experience, to stop at the river towns and to see the tremendous initiative of the ordinary peasants. In Russia the people are much more dependent on the central state authority. The Chinese leaders also are more self confident than the Russians. The Russians deep down know they're not a loveable people.

+ The international economic system has to be revised. It is geared to everybody increasing their own exports. But that can't be. If everybody increases their exports, who's going to buy every thing? If you look at the potential markets available, you can't say of Latin America, Southeast Asia, Japan, China, that they're all going to increase their exports, and so everybody's going to prosper. Somebody's going to get hurt. In democratic countries, the groups that do get hurt are going to go to the political process to seek a remedy. This will mean great pressures for protectionism, for quotas and similar things. I wrote recently regarding our trade negotiations with Japan and said that it appears there is going to be an industry by industry effort to close their access to the U.S. market. I said it would be a lot wiser to set an import target to make clear what imbalance we will tolerate, and beyond that impose penalties. This would give the Japanese an opportunity to negotiate with their own people rather than force us to negotiate with them about quotas or limits.

To sum up, I don't think that the present trading system can continue for the rest of this century. Change will have to be negotiated. I used to say that about the imbalance of the national debt, and everybody jumped all over me. But now we're facing up to it, and I think the same will happen with trade.