 Good morning, and welcome to the United States Institute of Peace. We're gathered here in the International Women's Commons, here for the sixth annual Dean Atchison Lecture, which is a series which honors the 51st Secretary of State. He was a public servant of great distinction, and the architect of some of the most significant solutions to international peace and innovations in conflict management. He was a man of great achievement. We're so grateful that Dean Atchison's son, David, is here today to help honor the work and life of the consummate statesman of his time. This lecture series did not be possible without the generosity of Lockheed Martin, our premier sponsor for the Atchison Lecture, and we're grateful for their continued support. I have the privilege of introducing now our friend and the sixth annual Dean Atchison Lecture, George P. Schultz. I think everyone in this room knows that George Schultz is one of our country's most distinguished public servants and a man of great achievement. He's a former Secretary of State, a former Secretary of Labor, a former, Labor got the big round here, Secretary of Treasury and a former director of the Office of Management and Budget. George was involved in everything from international economic policy to the modern history of the Middle East and Asia and crucial moments in the Cold War. He's also been a champion for the United States Institute of Peace. George was the Honorary Co-Chairman of the Building for Peace Campaign along with Father Ted Hespert. For those of you who visited the Institute before, it's likely you've been over to luncheon in or walking under the ancery sculptural dove in the George P. Schultz Great Hall. We would have enjoyed this lecture in the Schultz Great Hall today, but the space is already hosting the Aspen Challenge, a forum for students and teachers from 20 partner high schools across the city pioneering change to some of the world's most pressing problems. We wish them luck. When we dreamed of the Institute's new headquarters, and George helped us dream this, and Charlotte I might add, this was one of the ways we imagined this space would be used. Thank you, George, for your leadership of this Institute and to our country. I think George, in a moderate discussion, is USIP's Chairman of the Board, Stephen J. Hadley. Just about a year ago, I handed the gavel of the chairmanship to Steve. Steve's commitment to USIP has been unwavering. As many of you know, he's been the Co-Chair of three of the Institute's most important working groups, which we convened. One dealing on the Middle East with Sandy Berger, one on Afghanistan and Pakistan with John Podesta, and one with Madeleine Albright on a rock. It's a privilege to have you both today, and I look forward to a lively discussion. Please join me in welcoming George Schultz and Steve Hadley. One of the nice things about this is that Steve is going to ask me questions, but I see a lot of my old friends out here. And if I can't handle a question, I know who to point to. I'm going to ask him questions, but he's going to talk about whatever he wants to talk about, which is how we want it to be. We'll have this conversation for about 30 minutes, and the last 15 minutes we'll take questions from the audience, and there'll be microphones that will come to you. Thank you very much for being with us today. I want to start in noting that, of course, you were Secretary of State, President Ronald Reagan, from 1982 to 1989, and helped end the Cold War, the preeminent policy issue of the proceeding four decades. But the world today is very different. You've written that it is a world awash in change. The emergence of China, Russia invading Ukraine, Iran subverting much in the Middle East, ISIS controlling territory in Iraq and Syria, al-Qaeda is now back. Are there any lessons from the successful navigation of the Cold War that apply to this very different world that we face today? I think so. I think the first thing you need to do is describe the situation to yourself in realistic terms. No rose-covered glasses. What exactly is going on? And then you have to develop your strength and your ability to deal with the issues. Strength is important. It gives you options, and enables you to do things you couldn't do without it. It's military strength, but also economic strength, but also strength of purpose and confidence in yourself. And on the basis of that, you have to develop a strategy and develop what you think your agenda is. Don't be thinking about what the other guy's agenda is. Think of what your agenda is and then work from your agenda. And once you're there, be ready to engage with people. But don't forget your agenda. I'll be too impressed with what it takes to get them to agree. Work from your agenda. One of the problems today is that there are so many crises that the president and his national security team are dealing with. One of the concerns I have is that, you know, if all you are is a crisis manager, all you'll get is more crises, because you don't put in place the policies you need to head off some of those crises. So how did you deal with that problem? Because there were a lot of things going on. What is your recommendation to people today about how to get out from under the sort of the tyranny of the inbox and the crisis management challenge of the moment? Well, I think, first of all, I hate words like reset or swing to here or swing to there. The reality is you have to conduct a global diplomacy. The United States does. So you have to be everywhere. That's why it's so important to have this first-class foreign service that we have. Because they're everywhere, and they can work with the president, work with the secretary, work with the political appointees. But there are people who have spent their lives and spent their career understanding all these different places. And on their basis and with the strength that can be given from commerce and from DOD, of course, you can conduct a global diplomacy, and that's what you have to do. You can't say, okay, I'm going to specialize on the Soviet Union and forget everything else. That's a bad mistake. Or China and forget everything else. You've got to be able to cope everywhere, and you have the horses to do it with the first-class foreign service that we're lucky to have. I wonder if I can read something from a book you wrote that came out in 2013. It's called Issues on My Mind, Strategies for the Future. And if you don't have a copy, you should get one. It's, in the front part, it's really a distillation of the lessons. Sounds like a commercial. I don't get a cut on this. No financial interest whatsoever. But it's a distillation of lessons from his career and very relevant today, and then the back a whole series of speeches he gave. And I want to read one thing which I thought was particularly extraordinary on this issue of strategy. The Secretary writes, when I was in office, I benefited from a practice of pausing to reflect on the big picture a few times a week. I would say, hold off on calls unless