 Dr. Joseph Mai, as the chairman of our board, Joe is the coiner of the term soft power. I did a Google search today and got 769,000 hits on soft power. Those of you who heard Joe speak here last year talked about a new effort that he had been working on with our parent organization at CSIS with Richard Armitage on a project called Smart Power. 606,000 Google hits on smart power. More importantly, at Secretary of State Clinton's confirmation hearing, she used the term four times, talking about how America needed to use smart power as opposed to just our hard power. By the way, you will also find 112,000 hits if you just say Joseph Mai. Joe is extremely prolific. We were doing some research to try to find something new to say about Joe. Everyone has his bio in your program, so I don't want to just read to you what you can read for yourself. But we discovered that there was a survey conducted by an institute at William Mary. And they asked in a number of different countries, asked the scholars in that country, who is the scholar that has had the most impact on foreign policy in your country? Over 1,700 scholars responded in the United States. Sam Huntington came in second. Joe Nye came in first. The amazing thing is he came in number nine on the Canadian list. So this is, again, American encroachment into Canada as well. So without further ado, let me introduce the chairman of our board, Dr. Joseph Nye. Joe? Thank you very much, Ralph. It's great to be back in Honolulu, particularly for Bostonians at this time of year. We just had an email from a friend of Molly's who said that they received two feet of snow. So enjoy what the treasure you have here. But I shall say thank you for the generous introduction. But lest you take it seriously, I will report to you the fact that Molly and I have three sons. And whenever they were growing up, whenever people would call the house and say, is Dr. Nye there? They would say yes, but he's not the useful kind. In any case, it's a real privilege for me to be able to give the lame lecture here. And particularly in honor of Jim Kelly, who is one of America's great diplomat statesmen. So I think that's a particular privilege for me. But also the fact that it is to honor fellows who will be from Korea. And Korea always strikes me as one of the great under celebrated success stories of the world. When I was doing my graduate work, I went to Africa. Molly and I both lived there. And it's a figure that stuck in my mind that in 1960 Korea and Ghana had the same per capita income. Today, of course, Korea is one of the most successful economies in the world. But it's a member of the OECD and so forth. But it's also a democracy. And the extraordinary success of Korea, I think, is underappreciated around the world. So I think the fact that we have a new set of young scholars who are going to be coming, named for Jim Kelly, but with a connection to Korea, it makes this a very special evening. And that is also typical of the Pacific Forum. I must say that after sitting through the board meeting this afternoon, and really realizing how much the forum accomplishes on half a Super Bowl ad, as Ralph put it, it is extraordinary. You have these wonderful patented little short compressed notes and they're more than one a week. And all that needs editing and careful. You have something like 20 different programs that are going on. You have all these wonderful young leaders. I mean, the amount that goes on of bringing people together through the Pacific Forum is quite extraordinary. And as Joe Jordan said this afternoon, he said, I've sit on several non-profit boards and I've never seen any that gets as much bang for the buck as the Pacific Forum. And I was thinking that's exactly right. I also sit on a number of non-profit boards. And as the military likes to say, the tooth to tail ratio at the Pacific Forum is unsurpassed. So hats off to Ralph and to his staff for a fabulous job and for a model for the American economy. As I was going to talk tonight about American power and probably that will get us into the American economy. But what I wanted to say is that as we think about the power of the United States, the most important thing to realize is how often we've got it wrong. Americans are not very good at understanding our position in the world and how we're doing. And if you think that's an exaggeration, let me remind you that after the Soviet Union put up Sputnik at the end of the 1950s, there's a widespread view that now the Soviets were ahead and we were in decline. And then in the 1970s when President Nixon closed the gold window and the dollar no longer could be converted in gold, that was regarded as proof of American decline. And then in the mid-1980s, there was another view that the United States was in decline. In fact, my friend, the great British historian Paul Kennedy teaches Yale, wrote a book called The Rise and Fall of the Great Powers in which he said that the United States was going the way of Philip II Spain or Edwardian England. It was impurely overstretched. We were finished. I wrote a book in 1990 called Bound to Lead that said no, I thought the United States would be the leading country of the 21st century. I think I got the answer right, but Paul Kennedy got all the royalties. And now what we saw in the 90s was the pendulum swinging to the opposite extreme. Instead of declineism, we exaggerated ourselves in the triumphalism. And we thought that now that the Soviet Union was gone and we were the only remaining superpower, we could do whatever we pleased. In fact, Charles Krauthammer, the columnist for the Washington Post and Time Magazine, wrote an article in 2001 which caught the tenor of the times called the new unilateralism. And what Krauthammer said is the United States is so strong and there's no way to balance our power, we can do whatever we want and nobody has any choice but to follow. Well, guess what? That was a mistake. And it cost us dearly. Now the pendulum is swinging back again. And a number of people are saying, you know, the new economic crisis shows that we are in decline. That this is the beginning