Big Themes and Geopolitics with Robert B. Zoellick

Transcript

Robert Zoellick

I have enjoyed seeing a number of former colleagues and colleagues that I didn't know I had worked with before but had, and, as well as friends. And so it reminds me of a personal story, which is that, a few years ago, my late mother was, I don't know, kind of feeling sort of down. And so I brought her to a counselor to try to talk her through this issue. And after she spent some time, the counselor said, you know, "Mrs. Zoellick," he said, "you really have to learn to embrace your mistakes." And so my mother leaned over to me and gave me a big hug and smiled. So embrace your mistakes, everybody here. That's the message from there.

So I've always respected RAND's work, and I've had many friends who've served with RAND over the years. So it's a privilege to be with you this evening. Of course, I know for most of you, you had a chance to attend the session earlier today exploring risks to democracy. Happily, I do not plan to add to that set of risks this evening. But instead, what King asked me to comment on is to widen the risk scan for this group. So I've tried— I decided to try to combine two different but complementary perspectives. First, I want to identify five transnational trends. But then, second, point to some geopolitical shifts in Eurasia. And then I'll conclude with a few implications for you to consider.

So let's begin with the transnational ones. One, demographics. Not only absolute numbers, but also age distribution and migration. So, Japan and Korea may portend the future of developed economies because both are way below the replacement rate. So they are aging and shrinking There— This, of course, poses issues not only for labor force but for pension questions going further and perhaps even different societal attitudes. Some historians associate France's aggression in the Napoleonic era or Japan's in the early 20th century with high birth rates and large numbers of young men. So perhaps aging will breed some more caution. And what effects might this have on the broader question of risk management? The European Union looks very similar to Japan and Korea. Italy's birth rate is now at the very lowest since it was first recorded in 1861.

But China may be the most fascinating case. Many of you will have known that the population of China is declining. So China will likely grow old before it grows rich. But what is especially striking is some new research that Nick Eberstadt has used to point it out that— [a loud thumping noise is heard] Whoops, the sky is falling on China, we can see— [audience laughter] that China's birth and marriage rate have plunged over the past six years despite the suspension of the one-child policy. So this is not gradual like you've seen in Korea, Japan, or in European countries. China is now growing at half the replacement rate for its population. And to put this in some context, this is a deeper drop than during Mao's famines or during Russia from 1989 to 1994. This will certainly have effects on family bonds and the care of the elderly in Chinese society.

Now, sub-Saharan Africa poses the opposite challenge, although you can see some variations by location. So Africa will either develop, or Africans will migrate. North America, interestingly enough, is relatively better off if we recognize human capital as an asset and encourage the education of it and development and mobility.

Number two, the energy transition and tensions with energy security. Now, the world has seen other major energy transitions since the dawn of the Industrial Revolution, but they took place over a longer term and were additive. Dan Yergin has pointed out that oil overtook coal as the top energy source during the 1960s. But today we use three times more coal than in the 1960s. And indeed, coal consumption hit a record high in 2022. Now, this energy transition is being driven more by policy than technology and economics. So I expect we will face risks of supply shocks like in the 1970s. And of course, we saw this with Russia's war, which heightened attention to the issue of energy security, just keeping the lights on in Europe. Our $100 trillion world economy still relies on hydrocarbons for about 80 percent of energy, and those sources require long-term capital investments and returns. So if we shorten them for policy reasons, who will pay and who will invest? Many people in sub-Saharan Africa don't even have any electricity. Many are concerned about indoor air pollution and from burning wood and waste. And we're also going to face high new demands for minerals for electrification. But it takes years to open these mines and develop the appropriate infrastructure. Just to give you one example: We estimate we'll have to double the supply of copper by 2030 to hit the climate goals for 2050. And when one scans the locations for mines and then also their processing, you can again see the intersection of transnational and geopolitics.

Three, biological security and pandemics. Virologists will point to the fact that viral outbreaks are now becoming more frequent and they're imposing higher costs. And they'll point to the linkage of wildlife, to livestock, to the human transmission network. You see it most in South China, Southeast Asia, and sub-Saharan Africa. But sadly, I don't think we're doing a very good job of learning the lessons from COVID. And for those of you interested in this subject, I would recommend a book that just came out over the past couple of weeks called Lessons from the COVID War. It was a report organized by a group led by Phil Zelikow, who was the executive director of the 9/11 Commission report, which was a rare government document as a bestseller. And Phil did a very good job of assembling that of a range of experts, thinking that either the Congress or the executive would want to create another such commission. For political reasons, they never did. So they put together this report, and it gives you at least a very good starting point in trying to understand where we should be thinking about these risks for the future.

Fourth, technology, innovation, and productivity gains. This, of course, is a wide range of possibilities, and this is a strong area of RAND's competence. So all of you can choose your own favorites. I just want to emphasize the phases that you often see in this process of invention, innovation, and adoption, which we saw with the steam engine, we saw with electrification, and we saw with computers. And this is going to run many decades with many changes and choices along the way. So my list would be AI, both uses and safety; quantum computing; biotech. Although here I've seen a little bit from my investment experience the challenge of bringing to— these developments to market and integrating them with a rather sluggish health care system. And for all the innovation, data are absolutely critical in any of these fields. But the world is moving towards fragmentation of data systems because of geopolitics.

