 Thank you very much, Terry, and thanks all of you for having me out here, and I've come out here a couple of times already, and the welcome is always very warm, very well organized, of course, but also the ideas are great, and I've really appreciated the chance to talk to people at the War College in addition to being at Brown because you get a different take on things and maybe a little more practical take on things sometimes than in the purely academic environment. The topic I'd like to talk about today is the state of the world, and I spent my life working in different parts of the world, a lot of it in China, a lot of it in South Asia, then a bunch in Europe, and eventually I went back and took a job that I'd had before. I was deputy spokesman and spokesman in the early 1980s, early 1990s, and then in the late 1990s I got a call saying you want to come back as spokesman and I decided to say yes because in the end I missed the world, and I guess trying to look at the whole world at the same time is really hard to do, and you'll see how poorly I do it sometimes today when I try to explain the world to you, but that's what I'd like to talk about, the state of the world, and try to look at the whole thing together, and I look at it through the lens of economics, and I look at it through the lens of economics because I think that's what people really care about, especially these days after the crash and the recovery, maybe, many places, not all, but also that's what makes a difference. When the airplanes hit the twin towers, I was down in Peru with Secretary Powell and we were in a meeting with President Toledo of Peru, and we were talking about whether Peruvian long-staple cotton exports could get into the United States. That's what he wanted to talk about, and that was what we were talking about when the aid came in with a note saying an airplane has hit a World Trade Center tower, and that just reminded me so many times that that's livelihood for people, that's how nations fare and individuals fare, and so you got to start with that, and then, of course, I was reminded again when I came to the Ruger conference a couple weeks ago, and most of the people who participated started out saying economics equals security, or the crude way of putting it is power is money and money is power, so that's the lens that I kind of start with, but what's the state of the world? Well, it's easy to see, it's quite messy. We face challenges everywhere, many of them, most of them from ungoverned spaces or failures of government, I think others have said this, and it's widely talked about and written about these days, but I'm not sure everybody really follows through on the sources of that and follows through on the implications of that for what we need to do in policy, and that's what I'd like to try to do today is to make the sort of the connections there. These are very sort of preliminary ideas and part of why I wanted to lay them out for you is because you're a tough audience and we'll find out if it hangs together or not, but when you look at things, you know, failures of government seem to be the major cause of instability and not just inability to give people, you know, freedom of expression, liberty and democracy, but the failures of government to actually deliver services, to deliver public order, to deliver health care, to deliver education, you know, I'm reminded by hearing from the Moroccans when the Arab Spring was going on and they said, the first demonstrations in Morocco were outside of clinics saying, where's my doctor? Where's my health care? And it was government's ability to deliver those kinds of services that really made a difference to people. So let's start looking at the sort of the way the world works these days, starting with the economic point of view, because I really do think the economics is the organizing principle that we're all dealing with. And the place we got to start is Trenton, New Jersey, of course. Some of you, it's the center of the universe. For me, it's a bridge. It's a bridge that was built about 100 years ago now. It's got big sign on it. You see it from the train. Trenton makes the world takes. And basically this is the old idea. This is the way the world used to work. I make things and sell them to you. You make things and sell them to me. And we have this sort of commercial relationship. But it doesn't work that way anymore. And yet we still make trade policy. We still do trade statistics. We still do, you know, we rate countries by how much they export or how much they import. We have trade barriers to protect industries against foreign imports, and we try to open up export markets. It was really struck after the crisis that President Obama, one of the first things he announced, was an export initiative. And I was sitting in the OECD listening to all the countries announce their export initiatives to recover from the crisis. And nobody was asking, like, who's got the import initiative to buy all this stuff? You know, what are we going to export to the moon? Or what? You know, everybody was going to export. Nobody was going to import. And yet, you know, that's still reflected of, shall we say, the Trenton model of how nations relate to each other. But it really isn't the way it works anymore. And so we moved to a newer model. This is the Smile Curve, which I think you can figure out how it got the name. Stan Sher, the head of Acer Electronics in Taiwan, put it together a couple years back. And basically he describes the manufacturing process. And what it really shows is where the money is. And the money is in the higher parts of the graph. And as you go through the manufacturing process, you start to see that the money goes to people who think of the product, who conceptualize the product, who put together the value chain for producing the product, the people who design it, the people who own the brand like Apple. And then it's in the people who distribute and sell and market and then service the product. I was struck a while back at a meeting of small manufacturers in Germany who wanted a speaker to come and explain what Chinese economic rebalancing meant for their exports. But I was talking to a couple of guys there. They have like 35, 40% of their staff is after-sales service. That's where they get their reputation for quality and support. And that's where they make the money. So that's how you get money these days, is you conceive of products and you sell them. And the guy that