of the end. Maybe the earlier premonitions and prognostications were right, they just were premature. And there have been a variety of examples. For example, the Far Eastern Economic Review last fall wrote a piece that said that the tectonic plates and world politics are shifting with the economic and financial crisis and this is the beginning of the end of American economic dominance. And that was picked up by a number of leaders who didn't particularly wish us well. President Ben Viedev of Russia, President Chavez of Venezuela, Chavez was quoted as saying, this proves that Beijing is now more important than New York and Washington. And that feeling of the beginning of the end for the United States was quite strong. Indeed, people said this collapse of Wall Street means the end of the dominance of the dollar. But what's intriguing is if that prediction was correct, the dollar should be going down. In fact, the dollar's been going up. And what it means is that the United States still remains, despite all our problems, more of a refuge and a safe haven than any other place. Now I don't mean to imply that we are in deep, deep economic trouble. Any of you who listened to President Obama's night and the excellent, I thought, address that he gave on our problems realized that we are in deep trouble. In fact, when people say that the model that we pioneered in the last decade or so, which was something that the rest of the world emulated, that that model has collapsed, the answer is yes. I mean, this particular version of financial capital, which you might call the Wall Street model, is collapsed. I mean, it's quite a remarkable fact that today there are no investment banks left in the United States. That's a big change. And in addition to that, we got something of a black eye in terms of our soft power or our ability to attract others. The fact that the model that we had touted that others wanted to emulate had led to the collapse that we've seen meant that a lot of people said, maybe it's not so good after all. So some would say that's evidence, that plus the ensuing recession. That's evidence for this argument that the tectonic plates are shifting, that we're beginning to see the beginning of the end. I think the problem with that view is that it doesn't separate the short run from the long run. In the short run, we are in deep trouble and it's going to take a lot of effort to get out of that trouble. But in the long run, I think if you look hard, you'll see that the fundamentals of the American economy, the real economy, still are quite impressive. If you look at labor markets, we have great flexibility. If you look at higher education, we have the best higher education system in the world. This is not my judgment as a professor. This is independently attested to by the Financial Times and others. We also have extraordinary record of innovation. So if you look at the technologies which will be the wave of the future, if you look at biotechnology or nanotechnology or web 2.0 and so forth, this again is an area where the Americans are ahead of other countries. And in that sense, it's not surprising that the World Economic Forum, located in Geneva, but which holds the annual Davos events, when they did a study in a comparison of the competitiveness of economies last year, ranked the United States as the most competitive economy in the world. And for those of you who are worried about China overtaking us, China ranked number 34. So there is a fundamental strength in the American economy for the long run if we're able to get from here to there, and if we can get through these very deep and real problems that we face in the short run. But even with the long run, we have to be careful not to fall into the kind of hubris that marked the crop hammers of this world a decade ago. We may be the country which will be number one, but it's worth noticing the recent report of the National Intelligence Council, which is a body that I once chaired that does intelligence estimates for the president. And the NIC did a study which was entitled 2025. What's the world gonna look like in 2025? And what it said is the Americans may be number one, but our relative lead is gonna be much diminished. This is not because of decline of the United States as much as what Fareed Zakaria, the editor of Newsweek International, has called the rise of the rest. In other words, even though we can have the potential to do well, others are going to be doing well also. And that means that as we try to think about American power in the world, we have to have a sense of the context of power and where we fit and where we fit for different purposes. Sometimes people think, well, power is this thing and it's either, it's like a lump of concrete and you either drop it on your foot or drop it on a city. It's not, power is the ability to affect others to get what you want. And you can do it through threats, sticks, coercion. You can do it through payments, carrots, or you can do it through attracting others to want what you want, which is what I mean by soft power. And if you can get others to want what you want, you can save a lot on carrots and sticks. And what you'll find is that in different circumstances, hard power of either military or economic clout is most important, but in other circumstances, soft power may be more effective. I've often said that if you want to understand power in the world today, you have to use the metaphor of a three-dimensional chess game. On the top board of military relations among states, the United States is the world's only superpower, the only country that can really project power globally. And I suspect that that's gonna continue to be the case for decades to come. You go to the middleboard of economic relations between states, then the world is already multipolar. There are other countries that can balance the United States. Here's where the European Union acts as an entity or China and Japan also can essentially make us bargain with them as equals. Just to give you an example of the power at this middleboard, when Jack Welch, the former CEO of General Electric, wanted