And five, another topic in the news: How are we going to unwind the about 20 years of experimental monetary policies? Which you could see over the past decades, is with every new crisis, we turn to central banks to try to come up with a solution. And they invented new tools. Low- or zero-interest rates or negative interest rates, various forms of qualitative easing, forward guidance. But this was an era of very low inflation, in part because we were bringing billions of people into the global labor force and opening markets. And those factors are now reversing. And so we've created a very large debt buildup, and at least there's the question about a possible disconnect between the financial sector and the real economy and how yields will be reflecting this. And that's especially worrisome for developing countries. Carmen Reinhart, who was until recently the chief economist at the World Bank, now back at Harvard's Kennedy School, did a very interesting PowerPoint for some events in Europe, calling it "The Reversal Problem," and will development go backwards? And so consider the effects of that on democratic development.

So now let's add an overlay of a more traditional foreign policy view using geopolitical analysis. And I'm going to focus on Eurasia, which is the world island for geopolitics, political thinkers. Putin's war on Ukraine reflected his view of geopolitics, especially through the prism of Russian history and his place within it. I don't normally quote from Foreign Minister Lavrov, but this was a good one. When asked who Putin consulted, he said, "Ivan the Great—" or "Ivan the Terrible, Peter the Great and Catherine the Great." And that— I've actually had a chance to meet Putin a number of times. He does see himself as a unique figure in Russian history. And his writings reflect the idea of Russia as a historical Eurasian power. And what this traces back to is, since the founding of old Muscovy, Russians saw themselves as defending against eastern hordes, Mongols, but also as the savior of Europe from itself, in particular Napoleon and Hitler. So for Putin's Russia, Ukraine is at the heart of the empire. And without it, Russia shrinks. So will Russia, in the coming decades, shrink to being something more like more like old Muscovy? Its army has stumbled. We've seen an incredible flight of talent. And Russia's already had poor demographics. Russians who live beyond borders, and there are many after the end of the Soviet Union, are now seen with much greater distrust. The Russian Orthodox Church has lost its influence. And Russia is clearly subservient to China. So what implications will that be for the Eurasian heartland?

But now let's turn to the western flank of Eurasia. With the end of Europe's holiday from history which it enjoyed since 1989. Will Germany follow through on its Zeitenwende, its fundamental turn? Central and Eastern European countries are now on the front line. Poland's army may turn out to be the biggest European force in NATO. Yet you can also see the strains between the security requirements and the social welfare expenditures and this issue of democracy. And look at what's going on in France today as a good example of that. And taken together, this presents the bigger question of how will European integration deal with both the new transnational issues and the new geopolitical developments?

The one that I find most fascinating in Eurasia is to look south to India. I consider India to be the leading example of the countries I call the abstainers from the Russia-Ukraine war. India is the true example of a country that has a sense of strategic autonomy, in both because of its sense of history, but also its view of the present. The post-colonial attitudes are very, very sharp in India. They don't like being told what to do by outsiders, and it has other priorities. Economic growth, labor force and employment, food, energy, and China. And so you can see this in its position internationally. But there are other abstainers, although they have variations on their position. For countries in the Gulf, in the Middle East, the priorities are often regional security, balancing various powers, but also this energy transition and development. In sub-Saharan Africa, the priorities are development, growth, resilience, with the complex aspects of security, including food and energy prices, COVID, climate adaptation, infrastructure, urbanization. And Russian mercenaries are still part of the picture, trying to sell security to some of the countries. Southeast Asia is pulled by the economic gravity of China, but it's concerned about maritime security, and it wants to have balance. Japan, Korea, and Australia, the Eastern Rim lands, recognize China's economic importance, but they will resist Chinese hegemony, and they certainly don't want to be part of a tributary state system.

So what about China? Just very briefly, we've seen in our lifetimes an extremely rapid increase of Chinese power. But China also has a view of history. Xi Jinping is very clear, as other Chinese leaders are, on how they view the century of humiliation, starting with the Opium Wars, continuing, coincidentally, to 1949 when the Communist Party is able to sort of unify China. This leads to not only a perspective on history, but it leads to a sense of victimhood. And that doesn't fit too well when you're an extremely big power and others in your neighborhood might see you as more the threat than the possible victim. And you can see this danger play out in different ways. Importantly, the Chinese Communist Party's legitimacy is linked to this notion of national revival, beginning with 1949. It has aspects of territorial unification—think of Hong Kong, think of Taiwan, discussions today about attitudes with Tibet—and its economic success.