makes the manufacturing at the bottom doesn't make a whole lot of money. The Chinese made, I think, about six bucks on the iPod. I think they make something like 12 or $15 on an iPad. But it provides a certain kind of job. But if you want to move up the value chain, either in the conceptualizing and design side or on the marketing and distribution side, you've got to have education and skills. And so education and skills, services, that's what adds value to the product. And that's what determines your position on this value chain in the world. And education becomes the new currency of how you can occupy different spaces. Opening up economies and tariffs are still important because if a product moves between sort of a dozen different countries during the course of its manufacture, if there's a small, minor, 2% tariff in each place, it adds up. But even more than tariffs, things like logistical failures, delays, bribes, licensing requirements, technology, communications, these are what make these value chains and production models work. And so countries that really attend to that that really emphasize their spot in the value chain are the ones that can make things flow in and out of their borders quickly, that can have good logistics, that can have good communications. And so you get countries like Costa Rica that have really focused on this and set in the telecommunications and set in the ways of doing business and the logistics and the education system. So they can occupy a higher and higher position on a value chain. And about 10 or 12 years ago, they bagged Intel, got them down there. And now they've got a whole series of high tech firms because they're starting to get a cluster. Or you get people who adopt international standards and models so that when Israel decided they wanted a venture capital high technology sector, one of the first things they did is they went to California and they figured out what are the laws and practices that allow venture capital to make it in Silicon Valley. And they went and they mimicked that so that the investors that they wanted to attract would find that in Silicon Valley, in Israel, they would find a similar investment environment for venture capital and angel investors. And that's been one of the keys to Israeli growth in the high technology sector. Others are military in support and a good flow of Russian Jews and mathematicians and things like that. But they've intentionally set up an environment that investors could feel comfortable with that would be familiar to them. Sometimes better to have people comfortable in an environment than to have the absolute best one in the world. Manufacturing isn't what it used to be either. I mean, it's the low value part of the chain. But even then, look at what's happening. In the future, you're getting to 3D printing. If I can make something in my kitchen, then most of this other stuff is still going to make money for whoever's producing the product. Maybe not the distribution quite so much. But even the idea of crossing borders is going to happen electronically with the design and the production and sending it to my machine in my kitchen to make. So the manufacturing process drops out even more. Or you get robotics, these big also computerized manufacturing centers, wholesalers kind of things where you can basically send any design and say, I want a million of these and they make them for you. There are some of those in China. So China may not be totally cut out, but that creates a different kind of job. There was an article, a real good article on the return of manufacturing to the United States in the Atlantic about two or three years back. And they focus on a valve, engine valve plant in North Carolina. And they interview one of the guys that's working on it. And he says, if you know calculus, you can be a pretty good machine operator. And I'm thinking, you know, the guys I worked with, when I came out of high school and got a summer job in a plant and worked with a lot of machinists, they didn't know calculus. They knew how to turn the dials and get down to the very fine tuning of machine cutting tools. But if you've got to know calculus to be a machine operator these days, then we really need to look seriously at our education system. Because at least those jobs, the robotic manufacturing jobs, the ones where you're controlling the computers instead of actually operating the tool. We'll still have some of those. The other the other thing about this new way of making things is that the the numbers that we always use are a bunch of lies. That the gross figures for imports and exports are many cases, meaningless and often misleading. The OECD, Organization of Economic Cooperation Development, the World Trade Organization and the UN UNCTAD, whatever that stands for, the UN Trade Organization, got together a couple years ago and did a study of value added trade about where where this money goes and who adds what to the value of products. And they their their statistics show that, you know, that what we think of as the US China date trade deficit is actually about 25-30% less than the figures would tell you that a lot of the US trade deficit with China is in fact just a rerouting of the US trade deficit with Japan and Korea, which meant all those trade policy fights we had with Japan in the 80s all that happened was it got rerouted through China and now we have those fights with China. And you know, but other things not just for us that, you know, when you start talking to the Chinese, the Chinese are really worried about the revaluation of their currency. And the answer is they import 60% of what they export. So everything that they think is going to be more expensive on the way out if they revalue their currency is actually going to be cheaper on the way in all the all the intermediate parts. And so the the net effect is going to be very minor and marginal. And they've gone ahead and done that. Anyway, other than the fact the numbers are all wrong, you know, we still throw them around a lot. And you'll see me throw around a few, but just remember their lies. And so let's start with one big like. But it's a good one. It's a good news story. So I got to got to start with it. There's a reality behind it. And it's about multiple engines for growth. And I just picked, you know, random number. Let's talk about the trillion dollar economies. trillion dollars still a lot of money, right? You remember Everett Dirksen's line of billion