to merge GE and Honeywell to American companies. He got permission from the American Justice Department, but the deal fell through because the European Union wouldn't agree. Now, if that's not balance of power, I don't know what is. So, top board unipolar, middle board multipolar, then go to the bottom board of this three-dimensional game, the board of transnational relations, things that cross borders outside the control of governments, and it makes no sense at all to talk about unipolarity or multipolarity. Power is chaotically distributed. Think of pandemics, which could kill millions, tens of millions of people. Think of global warming, which could lead to sea level rises, which could destroy huge parts of our country, like San Francisco Bay or Chesapeake Bay. Think of transnational terrorism, which we now face. It's not any value at all to call this American hegemony or unipolarity or multipolarity. Power is chaotically organized here, and the only way you can deal with these problems from the bottom board is by getting others to cooperate with you, to deal with them jointly. And that's where you need to use soft power to attract others. So, what may work on one board as a form of power may not necessarily work on another. If we think of power and America's role in the world in those terms, it leads to a much more sophisticated strategy of how we need to invest, how we need, how we use our instruments or our toolbox. We're all familiar with the long tradition of power transition in which one country grows and another country declines. Indeed, many people say that this is going to be the lesson of the 21st century, which is the rise of Asia, particularly of China, and the fact that it will replace the United States. And there's a long history of this. I mean, if you all go all the way back to Thucydides, the argument was that the Peloponnesian War, which destroyed the power of the Greek city-state system, was caused by the rise and the power of Athens and the fear it created in Sparta. And many people have said, that's what's going to happen in the 21st century. It's going to be like the beginning of the 20th century, what caused World War I, the rise and the power of Germany and the fear it created in Britain. And others say, so that's what'll be the 21st century story, the rise and power of China and the fear it creates in the United States. I think this is a misleading historical metaphor. For one thing, Germany had already passed Britain in industrial strength by 1900, 14 years before World War I. If China and the US grow at previous growth rates, let's say 10% for China, two or 3% for the US, China's not going to surpass the United States in overall economic size for a couple of decades, maybe more. And in per capita income, it'll take even longer. So the biggest problem we have in terms of how we relate to China is the second half of that equation that whose cities talk about, the rise in the power of Athens and the fear it created in Sparta. Too much fear could become a self-fulfilling prophecy. And this I think is why Bob Selleck was right to think that a strategy for dealing with China and power transition as Asia recovers its proper place is a strategy of trying to bring China into the world as a responsible stakeholder. And as we thought about this more than a decade ago when we developed the East Asian strategy, we said the secret to success for stability in Asia is to reaffirm the US-Japan security tree. To realize that it's not a relic of the Cold War, it's the basis for stability in East Asia in the future. And with that head of a firm US-Japan security alliance, we could afford to reach out and integrate China into the international system. And that alliance with Japan, also with Korea, gives us the sense of security which allows us to integrate China. And I think that's been a successful strategy. It's held across the Clinton administration through the Bush administration. I think it will mark the Obama administration. So the power transition that we face of the 21st century adjusting to the rise of Asia and particularly the role of China I think is going to be manageable. I may be overly optimistic on this, but I think if we play our cards, well, this one is going to work into a win-win situation. What worries me more is not power transition among countries. It's what I call power diffusion away from governments to states to non-state actors. And that's an effect that has grown because of the technology which has produced the information revolution. The information revolution is simply the extraordinary decrease in the costs of computing and communications. The best way to fix that in your mind is to realize that the cost of computing power has gone down 1,000 fold from 1970 to 2000. And if the price of a car had gone down by the same amount, you could buy a car today for $5. Anytime you have the reduction of cost that's that dramatic, it means the barriers to entry go down. Anybody can get into the game who previously was priced out of the game. So then in 1970, if you wanted the capacity to communicate from Honolulu to Johannesburg to Moscow to New York simultaneously, you could do it, but it was very, very expensive. And you needed to be either a government or a large corporation, maybe the Catholic church, but it was something that priced most actors out of the market. Today, anybody who wants that capacity can do it virtually for free. With Skype, it is free. But all you need is the price of entry into an internet cafe, a couple of bucks. And that means that the barriers to entry for non-state actors have dropped very dramatically. And that means not that the state is replaced by the non-state actors, but the stage is very crowded. There are a lot of other players who weren't there who had a lot more power than in the past. And if we think about that in historical terms, if you look at the way technology has enabled non-state actors like Al Qaeda to become a network organization working in many countries at the same time, communicating virtually for free using the internet for training, basically for terrorist courses, you realize