And just to share with you two little anecdotes to drive this home, I got to know Xi through a number of occasions in 2006 when I was at the State Department. He was a party secretary in Hangzhou, one of the— in the provinces, and he came to see me. I visited him when he was in Hangzhou, and then when he was vice president, before he became president, I had a chance to see him a number of times. When I was at the World Bank, we did a project with the Chinese, the Development Research Council, called China 2030, was that idea of the next stage of Chinese economic reforms and sort of transformation. And so when he became party secretary and president in 2012, I had a chance to meet him, and it wasn't a long meeting, but I— And this was a long report, so I wanted to have a chance to get a sense of what, you know, what are your priorities? And his answer always will stick with me. He said— He turned, and he was quite direct, and he said, "The 86.68 million members of the Communist Party." And I remember because the numbers are transverse. Now I talked to lots of presidents and prime ministers and chancellors about their economic development plans and where they were planning to go on the economy. Not one would have answered that question with their party membership. So that was kind of a hint of where he was going.

Also, there was something else in 2012 that was quite interesting. Xi commissioned a film history, a documentary film, about the end of the Soviet Union. And he ordered all the party cadres to view the film. Now, if you'd seen that film, if that film had been shown, say, in Europe, Gorbachev would have been the hero that helped end the Cold War. The Chinese version, a little bit different. Gorbachev is the fool that abandoned the Communist Party, led to the breakup of his country, led to economic ruin. And the not-so-subtle message is it's not going to happen here.

So let me close with five implications for RAND and all of you to consider.

First, we live in a much more divided world. Not only east-west, but north-south. Democracy versus authoritarian. And it's important to be aware of some of the southern resentments and objections to the dominance of what they see from the north and the west. So when you talk about democratic systems and economic systems, it's important to keep this sort of background music in mind. And we've seen this in the response that I was talking about with Russia's attack on Ukraine. Some sub-Saharan African countries were supportive of the UN resolutions because their own borders had been drawn by colonial periods, and they didn't like the idea of people having aggression across borders. Same for, say, Singapore. But they didn't necessarily buy in to some of the other logic because they've seen violence in their own neighborhood. And they wondered, well, is this just a question of Europeans fighting one another? And should we perhaps have a slightly different perspective of our interests?

Second, security is clearly assuming greater importance, but I would argue that the analogies to the Cold War are intellectually lazy because we have two— We had in the Cold War two very different economic systems. Today, frankly, we're sharing one system. And we face the challenge of how do we address the weaknesses and the some of the dangers of interdependence while also being able to capture some of the benefits? So whether it's the issue of resilience and security of supply chains or other types of issues, this is going to be a tension that's going to pervade what goes forward in coming years. The United States and China, you can see this in their policies, are both going to seek to be self-sufficient. This is part of the Chinese dual circulation policy. You can see it in some of the industrial policies in the United States. But they will fail. They're not going to be able to be self-sufficient. So I would expect more government intervention in industrial policies, and, at least from my view, these are likely to add to costs, lower productivity, and special interest pleading.

Third, energy and climate are going to transform the international economic structures. I've talked about the security and the transition, but this is going to show up, say, in border measures, which are already seen in Europe, which are going to affect developing countries. It'll show up in mineral development. It'll show up in security costs. And these structure changes, I suspect people will look back on decades from now as being analogous to the changes of the Industrial Revolution. This is a huge shift if you think about the importance of energy in any economy.

Fourth, the tensions in the digital world between the economies of scale and local preferences. So again, I stay active in many economic and investment fields, and data drives everything for those in the business community. It's the heart of every sort of business. So as we fracture and fragment data systems, what will be the effect of this? Will it affect the infrastructure, deregulation of platforms, data accessibility and localization, privacy, and e-commerce?

And finally, if I take these together, I think you're going to see the changing nature of globalization. Some people like to say the reversal of globalization. I asked myself, How can you believe in the reversal of globalization if you look at the transnational issues of climate or pandemics or capital flows? Globalization is not going away, but the governance of globalization is clearly fraying and fragmented. You can already starting to see it paralyze some of the major global institutions. This has happened to the WTO. Of course, in some ways it's returned to the problem for the UN Security Council. You can see it in the WHO, and even the IMF, which I worked closely with in many capacities over the years, is at risk at this time, and partly with some of the developing country sort of debt issues. I expect you'll see a move towards more polylateral, variable geometry, multiple stakeholder arrangements, and these will be more network-type models, including with important roles for private actors, whether business or nonprofit. Ironically, the U.S. system should be one that is able to adapt to a network model pretty well. The United States is a country from its origin that was kind of built on civil society, business, transnational actors as part of our foreign policy. But I'm personally somewhat concerned that our government's withdrawal from shaping some of the global rules on standards and trade in the international economy will leave us behind. So that's the charge that I give to RAND going forward.

[Q&A question visible on screen] I don't think demographics. I don't think demographics are driving that issue. I think the issue I mentioned about Communist Party legitimacy is one that Xi has mentioned. The Chinese often like to use these calendar events. And so whether it's the founding of the Communist Party in China, whether it's the 1949, and Xi has talked about wanting to resolve this issue as part of this objective of the Chinese Communist Party to complete the unification of the country. So I think that's the driver of it. Having said that, I think, frankly, I've been somewhat worrisome when some— there's some U.S. military leaders have actually forecast invasion in certain time periods. I will even say at the level of civil military relations, I probably would have fired that person, because I don't think that's what the military should be doing. They should be preparing, but they shouldn't be setting policy in that fashion. I also think that there's still a huge amount of uncertainty here. So Xi would be running a huge risk. That takes, however, to the question of whether he might feel he has to take that step. And I remember testifying in Congress, this would have been 2005 or 6, to say, look, you have to be very careful with Taiwan, because if Taiwan's— if you— either Taiwan declares independence or we recognize the independence of Taiwan, any Chinese leader is going to be first to react. The President has talked about sort of maintaining the one-China policy. But if you look underneath it, there's lots of changes underneath that sort of raise that question. So I think the question you focused on is probably the greatest sort of danger point in the international system today. And I think it's manageable because I don't think either side wants a conflict. But I think that we have to be careful about a spirit of confrontation leading to miscalculations that could produce a conflict.