here, billion there pretty soon you're talking real money. I guess we're into the trillions now, but still trillions a big number. And so we've got at least 19 economies now last year for with trillion dollar markets. I put the other five, you know, the next the next five or so on the on the list, because you see who they are, they're all over the world. And they're maybe not the ones you might expect. You know, Nigeria, Taiwan, Argentina, well, Argentina, maybe not, but Thailand, Egypt don't, you know, they'll probably make it. And this is based on purchasing power parity, if you do it on the base of nominal growth figures and exchange rates, it's a couple less, I think they have 15 this year. But still, we've got somewhere between 15 and 20 trillion dollar economies. Now, we're going to have 20 some after by 2020, we're going to have 30 some by 2030. And that's multiple instance of growth for the world economy. That's a good thing. It's not always firing on all cylinders. And some of the big players can affect the fortunes of people very far away. Brazil and Chile made it through the crisis, because China was still growing strong and building and booming. And so they were selling a lot of iron ore and other raw materials copper to China. But now that China's slowing down, they're feeling the pinch. But they do have other markets, they've got Europe, they've got Japan, they've got the United States and having a lot more players, a lot more trillion dollars economies around a lot more engines for growth is probably good for all of us. The other thing is it's good for the United States. It used to be the United States was the main driver of the world economy that we were the biggest player and the biggest market for everybody. And now there's people that have other alternatives, and we're not trying to carry the whole burden ourselves. And we really ought to think about that and how we play as one of many players, as opposed to the only one who really matters. Now the next thing about this economy is the middle class. And the middle class around the world is growing. And I like to define to talk about the middle class with this with this chart, which is done by Uri Dadoch at Carnegie a couple years ago, I think it's 2012 he did it. And he he said, you know, we talked about the middle class, how do we define it? And he said, I'm going to define it as people who can buy a car. Who's got enough income or a cheap enough car price that they can buy a car. And so he figured out how many people in the the G20 developing countries could buy a car. And he came out with 573 million versus other definitions of middle class that would have said 369. So for Uri Dadoch, the middle class is probably 50% larger than most of us might think. I like the car definition, it just, I don't know, just feels right. I don't know if it has any other valid validity, but feels right is good enough for me. So you've got this growing middle class. And largely in countries that are climbing the value chains, educating their workers. And in some of the countries, they actually benefit from having an internal engine for growth. There's a guy named Homie Karas at Carnegie that's written about this that that Indonesia, Brazil, India, they don't just have the export growth. They've got an internal engine of this middle class that's growing and very dynamic. And it's creating a different sort of growth than some of the Asian examples we've had in the past. And even then China China is now trying to rebalance their economy so that they do have more of a consumer growth engine. And all of us have different views about how how far they've gone and whether they're succeeding. But they're really trying to retool their engine to have more internal combustion, you might say. And that's a good metaphor doesn't really stand up in mechanical terms, but it sounds good with the words. So what's the downside? The downside is the middle class is revolting. That all over the world, we see the effects of people who get economic power, who want political power. I used to say that once you start choosing your toilet paper, you decide you really deserve to choose your leaders as well. My wife told me I couldn't say that I had to say shampoo. So consider that I said shampoo. But eventually it happens. You know, does it happen as an iron law and on a specific timetable? No. Does it happen thoroughly and completely? No. But it did happen in Taiwan. It did happen in Korea. You can see the pressures in other places. You can even see a little loosening in Singapore. That's Singapore is probably the best example that it never goes all the doesn't necessarily go all the way. But even more, you see it in the Arab Spring, in the Arab Spring revolutions around the world. You see it in a lot of Eastern European changes, you see it in the anti corruption movement and wave in India. And I think you see it in the Occupy movement and the Tea Party as well. The middle class is revolting. And that kind of figures because more and more in the scholarly community, the development community, people are telling us that economic success depends on institutions and governance. Inclusive institutions and good governance. Why nations fail by Asimoglu and Robinson is probably the best or complete explanation of that, at least for popular markets. And I think we all believe that quality governance produces quality growth. And I used to talk to my friends at the OECD about this that, you know, we have a governance directorate, we have an economic directorate, and every now and then I try to get them to talk to each other, which was not very easy. But we don't really know how to measure quality governance very well. We have indicators, what we can't say scoring good on the indicators is a real good governance thing. There's some people that are trying to do it. I'll show you a chart later. And quality growth is something that's very subjective as well that economists don't deal in terms like that. But I think we all do believe that quality governance produces quality growth. And that's what we're looking for around the world. And that's the way to satisfy the middle class, keep them from revolting, keep them happy, and keep them moving. Now, our second problem in the world, in addition to satisfying the needs for quality growth, is sort of the opposite side of the coin. And that's the very divisive reactionary forces that come out in response to globalization. And for this reason, and probably many