what this means in practice to talk about the problems of power diffusion. One of these things that comes from this bottom board of the three-dimensional game I told you about. Or to put it in local terms, a non-state actor, a network, Al Qaeda killed more Americans in 2001 than the government of Japan did over here at Pearl Harbor in 1941. That's different. That's the privatization of war. That's a very different kind of world. And as we think about how we're gonna cope with this world, yes, we have to have the military capacity to preserve stability for the power transition with the rise of China and Asia. But we also have to realize that the threats that we face coming from this bottom board are gonna require other tools in our toolbox. And not simply the tools that we've used before. And that leads to what I've called the paradox of American power, which is the strongest country the world has seen since the days of Rome, does not have the capacity to protect citizens acting alone. That means that we have to work with others if we're going to deal with pandemics or global warming, or the problems that come from transnational terrorism. And in that sense, we need then to think about our power in a different way. We have to begin to realize that we need to develop what Rich Armitage and I called in this CSIS report, smart power, which is the ability to combine hard power and soft power in different mixes for different contexts if we're going to have successful strategies. In that sense, the way of thinking about this is that we're going to have to understand how to use all the tools in our toolbox and how to combine them in different contexts to be effective. So that when Secretary of Defense Bob Gates gave a speech in Wichita, Kansas in 2007, he said, you know, I'm here to urge that we spend more money on our soft power. And he went on to say, it may sound very odd that the Secretary of Defense is here pleading for more resources for the State Department, but he said, that's the kind of world we live in. And it's also interesting that when Secretary of State Clinton was appearing before the Senate for her confirmation hearings, that she referred to the need to use smart power and the three Ds of defense, diplomacy and development. If we were going to use all the tools in our toolbox. So I think that we're beginning to understand that perhaps the pendulum is swinging back to a more central position, that to cope with the dangers we face in the world today, we've got to think of American power in a more sophisticated way as a problem of smart power strategies. And I think if I understand the Clinton trip that the Secretary just took as her first trip, it's a good illustration of this smart power. She picked Asia for her first trip. Very important to show that she understands that the United States understands the rising importance of Asia. She picked Japan as her first stop, showing that she understands that Japan is the bedrock of an American successful strategy, the reason. She also obviously went to Korea, an important ally, and to Indonesia, the largest Muslim country in the world. And when she went to China, notice that she talked about not only trade and finance, but also about climate change, about the fact that China, which is now producing two new coal-fired plants a week, and has finally become alas, the world's CO2 superpower, last year surpassing the United States, that the only way we can solve that kind of problem is cooperatively. We can't bomb China's coal-fired plants. We can't put sanctions against Chinese trade if they use coal, which is their own sovereign resource. If we did that, we would screw up the whole world trading system, hurting ourselves as well as them. And the only way you're gonna deal with this is through a strategy in which we both win. We empower China to do better in the way it burns its coal, and that's good for us as well as good for them. So the fact that Secretary Clinton visited a plant which was using GE technology to burn coal more cleanly is another example of what I would call this smart power strategy. So I would argue that we're beginning, we as a people, the United States, are beginning to get a little better idea of how we need to think of American power and how we need to use smart power if we're going to be successful in coping with all three dimensions of the world that we're entering into in the 21st century. I hope I'm right, but thank you for listening. I remember going to Japan in the 90s and saying to my Japanese host, I said, you know, you may be going through a decade-long growth recession, but people seem to be living pretty well. On the other hand, it's worth noticing that the Japan using a fiscal stimulus because they've run through monetary policy, they had zero interest rates, was able to stave off negative growth, but they did not have positive growth. And I think that it would be a pity if we were to settle for that. Positive economic growth, two or 3% a year, provides you with the capacity to do a lot of things. We not only need to do a lot at home if we're gonna keep this economic position dimension, we're gonna have to invest a lot more in education and in infrastructure. But in addition, we have a global role that Japan didn't have. We spend 4.5% of our budget on defense. Maybe it doesn't have to be quite that high, but it has to be very high because Japan is able to spend 1% because we spend 4.5%. So I think a low rate of economic growth is not gonna be good for us and not good for the world. So I would hope that the, if you want the tripod that President Obama has announced a stimulus package of a system for working on the mortgage markets and a major effort by the Federal Reserve System to get lending going through the banks. I would hope that Ben Bernanke is right, as he said, I think yesterday or this morning, that we may be able to have after a year of negative growth this year, positive growth next year. Well, I think we've paid too little attention to South America. You remember when President Bush came into office, he said that we were going to put a priority in South