I'll take you one step further, because I've worked in a number of these spheres. If you look at the Chinese response, when Speaker Pelosi went, they demonstrated with a combination of missiles, sea power, and air power how they basically could isolate Taiwan. I have often felt that—I'll call it a quarantine; I won't call it a full blockade—is a far more likely scenario than an invasion because it would put the onus of escalation on the United States and others. So let's say, you know, the Chinese just demonstrate, okay, you can come and supply stuff, you can bring ships back and forth, but no military supplies. So the analogy is to 1962 with Cuba. And then what does the United States do? It's a different scenario than the invasion. And if you look at the Chinese response with Pelosi's visit, they're signaling that they're developing that sort of capacity. And I could give you other sort of examples. So this is where I think it's a particular danger zone.

As you may know, Taiwan actually has elections sort of coming up in 2024. One of the other features in this, it's quite interesting, is, you know, where is the Taiwanese responsibility in this process? It's not just us or Beijing. So, for example, the prior government and president, they just visited China and they had an agreement. They worked out language with Beijing in Singapore, a Singapore statement, that allowed them to have dialog but kind of neither fundamentally gave up its position. The current president, the DPP, sort of said, we will not accept that. I've raised with the Chinese to try to encourage dialog, and they said, look, we have to save face here. We can't just sort of drop the old position. So maybe could the DPP come up with some variation on the sort of the language. These get— what I'm getting you into are the tactics and the details.

But one of the reasons I'm using this as an example is that King was kind enough to mention a book that I wrote about using American history, starting with Ben Franklin in the revolution, to use sort of stories and case studies instead of a multiple biography of a set of events. And one of the reasons I wrote it, and I taught a course at the Kennedy School last semester that was—that the students liked—was I, I believe that international relations theories, which are very intellectually popular in foreign policy courses, are fun to debate, but they're almost useless when it comes time to dealing with these real problems. Okay. You're dealing with Sudan today. You know, what is the international relations theory? Tell us about how we should respond to Sudan or Iran. And so, frankly, I'm using the details to give you a sense, is that that's where the real rub of policymaking is to be had. And it was kind of came up in our discussion today as we were talking about democracy and economics and systems, is that, you know, do we like democracy? Yes. Okay. But so then what? You know, what are the basis in practical terms? And it varies. We were talking at our table by different countries and different examples.

[Question on screen] So in the same spirit of the multidimensional detail, there are lots of aspects of this. And to give you one that's sort of top of mind. Well, let me start it with this way. Look, I spent much of my career in government, in the public sector, we didn't even have Treasury and the Justice Department and the court. So I've spent, you know, while I'm a person at the center-right, I believe in public service as the highest calling. But I also recognize that, you know, governments can sometimes overdo it. They make mistakes. There's lots— You have to be very careful about the full empowering of governments in certain sectors without recognizing the potential dangers of those.

So there was a piece that I just read today from the Peterson Institute for International Economics talking about electric vehicles, which is a good sort of case, one example. So, number one, it turns out that because of the trade war that Trump started, and the Chinese reacted with tariffs, that Elon Musk moved his U.S. production of Tesla to China. Okay. So we used to have actually a lot of not only production but exports of electrical vehicles. We now don't have those. Okay. So how is that a win in terms of industrial policy? Okay. So now, hey, the Biden administration comes up with the new legislation. And as you probably know, if you sort of look at the details, there were various limitations on when the tax credits could be used, whether they had to be produced in North America, and they also actually put some income and price limits on it. But because of the storm that it created in Europe, they just created an exception for leased vehicles. Okay. Now, interestingly enough, the leased vehicles are not subject to the limitations on the income and the cost of the car. So you you put a bunch of limitations on one area, you just open the door in others, and you can look at the data—we were talking about data driven, okay—and the European vehicles are not at all being limited because they're now coming in on leased vehicles. Okay. So what do we accomplish with that? Okay.

So, and let me give you another example that's in the press today where it's the Congress versus the Biden administration. But when you play the protectionist game, you got to expect others to do the same thing. We'd like to increase use of solar in this country, right? But the Chinese have actually been investing in solar development for a long time. And they've got the most developed solar cells, and actually they've invested in because of the various tariffs, a lot of it's moved to Vietnam and sort of other countries. And so we wanted to then block the solar components coming into the United States, which would just raise the cost of what we want to try to expand, the solar sector. Okay. So the nature, once you start to get into protectionism, subsidies, favorites, the strands start to get all interconnected and you have to sort of figure out sort of is it worth the money? Is it going to be more costly? Will you be better off at the end of the day? You know, what do you do to the international economic system, which has helped this sort of the United States?