others, wars are trending more and more to be inside countries, not between countries. Societies are being torn apart, and people from the outside are intervening in them. So this is just a look at sort of the last, you know, well, not quite the last, but 10 years of turmoil and insurrection in different places and wars inside countries. One of the ones that's not really highlighted in this chart that I always found very interesting was when I was working in Afghanistan, we were looking at charts of, you know, the number of districts that had bombs and violence. And I found the same chart in India. And the percentage of districts in India that had bombs and violence and attacks was higher. This was about 2006, I guess, was higher than the percentage of districts in Afghanistan that had bombs and interactions and violence that year. And I was trying to think, well, how come? How come India hangs together and Afghanistan doesn't? And it's having that sort of web of governance on top that lets India hang together. And that was really our problem in Afghanistan was our failure to be able to do that. So if you look at this problem of internal turmoil becoming the major threat to international peace and security, it has a lot of implications for us. The first is we're going to have fewer and fewer wars and conflicts like Iraq. Fewer places, particularly the first Iraq war where one country invades another and we've got to get them out. One of the exceptions to this may be the subject I've started to get interested in, which is the little rocky outcroppings around the world, like in the South China Sea or the East China Sea or some of them in the Arctic or Gibraltar, Malvinas, a whole bunch of others, where people are actually fighting over claims of territory. But presumably a lot of those are going to be diplomatic and other fights and not military ones. But anyway, wars are tend to be inside countries and not between countries anymore. So in these places, places like Darfur and Somalia and Pakistan and Afghanistan, the dangers are the dangers of ungoverned areas and failures of governance. And so we're going to have to learn how to get governance into these places and get them the stability and growth that's going to make a difference there. And that makes a difference to us. So how do you deliver services to a population fairly and efficiently in places that are underserved by governance? And frankly that's not something I figured out and I don't think it's something we figured out. Look at the opposition though. Look at the opposition models. Look at ISIS. Look at Taliban. Look at Hamas. They deliver public order and public services. It's crude. It's rude. It's Quranic education for the Taliban. It's an opium economy. It's crude justice. It's public order based on ruthless discipline. But in the end they're developed, they're taking care of widows and orphans and delivering public order and justice. And it's better than exploitation and turmoil. And unless we can compete on that level we're not going to be able to win. So can we do it better? Can we do it at all? Well I think first we've got to admit to ourselves we've got a credibility gap these days. Financial crisis, the experience in Iraq and Afghanistan, Abu Ghraib, paralysis in DC, name it. There's a whole list of reasons why there are more and more people around the world don't think we have the answer to their problems. And we probably shouldn't think we have the answer to their problems either. So that I think first and foremost we need to clean up our act. We need to clean up our economy and pull the ship out of the water and scrape the barnacles off you might say. Foreign policy begins at home as Richard Ha says. A lot of others are writing about this these days too. But we really need to scrape off the impediments to more effective government, to better growth, quality growth. And that means particularly scraping the barnacles off things like the regulatory system and the tax code. But abroad, how do we do this overseas? And this map is a chart of a map of government effectiveness around the world. There's an outfit called the World Governance Indicators. A guy named Danny Kaufman used to be at the World Bank and then was at Brookings for a while. Puts together this thing. He's got six or seven different indicators. I just took the one on government effectiveness which is government's ability to deliver services around the world. And the one thing you'll see if you start looking at violence and riots and wars around the world you'll get pretty much the same chart. The red areas for violence are the red areas on Danny Kaufman's charts of poor governance and lack of government effectiveness around the world. Good governance doesn't really stand out here. You don't have that many green countries. You've got sort of yellowish green ones that are trying or have some way of delivering some government services and stability of their population. But it doesn't really stand out. And if you think about the places where we've been involved heavily not many of those have gone green in this chart yet. So our successes don't shine shall we say. The successes that I've tried to think about where we really have been able to help people build better governance are some of them are sort of unfortunate examples like Taiwan and Korea where they're real successes now but they went through a long period of dictatorship. And I don't think that's something that we want to start selling and recommending around the world. You get the Eastern European countries who sort of adopted wholesale the NATO and European Union standards. You know when Czechs woke up in 1991 when they got up in the morning they thought how do Europeans brush their teeth and that was the way they brush their teeth. What kind of shampoo do Europeans use and that was the kind of shampoo they use. So adopting that European model wholesale was great for them but you know apart from some of the laggards in Europe it's not going to be something that will work broadly around the world. Maybe there's some better examples more recently I'm thinking of places like Georgia and Columbia but they're few and far between. We've been very helpful but a lot of it is they've got to decide it's time for them to do it too and some extent it's their middle class that's pushing to make it happen. So that's the task before us is building this sort of stability around the world and opportunity around the world for those people and for