America. His first visit was with Vicente Fox. Mexico was gonna benefit and so forth. South America was one of the greatest victims of 9-11. I mean, once 9-11 happened, the Middle East became the dominant focus and South America was largely neglected. I think that was a mistake. I think we do have strong interests in South America and I would be interested to see how, given the fact that the Obama administration inherits a series of deep problems in the Middle East and two wars in Iraq and Afghanistan, which they obviously can't ignore, and they also are realizing the importance of Asia, whether they're going to be able to squeeze out enough time and attention to make sure that we pay greater heed to Latin America. That's tricky and it's gonna be hard, but we'll have to see. It's intriguing to me that Hu Jintao addressed the 17th Party Congress in 2007, I guess it was, and said China needed to invest more in its soft power. And it has done a lot with the Confucius Institutes, with the increase in foreign students into China, with increase in broadcasting on China International Radio, and also with its smoother diplomacy through multilateral institutions in Southeast Asia. I mean, China is making a major effort. Japan has also talked a lot about its soft power and they've benefited a lot from modern Japanese culture. The problem that Japan has suffered, I think, is every time they began to benefit from this, some politician or another would step on the message. Another is, if you'd get the younger generation in China or Korea or elsewhere, which would be very attractive by modern Japanese culture, and then somebody would make a remark about comfort women, or something about, go visit the Akasuni Shrine, and what did that do? It made everybody think back to the 1930s. Well, that's not the Japan of today. It's not the Japan of the 1930s, but by this kind of kowtowing to extreme right politics and making statements like this, Japan essentially undercut its own soft power. So it hasn't gotten the return on the investment that it should. With all that said, it's worth noticing that the Chicago Council on Global Affairs did a survey last year in which they polled people in Asian countries, and lo and behold, despite the efforts of both China and Japan, the United States still came out first in terms of soft power. The United States went through a period after Three Mile Island, which was like a 79, in which we haven't built any new nuclear power plants. This was partly because of fears about safety, but the fears about safety essentially meant that the costs, the capital costs of building a nuclear plant, because of all the things you had to add on, price nuclear out of the market. I mean, it was cheaper to burn coal or gas. That's now changing. The concern about global warming has made people realize that the nuclear option has got to be part of the solution. But with that said, that I think there will be some revival of nuclear, it's worth noticing that even if 40 nuclear plants are built in the next two decades, as I think Senator McCain said during his campaign, that would be just a drop in the bucket of what we need to do to deal with global warming. So yes to nuclear, but it's not gonna solve this problem. We've gotta do a lot more than just build nuclear plants. The urgent generally drives out the important. And one of the hard problems that President Obama faces as a leader is how do you combine those two things? It's urgent that we spend a lot of money now to get the economy growing. And since we've run out of monetary policy, once interest rates are close to zero, we're not quite run out of monetary policy, but basically that instrument is pretty well spent. A fiscal stimulus of a very large scale, one precedent scale, has to take up a lot of the weight. But then you have to say what do I do having spent a trillion dollars in a fiscal stimulus? What do I do after the if Bernanke is right and the economy recovers in 2010? Then I've got this huge debt overhang and then I'm going to have a problem not of deflation, but of inflation. And will people still hold dollars if they realize that the dollar will decline in value in an inflationary period? So the President has the extremely difficult job of selling the American people on spending a huge amount in the short run, but also telling him, sorry, once things start to go up again for the purpose of the long run, we've got to take a lot of that back. And that was I think what he was trying to get across in his State of the Union address and what we'll see when he announces his budget. Also, he's got to talk about how do you make sure that the money we're spending not only goes into current consumption, but goes into investment in clean energy or in education and other things that will strengthen our economy in the long run. That is a very interesting problem for political leadership. It's gonna take, as David Gerkin said tonight on CNN as we were watching it, Molly and I were watching it. It's going to take a perfect pitch in terms of political touch. How do you explain to people why you're gonna spend too much in the short run, why you got to take away from in the longer run and why you've got to make investments that are important for long run growth? We'll see whether he's able to carry this out, but it is going to be a test of political leadership unlike something that we've seen, I think since the days of Roosevelt. Joe, thank you on behalf of all of us. That was, I think, very inspiring and very enlightening. I should have mentioned earlier that Joe's lecture was one of our lane lectures in diplomacy. I think many of you in this room know Bill and Jean Lane. They apologize that they were not able to join us. They live in California and had hoped to be able to come out, but Bill, for many years, has made these lectures possible and then allows us to put more of the money that comes in from fundraising directly into our Kelly fellowship. So it's a great honor to have this lecture in Bill and Jean Lane's name. And I wanted to make sure that I acknowledge that and to pass along Bill's best regards to all of you.