If you take sort of another one that was sort of on my mind, okay, semiconductors, which is another, the other big one. Okay. So I don't know, have you looked at Intel's business recently? Intel was the big promoter of the subsidy system. Okay. And so, you know, there's a reason why the U.S. semiconductors companies didn't build large capacity sort of semiconductor plants because they're capital intensive, it's a low margin business. And so then instead they moved to the tools and the software and other things. By the way, if you're concerned about China, you can probably use those to prevent the development, which is because it's a combination of Japan, Korea, and the Netherlands that sort of control those. And so we're subsidizing the development of a number of plants.

And by the way, which one? Should we only be subsidizing the higher-end semiconductor, sort of more basic production? And, you know, which company is going to get the benefit? Trust me, if we meet here five years from now, there'll be lots of horror stories about how these subsidies were spent. And this is, by the way, real money. We're talking about debt limit and spending and others.

So my caution is, is that in— And I read Jake's speech, you know, not that I would agree with all of his comments, but Walter Russell Mead wrote a piece actually this week, kind of sort of saying, hey, this is going back to the 1950s in terms of some of the restrictions. I'm not against investment in R&D. In fact, I think, you know, one of the chapters in my book was a man named Vannevar Bush, who was kind of the start of America's science policy. I'm a big believer in that, okay. But as you start to get more of these limits, particularly if you have a protectionist system— And our, my successor as U.S. Trade Representative says he doesn't believe in opening markets. Okay. I mean, that, you got kind of a problem? Okay. Which is one of the things we discussed in the seminar was kind of the openness of systems, and should the U.S. be a model? Well, my simple principle would be, you know, open to ideas, open to people, open to goods, open to capital. That is what makes the United States unique and strong and a good sort of example.

Now, so the reason I'm sort of droning on on this is, is that I could come up with examples, and of course, as you say, do we have economic policy? Yes, we have economic policies. We have tax policies. We have macroeconomic policies. You start to get into more microeconomic intervention. And frankly, do I support, you know, large subsidies for the farm sector? No. Do I support special breaks for the energy sector? No. So I'll be consistent in those. But what I'm warning is, if you look at the overall changes over the past couple of years, there's a lot of these piling up. And a lot of them, I think, are going to add costs, lower productivity and frankly, get us in problems with our neighbors around the world.

And to take one other example, we're competing with China, supposedly. Okay. But as we discussed this afternoon, many of the countries around the world want economic ties with the United States. So at the same time, we're building walls, right. So this is a combination of both. You know, the Trump administration, the Biden administration, the Trans-Pacific Partnership, would have been a very smart thing to do. Right. Okay. And to give you, again, a little history on this is that the Trans-Pacific Partnership is with 11 other economies. I was the trade representative that started all these free trade agreements. Six of those 11 we'd already had free trade agreements with. So guess what? The TPP was basically designed on U.S. needs and interests. Okay. So why would we abandon that? So instead, you know, some people in the Biden administration realize, oh, well, this isn't so good. So they come up with IPEF, this new economic framework. And the best example I can give you of that was the Indonesian foreign minister, had asked about IPEF, said, "It's kind of like being invited to lunch at Ramadan. Not much to eat." [audience laughter] Okay, now, now I'm a pragmatist. Okay. I've had— And so what would I— could I do some, try to push some things in supply chain digital? Yes, I would try that. Okay. But I'm warning, look, one of the benefits of being at my stage in life is you get to be contrarian. Okay? So everybody else is moving in this direction. I'm saying watch out. This is not going to be so good for you.

[Question on screen] What's on my mind is I'm going to Berlin next week, and people here may not know, but I was the U.S. negotiator for German unification in '89–'90. So the reason I'm going is they're doing a special event to honor President Bush 41 and, sort of, I'm the designated hitter with this. So— and I haven't been to Berlin for a while. So I've been trying to think about various meetings, and I guess I'll start with the 1989 story, because, frankly, while it's a good story of German-American partnership and alliance relations, we were also looking ahead and we believed that Germany would be the most important country in Europe, and we wanted to have a good partnership with Germany. That's still not a bad place to start. Okay. Whether it's on security or economic issues.

Now, what's going on in Germany, you may have a better sense. I think, that, you know, this coalition government is going to have its challenges. We'll see what the Zeitenwende that you know, my guess is they'll do the €100 billion. From what I can tell, the other defense expenditure may or may not be in play. So I'm going to try to learn a little bit more about that. But the other key part is, and is that— I touched on this very briefly, kind of where does European integration go? And the engine of European integration sometimes to my dismay, was often the German-French relationship. And the German-French relationship is not in good shape now. And frankly, this is where people as well as structural forces matter. All the chancellors with whom I'd had a chance to work in now, and this goes back to Schmidt, had a special sense of the Franco-German relationship for historical reasons. I'm not sure that Scholz has that, and you can tell the difference with him and Macron, some of the tension, that's a problem.