us by building better governance around the world. Think about Ukraine. You want stability there on the edge of Europe based on European practices and institutions but it's a challenge. It's a challenge not just because of Russian interference it's a challenge because Ukraine's a challenge because the society is fractured because the history of corruption and bad practices ingrained very deeply and I think just saying they have a European destiny is not probably not enough. You can question whether any outsider can help them. At least you can offer them an opportunity. North Africa I think it's very important that the democratic revolution succeed not just in democratic terms but in economic terms. We always said it's much easier to get elected than it is to get re-elected that when you come to the second election after the revolution the public is asking what you've done for them lately and what you've delivered in terms of economic growth and electricity and health care and education and we really need to do a better job making sure they succeed. We were trying to do it with the OECD giving them some best practices and training and other things they could use fighting corruption but we don't really have a strong package to do that and I think that's really important in North Africa and places like Tunisia where when I was talking to the Tunisians they said we've got to get the constitution, we've got to get through the democratic side first but then we really do need economic growth and there'll be something of a peace dividend for countries like that where tourists will come back and investors will come, things like that but we have to make sure it works. Morocco and Jordan have done pretty well organizing their economics, other places Egypt, Libya of course done a lot worse because first thing the government does when they come in is they raise salaries, increase subsidies so the bread gets cheaper and do a whole lot of things that tend to be budget busters. They don't raise taxes maybe on a few of the rich people but they really don't do a lot for the economy in the first months of a new government. They tend to move in the wrong direction. The thing about Afghanistan where the only exit strategy that will work has been and remains to have a government that's well grounded, that's capable that can help the country get what it needs in terms of services and communications and economics and I'm afraid we haven't really done that very well either. Pakistan, Yemen, Somalia, other poorly governed places think about Iraq, the fight against ISIS, it can't just be a fight. I think we've got about three-eighths of a policy that needs to be half-governance and half military and certainly think of what we're doing around the world in places like that. We're playing whack-a-mole, whack-a-mole with drones and bombs and special forces against very poorly defined and constantly multiplying enemies. We keep hitting napalm with a hammer and thinking somehow that's going to solve our problem. So we've got to get better. I hope we can learn to do better. I hope we can figure out the governance side of the equation. But if we're going to make the economics and the governance work for people, we've got to get a lot better at it. And that's sort of a simple statement with a very tough answer that I haven't figured out yet. But anyway, thanks for listening to me and I look forward to hearing your thoughts and your questions. Any questions? I'd like to get your insights on, it doesn't get a lot of press, but there's huge inflation and a lot of problems in Argentina right now. One of the series of many. So if you could tell me if this differs from the previous defaults or near defaults and it's not, how that may affect us in the rest of the world. Yeah. You know, 100 years ago Argentina was one of the countries that was ready for takeoff. And they almost had European levels of national income and GDP per capita. They were major producers and exporters. They were floating a lot of bonds in Europe. Then they started defaulting on bonds in Europe. And we've had 100 years of pretty bad track record. And every time it looks like Argentina is about to get their act together, they screw it up. I mean, that's the only way I can explain it. It doesn't, you know, I think one of the rules around the world is economics is a whole lot easier than politics. To figure out what they ought to do is a whole lot easier than actually getting it done. And they've got, you know, they've got the Peronista tradition, the populism. They've got power in the states that to get anything really done, you've got to have a lot more buy-in from different populations than they can usually get. And they don't have, I don't think they have a good sort of nurturing, supportive framework around them in terms of the America sewer doesn't do a whole lot in terms of discipline. So is this default unusual? No. It's been going on for almost 100 years, not quite. And are they going to get their act together? Nothing in recent history would lead you to that conclusion, but one can always hope. One of the reasons I asked was it seemed different because you've got this unique kind of a lawsuit that's either going on or Yeah, that's more a U.S. problem. Yeah. I mean, the whole business of rescheduling, you know, there's the Paris Club, it takes the agreement of all the creditors to do a rescheduling of debt. And what happened was there was an agreement among most of the creditors, and then the few holdouts, basically hedge funds who were speculating in bad debt, went to court and said, well, we deserve everything that we're owed. We're not going to take a haircut, you know, and the court agreed with them. Now that was the U.S. court and U.S. law. It don't make a whole lot of sense to me. If somebody can't pay their bills, everybody's got to agree to take less and not have a couple of people who say, no, no, we're special, we deserve more. But that doesn't happen because the U.S. legal system is really, you know, in favor of the creditors. And if you're owed something, you can go to court and say, insist on 100%. So you look at the negotiation Detroit had to go through to try to get everybody to agree. And that's a problem. There's a book, House of Debt, about the recent financial crisis where they talk about the mortgage crisis. And this is one of the elements that keeps coming up as well. And says that we actually need a better way of financing mortgages so that the lenders are