Then we got the Polish-German problem. I mean, so the Poles are saying, Oh, we want reparations, you know. So I don't think that's going to go over too well. And so I worry about those tensions. And frankly, this is where— and I think the Biden administration has done a pretty good job on this, is that it's unlike Trump who sort of threw away the alliance relationship. Biden has tried to hold Europe together on Ukraine issue in a rather sort of deft way.

And my problem is, as these questions, on the economic side, I think we're falling behind and we're sort of moving more protectionist, and that's not going to be to our mutual interest. And frankly, even if the U.S. and EU can work it out on some of these topics, as I mentioned with EVs or others, it's going to hurt us with the Global South. And I'm, as I've tried to hint, this isn't just a U.S.-EU game.

So I think the bigger question for Europe—and this is for Europeans to decide—will be what will be the nature of the European integration processes. So, you know, if you're 30 members, at some point, everybody can't have a commissioner, right? So what's the structure going to be? A biggest issue is obviously, I'm glad that Europe has suggested that Ukraine should come into the EU. That needs to be the strategic center. Alicia and I were talking about this a little bit at the table here in terms of the U.S. support. But look at how it's been with the Western Balkans. It's taken a long time. So we, you know, I understand the European system. I know it's not just a trade agreement. I know there's a lot of work to be done, but we really need to keep pressure on that to sort of get that process done.

At the same time, as we were also talking a little bit about Ukrainian reconstruction. We need to come up with some mechanism here that isn't just European, because frankly, you know, (a) if it's just sort of an adjunct of the European Commission, it won't be as effective as it should be. And you want the G7 and others involved in the process. Right. So this is an interesting issue I've been playing with in some ways. If you go back to the Marshall Plan, there was this creation of a special office that went out of business that actually kind of coordinated this. Maybe something like that is important to sort of draw us together. So, in the bigger sense, Europe and the United States, including the U.K. and including North America, I might add in this process, and need to think of themselves as partners with Japan and South Korea and Australia and the others. And we need to get through both the security but some of these economic issues. I obviously think we'd do better, if we were sort of more open market and less protectionist.

And I worry that actually— This is another tangent in your, sort of addition to your point, is that when the United States starts moving to subsidizing everything— You know Europe. Will Europe not do that? I mean, so we're going to go back to all the state subsidies that, frankly, the European Commission tried to remove. I don't think that's going to be good for our economies or for the world economy.

[Question on screen] I think they can be relatively high. Ajay Banga, who has just been endorsed by the board this week, I think will be a good leader as well as president. He and I served together on the board of Temasek, a sovereign wealth fund of Singapore, and I know him from his business role. I think he's kind of what the bank needs.

But the challenge that he'll face is, you hinted at it, is that how do you advance a rule of law or governance agenda in a way that is seen as supporting the bank's overall mission while avoiding the landmines of the different set of country biases? I found that possible to do because whether it was avoiding corruption, whether it was sort of creating more effective institutions in the country to sort of guide the policy, and even sort of the notion of a rule of law. Again, the China I was working with was a little different, and I had very good relations with the Chinese.

But I was explaining, I think at our session, that, you know, even when the Nordics came to me, you know, people often don't realize the bank has its different funding systems, but some of these include trust funds that are set up by countries relying on the bank's financial management. And so the Nordic countries came to me and wanted to focus something on democracy, and I was able to shape it into a rule of law system. And we were talking about the human rights sort of agenda as well. And, no, I didn't get any problem within the Chinese that maybe the Chinese, as you may know, they have a rule by law as opposed to rule of law, was kind of their philosophical concept. But it depends— but the point of it is, it depends on whether they want to work with you, if they want to, or they want to stick it to you and make your life difficult. Okay. And, but this goes back a little bit— We didn't get into a great depth. But, you know, I don't think pure confrontation with China is going to be good for any of the parties, much less to Taiwan and others.

So I'm, you know, look, I've been part of some wars in security administration. I'm not a naive person on this. I think we need to have strong deterrence. We need to have strong military capacity. We need to have strong alliance relationships. But I don't think a state of situation with China where nobody's talking to each other, they don't trust each other, and you can't cooperate on anything is going to be very constructive. But in a way, if I go back to our, all our discussion this afternoon, legal systems, principles, fairness, all these run through everything that you have to do in terms of capacity and institutions. And, by the way, as we were talking about sort of gender and other issues, these will run through these systems, too, you know, And so again, because I was pushing a number of the gender issues when I was at the bank, let me give you an example.

In some societies that obviously weren't at the stage of gender, I'll, well, I'll say equality, that sort of some Western societies had, when I made the case to them that you're ignoring half your people, or if, I remember a program in India where, it was in Rajasthan, this very poor women's development program with dairy production. And I kind of asked, Well, what are your spouses think of this? And they say, at first they were a little worried, but then we brought more money home, and they kind of liked it. You know, so maybe you have a different problem, maybe not working. But so, and the other thing, which we've also talked about, is the use of data in this. You can show a lot about the effects. I talked about the conditional cash transfer programs through women, but girls' education, sort of the payoff.