taking equity and not just debt. And therefore, if the value of the house goes down, then the value of their equity goes down. Yeah. But, you know, it in the right environment, people think they're going to have the money to repay the bill. But I'm sure Argentina has no difference than a lot of people who've borrowed money for a house in the U.S. I thought they would have the money to repay it full. I didn't worry too much at the time. Yeah. What do you see in the role of State Department role, but we don't have the resources for people or money to do that, which has thrust the military into that position in various places. I'm just curious to hear your thoughts on that. Yeah. I think it's wrong for the military to have a role, not because it goes against some basic principle of separation of church and state and military. But it just doesn't work out. There, first of all, it's not what military people are trained in. Second of all, when the war is over, the military leaves. I mean, frankly, I agree with George Bush, not George W. Bush. I agree with not the one that actually became president, but the one that ran in the campaign and said, we shouldn't have our military involved in nation building. He kind of changed things as he went along. But I look around Afghanistan and I did a lot of work there and we did a lot of military training. The military trained the police quite well. But the other thing we did was there was a lot of activity on a local level that was done by military folks, by majors and small squads that would go out in the villages, meet with the elders, had cert money to build schools. And it was great. But it was great while it lasted. And now when the military is pulling out, when the war is over, finally, and we're pulling our military out, there's no structure of governance left behind. So we've got to change the way we try to build that governance service. And having the military do it is not going to work. And frankly, having American civilians out at the PRT do it, that's not really a good model either because all those State Department people out at the PRTs and the aid people and the NGOs, they wouldn't be there but for military security. And so when military security is not there, there's a whole issue now about how all those workers can stay out in some of these places that are pretty dangerous or where they're targets. And the only real answer is to build the Afghan government capability to do it, to deliver services. And, you know, we tried at different points. I mean, I think the military, the Afghan military is capable. I think the Afghan police is certainly more capable than they were five or six years ago. Are they fully capable? No. There are a couple Afghan programs to actually deliver aid projects, small hydro dams, roads, things like that on a village level and a district level that work pretty well. Fingers crossed hope they keep working. But that sort of structure of government, that web of governance that I said works in India, we never really succeeded in having it work in Afghanistan because it all became too dependent on U.S. support, U.S. workers and U.S. military. And there were, you know, some people in Afghanistan were trying to do it, but we expected a sort of fully functional, capable civil service government machine and were disappointed that they couldn't set one up. That wasn't their history, that wasn't their culture, that wasn't their capability. And we really didn't think about what could they do, maybe with our resources, that might be more successful. And there's another side to this, is if you start dumping money into the Afghan government, a lot of it's going to go astray and get lost. And you just got to figure, that's going to happen. And I never wanted to go up to a congressional hearing and say, Congressman, people are going to steal some of this money. And I want you to be aware of that and don't haul my ass back here in six months and say, how come people stole some of this money? I didn't have the guts to do that. I don't know if anybody will. But that's a fact of life and our system's got to accept it as a fact of life and having all these cigars, these special inspector generals for assistance, all running around all over the place trying to count for every penny. If that's what we want, we better not get started because it's not going to work out. I think I heard you say that quality governance produces quality growth. Yeah. And you showed a chart in all the topics of the largest GDPs in the world. And there are countries that have very different governments. And so I'm wondering if you could point out a couple of themes of what quality government are that may lead to quality governance. Yeah. I think public order is probably the first. Fair, equitable government services, and that's not necessarily true everywhere, but maybe it's the efficient delivery of government services so that people can get businesses registered and licenses and fishermen can get their boats registered and stuff like that. And remember the first outbreak of the Arab Spring was a fruit seller in Tunisia who set himself on fire because he couldn't get, you know, the local authorities wouldn't leave him alone. They were always asking him for money. He couldn't get his permits to operate. He was being victimized by the local government. So stopping the victimization. One of my Indonesian friends says the only thing worse than organized corruption is disorganized corruption. You pay your bribe and you don't get your license, you know. So some ways, you know, if there is a lot of bribery, maybe it's just a tax. Maybe it's just the market at work, whatever. But, you know, so there's some way to deliver government services and then you get to things like healthcare and education. So there's probably a hierarchy and some governments do better than others. I mean, China, very poor on the democracy charts, has a lot of corruption, but they do deliver services. They do deliver public order. They do deliver education. It's one of the most literate populations in the world. They do deliver healthcare, not completely, but better and better. And I think that matters a lot to create an environment for growth. So somebody's probably done that more systematically than I have, but can't think of it now. So your argument is governance leads to growth, but also the less aggressive role is there good evidence that governance can be imposed. So even leaving aside military, is there good evidence