And so part of it goes back to when the bank goes to countries, it's important not to be lecturing or hectoring, but in a sense bringing international experience and saying, look, here's what we've discovered is a problem. Here's a possible solution, how you can deal with it. So I kept trying to get the bank to see its relations with countries as clients as opposed to just a series of textbook solutions. So I think there's a lot you can do in this space, and you can link it to environmental issues and others. You can link it to the trade agenda and openness. But all, by the way, I mean, this brings us back. If the United States is closing itself off, it's a little harder to make the case.

[Question on screen] You'd have to speak to somebody in the administration now, because I've been away from the U.S. government since 2006. It's a long time. But my guess is not very well. Okay. And that in part— but there's a reason for this. And that is, as you've discussed today, this is an art, not a science. They're external events, exogenous shocks, you know, wars, financial crises, pandemics that put stress on systems. And so, you know, it's a little hard to show kind of the return on investment on it. You have the head of the National Endowment for Democracy where, where [speaker gestures to someone in audience], would probably be in a better position to kind of point to this. Separately, it's going to be part of American foreign policy, regardless of the quote, sort of statistical result, because it's the values that the country sort of associates. That ebbs and flows. You know, what's the cost of trying to, you know, push democracy? Is it whether it's at the barrel of a gun or also what other pressures when you've got other interests with countries. Where I was trying to at least suggest that part of the dialog needed to go this afternoon was that unless you can create an economy that delivers for people, it's really hard to either build or sustain a democracy. I also think that the way you develop that economy can help build support for open and democratic societies, private sector, rule of law issues, building a middle class. And so I see this as more an evolutionary process, which we've seen in different countries over time. And, but there's still no there are often no simple decisions on these things.

So let— just one that as we were walking up, we were talking about as, say, Saudi Arabia. Okay. So not very encouraging that, you know, MBS has assassinated a journalist. Okay. On the other hand, you see that he's opening up the system for women and opening up the economy. So do you cut them off? Do you encourage it? What, how do you do the relations? You know, and part of the challenge for any government is kind of how do you strike that balance? Okay. And then on top of that, you got to whatever security interests do you have with Saudi Arabia, with Iran or Israel or other aspects of that. So what I've been involved with, democracy and freedom agenda is kind of my whole sort of government career in different forms. What I've always tried to suggest is that it needs to be part of the U.S. agenda. You need to try to think about how to happen. But, and so, I'm not a real politician only on this, but you need to be practical about how you send the signals. And some of it can be symbolic. I remember when President Bush 41 returned to China in 1989, he went to a Christian church that he'd attended. So is that earthshaking? No. But does it send a signal? Yes. You know, to people in society that you support heroic people like we had some tonight that you know, or this afternoon, that come from Venezuela and others. Yes, you do. And at some points, you may decide to draw a very hard line. But what I'm suggesting is sometimes advocates, for understandable reasons, push to an edge. And you just have to decide at the end, is that likely to get you to where you want to go? And those are judgment calls ultimately in the process.

And what I think kind of what I was also trying to suggest today is—and this is for RAND and others, the people that are here—is that you can learn from experience. You can see what worked better in one place, and so do others, and so how to build it over time. Where I've been sort of critical of things tonight in some respects. But I'm a long-term optimist. And even like, so, with China, for example, I don't think China is ten feet tall. Some people act like China is going to take over the world. And so I see China has got lots of problems. And so, frankly, I want to deter China and where it's going to cause problems. But I don't think we have to become like China. And I don't think that we have to imitate every aspect of China. And frankly, I think we should continue to push the openness agenda. And one of the examples I mentioned is, you know, Chinese students in the United States. I understand, you know, the security, fine, you have to watch different groups. But when we shut down consulates, you make it harder for Chinese students to come, I don't think that's a long term investment. I was telling you, I was teaching at the Kennedy School. I had some Chinese students there. It's much harder now than it was ten years ago. Those students are going to have a hard time figuring out whether they go back or what they do. And I've talked with some of them personally about sort of their sort of career issues. We shouldn't make it harder for these people.

[Question on screen] That's a big topic. Now, I'll give you parts. For me, I've always focused more on equality of opportunity. I used to have this discussion with some of the economists at the World Bank. You like equality? Would you rather live in a society where everybody persists on, lives on $1,000 a year? Or maybe one where the minimum is $100,000 but there's people that make a billion? That's unequal. Which would you rather have? Okay, so for me, it's equality of opportunity. Okay. And so that runs from everything from rule of law systems to the types of conditional cash transfer programs for education, for health, to deal with discriminatory issues. Colombia in Latin America had a program where students could go to university and basically pay it off over time. So there's a full, rich agenda on sort of creating equality of opportunity. That's kind of where my heart is on these topics. On the other inequality issues, one has to be careful.

Okay, so there was a piece recently that pointed out that— it was interesting question people posed, and I won't put you on the spot, but is that they said okay, how many, what's the percentage of the United States workforce that lives on a minimum wage? Two percent. Most people would guess quite higher. Okay. Then he asked, okay, and where would that position you in terms of average incomes globally? 85 percent. Okay. So one of the things, by the way, is that many people who would use inequality against me when I'm trying to open up markets for trade really didn't give a damn about the people in the developing world that would sell to the U.S. Okay. Because we took hundreds of millions of people out of poverty because of openness in trade. So which inequality are we talking about here? Right.