that the international community or predominant powers or anything else, good regulation, a lot of meetings and conferences, is there evidence that we can do this? No. I think the idea that it can be imposed is certainly there's no evidence. And frankly, most of the evidence that is around is when we've tried to impose it. It doesn't work. Afghanistan or Iraq being cases in point, many others. I guess I'd say there's good evidence that when people, countries decide they want to adopt better standards and better governance, that the international community can help them do it. Whether it's sort of the thorough complete way the European Union does it, or whether it's planned Columbia and the way the Colombians decided to improve their practices, improve their governance, join the OECD and use those standards and norms, that the help is available if people decide they want to do it themselves. But until they make that basic decision that we want to change the governance around here, it's hard to make them do it. Ukraine being a great example that's resisted every attempt to help them get organized and capable. This question isn't relevant to the military so I apologize to y'all about that, but I couldn't miss the opportunity of having you here and missing the chance to ask you about your years in the State Department. Could you just talk, however generally you like, about any obstacles or hurdles in that institution, its culture, its people, that prevent us from conducting foreign policy effectively? You don't work there anymore. I know, one of my former State Department friends, one of the reasons I decided it was time to jump ship, was one of my friends said, I can't believe how clearly I think now that I'm out of government. And I thought, oh, that's either delusional or just a terrible commentary on those of us on the inside. I think it's somewhat true. I mean, I think the biggest obstacle is what you have in any bureaucracy is sort of the group think that, you know, there's a way to do things. And the examples you cite, the assumptions you make, are based on the group idea. And we have a hard time looking outside. You know, when I was doing Afghanistan, you know, we had all kinds of numbers about the number of girls who go to school and the numbers of wells that were dug and the numbers of the amount of electricity and kilometers of road that we built. And I kept having to say to my guys, if we're winning, how come it don't look like we're winning? You know, and the ability to sort of do that and not just say it at a meeting and then go back to what we're doing. I don't think we have that in the State Department. I, me and the ambassador and the general convinced Secretary Rice and the budget, the budget folks to put a couple of billion dollars into building roads. And the mantra came from Karl Eichenberg. It was where the road ends, the insurgency begins. And we built a lot of roads and some of them were good roads and some of them were, you know, actually brought people into the network of the government. But, you know, I remember about two or three years down the road and Secretary Rice turned to me and said, Richard, it seems to me the Taliban have gotten pretty good at driving on the highways. And they did. And so there's no magic bullet. And we convinced ourselves of things and then we don't give them up. So, you know, that's a big problem. I'll stop there. I think that's probably the biggest one. I can think of probably a half dozen more, but someday we'll take care of the others. My wife is working with one of the foundations that works with the State Department and they decided to try to set up a Lessons Learned exercise from the outside and to get RAND Corporation to do some Lessons Learned exercises in the State Department. And her stories, their stories of how resistant the State Department bureaucracy was to any lessons learned exercise. I mean, read our efficiency reports. You know, we didn't make any mistakes. How are you going to learn any lessons if every ambassador is perfect and every junior officer brought beasts to the world? So, you know, I think there's a resistance to really looking critically at ourselves and trying to figure out what worked and what didn't. And if we'd had a little more practical mindset on that, that would probably help us a lot. Terry? Here's a little, what is your assessment of the trade agreements that are in process, the Trans-Pacific Partnership and TTIP? I think they're great. Are we going to get them? I don't know. But I'll tell you why I think they're great, because the WTO, the World Trade Organization Negotiating Process is about tariffs, it's about services, about behind the border a little bit. But what we're trying to do with these new agreements, the one in the Pacific, Trans-Pacific Partnership and the one in the Atlantic, the, anyway, the one in the Atlantic, TTIP, whatever that stands for, is to really go into much more depth. So, when you're trying to do these value chains, your problems don't just come in crossing the border, they come way behind the border. They come with factories that need environmental certifications. But the environmental certification has to be signed by an engineer who went to one of the environmentally accredited institutions determined by, you know, state government environmental council, something like that. It turns out, you know, you could be the best environmentalist from Harvard, and you can't sign the certificate. So, what TTIP and the Trans-Pacific Partnership we're trying to do is to go into some of that behind the border stuff and to do regulatory harmonization. I worked for a while on APEC, the Asia Pacific Economic Cooperation meetings, and I think the best thing that we did was we got the underwriters' laboratory standards for small appliances accepted by all the economies in the Asia Pacific. And that meant that you could make a refrigerator and sell it in Malaysia and sell it in Chile and sell it in Mexico. And so that kind of stuff, that's what TTIP and Trans-Pacific Partnership are trying to do. So I think they're great because they try to go so far behind the border. And every other, you know, all the other trade stuff, the WTO trade facilitation stuff is good. Even the thing that Chinese propose, the free trade agreement of the Asia Pacific is good. But until you get to that way behind the border stuff, you're not going to get a very fluid and liquid set of value at our economies. Sir? Yeah, I'm going