And so, and then the other aspect of it is, even in the United States— This will certainly be unpopular. But there's, if you look at— Phil Gramm came out with a book with some research from Bureau of Labor Statistics. Guys, these are not, they weren't Republicans. They introduced a point of view. And they looked at sort of, when we look at inequality in the United States, and you look at the progressive taxes and the payments that are paid— By the way, our progressive— our tax, income tax system is far more progressive than others in Europe. Okay. Most people are unaware of that. Okay. And then payments back. And then you look— Where I would look at is what's the mobility of the quintiles? Will people move within the system? Okay. Now, that's a political judgment. Okay. But I would apply the same to developing countries. In other words, where I thought the hope— What I found with countries—we were talking about Tunisia—is that when people lose a chance of any sense of hope, that there's no future, that they work and things get stolen from them, then they turn. Then the populism sort of takes over. If you take the East Asian examples, you know, if you create, whether it was Taiwan or South Korea or, you know, Singapore or Japan or— You can see that creates an upswing for opportunity. And so, again, these are debatable points and it's always, it's a question of degree. But I'm a little worried that sometimes the inequality argument is kind of used to keep people down as opposed to lift people up. But that's my bias.

[Question on screen] Yeah, that's a good country to end with here. I spent three weeks in India earlier this year, even before the damn surgery, because my wife and I had sort of planned a long trip. And again, to show you my interest in the obscure, when I was at the bank, one of my Indian colleagues pointed out that there were only 3,500 tigers left in the wild and that they could be exterminated in our lifetime. So I started a Global Tiger initiative with the 13 Tiger Range countries, including I chaired a summit in Petersburg, Saint Petersburg, with a guy named Putin who wanted to save the 500 tigers. So just shows, working across boundaries here. [audience laughter] But, and to the good— And India, of course, is the largest population of tigers. And actually their numbers have gone up. And so the total we've gone from over 3,500 to probably about 5,000 in the world now, the numbers are going up. And India is doing a great job. I'd never seen a tiger. And so I went to some of the tiger reserves, which is why I— and because of the work, I— actually it goes a little bit to some of the development questions.

The reason the Global Tiger initiative was successful was we— A lot of environmental groups have been very interested in this, but they— a lot of the developing countries thought they were kind of lecturing them. And so we went to the countries and tried to come up, each came up with their own action plan. And so sometimes it's areas for tiger habitat, sometimes it's enforcement of smuggling and other aspects. And so we sort of built this program. And so the Indian Forestry Service considers me sort of a local hero in their system.

But because I was in India for three weeks, I was also traveling around all these spaces. And one of the things is, you know, every place you go, there's bricks and cement being done. I mean, it is— But on the other hand, the air is terrible. Okay, so. The Indians certainly feel that the answer— I mean, they, depending on how you measure, they're already, I think, the third-largest economy or almost the third-largest economy. They're very proud of their democracy and— which is under stress for various reasons, because some of the policies— and they believe that they're going to play a very important role in the world. And I wasn't being critical on the strategic autonomy. I'm trying to be practical. So take the— This is changing a little bit. But about 85 percent of Indian army equipment came from Russia. So guess what? They don't want to cut off the Russians. I mean, so their concern is China, right? And so they're kind of balancing this. So in that sense, but it's still a big challenge to even move product around among the states.

So India is one of the most protectionist countries in terms of the economy. They opened up some things. A lot of businesses, as you see, are sort of trying to break in. It's, you know, two steps forward, one step back. But they're seeing it as an alternative to China. So you can read these in the business pages. I think it's going to happen, but it's going to be fits and starts in the process. And I think you're going to find foreign companies trying to develop this relationship. Also Japan, Korea, and others. So India will inevitably become more important.

But then that goes to the last part you closed with. There is a good piece written in Foreign Affairs online by— I'm on the board of the Carnegie Endowment. One of the— Ashley Tellis is the author. And what he warns people is don't expect India to be an ally. Okay. It being because of this strategic autonomy notion and, frankly, I mean, the Indians'll be very blunt with you. They had a bunch of white people running them for a long time and they kind of want to run it themselves. And so they don't necessarily want to be told, you know, we should fight China for you and others. So the logic would be we support India partly because it creates a balance to China and prevents China from dominating all of southern Eurasia and to agree we can build cooperation with China on mari—or India—on maritime issues and security issues, all to the good. But keep your expectation in balance, okay? Because they're not going to be an ally. They're not going to be like Japan or Korea or Australia or NATO or others, in part because they want to have their own freedom of maneuver. What I want to make sure I emphasize on this, because, is that it's important to understand how the other guy thinks about something. Okay, so we may not like that, but try to understand where they're coming from, okay. And their logic in it. And because one of the things, whether it's diplomacy or development or others stuff, the sort of what we've talked about, is you may not agree with what the other guy thinks, but it's kind of useful to know what they think and why they think it. Okay, particularly if you're negotiating, you're trying to maneuver them into something. In India is going to be, along with China, sort of the big one, once we get Europe sort of straightened out and we can do. [audience laughter] So RAND's got a lot to do.