to ask in this part of the world, that's a little more of a focused question. In terms of partnership, both between governments and security and what have you, are you a U.S. India Optimist or not? And is there anything in terms of that relationship that you think we are either not doing well or we can do better? Yes. Next question. Boy, India's my heart's in India. I mean, I'm rooting for India. I want India to be China in the long run, you know, because I like democracy and it's a wonderful place and it's got this bubbling of people and ideas. Actually, China's got a bubbling of people and ideas, too. But oh, God, is it hard to work there? It's hard to get anything done bureaucracy is just fragmented. There's fiefdoms everywhere. There's fiefdoms in terms of different ministries and dozens of approvals you need to get for anything you want to do there. I mean, any business project or whatever. The expression in India is the economy grows at night when the government's asleep. The sectors that really worked in India were the ones where their government had no role because they didn't know they existed. The high tech, the outsourcing of services, things like that. Everything else requires multiple permits, requires enormous numbers of permissions, licenses, tax stamps, water agreements and stuff like that. Now, the new leader, Prime Minister Modi, has come in and said he's going to make it work better. And that's what he did in Gujarat in the state government. He got the approvals. He's starting off saying bureaucrats have to come to work at nine in the morning. They can't leave till five o'clock. It's not been the usual practice. They have to, you know, act on everything within two weeks. Any decisions they have to make may have to be made within that time period. We're going to make the system work better. We're going to have environmental committees approve things or disprove things, not just sit on them for years. That's great, but that doesn't deal with the fundamental problem. The fundamental problem is the need 83 permissions to get something done. And if they could reduce that to 32 permissions, everybody would be a whole lot, you know, be 51 better off. So they really do have to change the system. The big change, the big leap forward in India was, 1991, was the license raj where you need the licenses to operate businesses in many areas. A lot of that was changed, but not everything. So I'm thinking Modi is going to give us efficiency. He's going to give us growth. He's going to give maybe more responsive government. We're not going to have quite so many big government hand out programs that never get to the poor people because they get siphoned off with corruption and bureaucracy all the way down. But until he really takes the meat cleaver, sort of Ronald Reagan, Margaret Thatcher style, to the regulatory process and to the number of rules and regulations, we're not going to get the kind of vibrant growth that I really look forward to in India. On the other hand, they do, you know, they do a pretty good job delivering some services, some government services and things get out there. You can't pay a bribe and get your death certificate when you need it. And in limited extent they do well in education, but that broad sort of educated population is something they're still lacking. That's an area he said he's going to focus on, we'll see. So, slightly optimistic with India, but I don't think they're really addressing the big questions yet. What about the United States and India? A whole lot of areas that are good prospects, are we going to get there? I don't know. You know, I was part of the negotiation for the nuclear agreement and the idea was they were going to have 20,000 megawatts of electricity, nuclear electricity by 2020. They're not really started yet. It's a little too late to do that because when they passed a liability law for the nuclear plant operators, they made it so onerous that nobody's going to take the risk, the legal risk, not the nuclear risk. And so Modi has said he wants to adopt change the law, but they haven't done anything to move in that direction. There's been a law passed, regulations not issued to allow foreign universities to set up in India, which actually, I mean, 10 years ago some of the people, some of the US universities thought this was coming. I think the University of Georgia actually bought some land near Mumbai, hasn't been able to set up a campus because the regulations haven't been done in issues. He said he's going to do that too. We'll see. So there's a whole lot of things pending that don't get done and some of those would be really big for the US-India relationship. What's going well is after the Mumbai attacks, 2008, I think, yeah, the US and India began counterterrorism cooperation in a more serious way. One of the most interesting meetings I was in was with Secretary Rice went out there about three weeks after the Mumbai attacks and we sat down with Chidambaram, who's a home minister at the time, and she said she started explaining to him how after 9-11 we went from the sort of forensic side of internal security where we collected evidence and had the mechanisms in place so if somebody set off a bomb we could figure out who it was and punish them to the preventive side. And how hard that was to do, first of all, is the culture and second of all, in a free society. And that's what India's been doing for the last few years and I think has a much better intelligence system coordination mechanisms between the different internal security forces and things like that. We've been a good part of that and the US-India counterterrorism cooperation has been very good. There's a lot of good naval cooperation and it doesn't take, it's not too hard to look at the map and say you come out of the Persian Gulf and you want to deliver, you know, oil to Japan and places like that. One of the places you ought to do is go around India and it's in our interest to have India naval presence in that area and to have good cooperation with them and I think the Navy has done quite well actually in developing exercises with the Indians, you know, flying fighters around from aircraft carriers and land bases and sort of coordinating a lot of ways and to some extent selling military equipment to them as well. So there's some growth areas that are growing well. There could be a lot more on the economic side if they get some of their economic homework done. Thank you very much. Thank you all.