it's my wife or the president showing that he had his priorities right. I stayed away from my perpetually full inbox and settled into a comfortable chair armed with paper and pencil. I would say to myself, now what are we trying to achieve? Leaving aside the immediate issues of the day, where do we want to go and how can we get there? These regular personal sessions help me maintain my focus on strategy. And I would say that good advice for anyone in the government today and hard to do. As you look at the national security structure today, what advice, and given all the variety of issues they face, what advice would you give to the president and the national security staff today in order to get a strategic focus in what they are dealing with day to day? Well, first of all, I would apply the procedures that I outlined a minute ago. And then you have to go to each one of these places and analyze. Let's take you around just to take an example. Okay, if you're describing around yourself realistically, what do you say? You say, first of all, Iran is probably the leading state sponsor of terrorism. It has been from day one when they took our embassy people hostage. They had the attack on the Grand Mosque and Mecca. And they have been conducting terror attacks all over the world constantly. Sometimes directly, sometimes through Hezbollah or other Nazis. So that's number one about Iran. It's a state sponsor of terrorism. And Iran also has some of the characteristic of ISIS in that it is against the state system. These people in ISIS don't believe in countries. They're trying to establish something different from the state system. And Iran has always had that aspect to it. So support for terrorism. Then if you look inside Iran, there are a lot of executions even with the so-called new guy. So they run themselves in a tough basis. No question about that. Then they have developed ballistic missiles. Why would they want a ballistic missile? They've spent a lot of effort on that. And then they are developing nuclear weapons. There is no other explanation possible for the huge investment they've made in talent and funds to develop this nuclear infrastructure they've got. There's no other way of explaining it. So that's the reality. You have to confront that reality. And you won't have to say to yourself, they're not known as rug merchants for nothing. Historically, Iranians have been good bargainers. They know how to do that thing. So watch out. Personally, I think we gave away half the store when we started the negotiations because the UN resolution after resolution and our policy for a long time has always been to make a sharp distinction between access to technology for a nuclear power plant and access to technology about enrichment. And in the negotiations, we gave away enrichment when they say we've given them the right to enrich, they're right in the way we've done it. So that was a big part of our bargaining power. It's gone. So we have a tough deal ahead of us to get any kind of respectable deal with Iran. And we keep kicking the can down the road. Time is not on our side. It's on their side because the sanctions are eroding. And I read about how we're going to snap right back. You must be out of your mind. If you've ever dealt with the sanctions, you know how hard it is to persuade people who have a profitable business somewhere to cut it off. It's very hard. So by kicking the can down the road, they're gaining time. Pretty soon they may pick up the can and go home. So that's Iran. And it's a tough issue. It's related to what's going on in the Middle East which I think is related to what's going on in the Ukraine. In the Middle East, terrorism is the tactic. And we are reacting to the tactic. But we need to dig underneath and say what these people are advocating is the end of the state system. They say directly that they're against countries. They want to put into place some sort of a caliphate that cuts across everything. It's different. It was an expense for that reason. It was interesting that out at the Hoover Institution at Stanford where I spent my time, the leading military guy from Pakistan visited us not too long ago. And listening to him, he was more worried about terrorism than he was about India. And he was worried about ISIS. He said they're establishing themselves in Pakistan. So it isn't only the Middle East. This ideology of something different from the state system with the tactic of terrorism is spreading around. And we have to do something about it. Partly that's a tough military approach. But I think we've got to dig in deeper and challenge their ideology. And I was very pleased to read of the speech that the President of Egypt gave me the other day. We've got to have Muslim leaders tackling this issue. And there's another thing being from San Francisco, of course, I'm biased to things that we're doing out there, but there's a guy out there named Bill Swing. Bill is a retired Episcopal Bishop of California. And he started something called the United Religion Initiatives. And he wanted to bring religions together. And he found if you start at the top, they're all stove-biked. So he starts at the bottom. And he has over a thousand, what he calls, cooperation circles. Where he gets people from different religions. The most prominent are Christian and Islamic. But then there's also Hindu, Jewish, and then there are a whole bunch of others. And they come together in what they call cooperation circles. And they discuss subjects of interest to them, like education or economic development or nuclear weapons or something. And they find these are subjects they can talk about and they have a common interest in them. And they're not arguing about each other's religion. They're just trying to advance the ball on subjects of interest like this. And I think actually he's got way over a million people involved. He's in I think 86 countries or something like that. So it's pretty far from. And that kind of thing I think we ought to be encouraging. Can you say a word about how you would apply those principles to the challenge of Russia today and what they're doing in terms of Ukraine? You spent lots of years dealing with the Soviet Union. In some sense, you know, we're back with a tough issue in dealing with Russian aspirations. Well, let's start as I did before. Let's start by describing the situation to ourselves in realistic terms. What has happened? Well, first of all, it seems as though Russia wants to reestablish its dominance over the former Soviet space. Started with Georgia. Now the Ukraine. Putin seeks a sphere of influence world. It's not that in some ways it has an odd parallel to what the ISIS is doing. Break up the state system as we now see it. It's worth noting that he has broken down the notion that borders mean something. That the state system is based on the idea that borders mean something. Furthermore, there was an agreement made when the Ukrainians gave up their nuclear weapons signed by Russia, the United States, and Britain that the borders of the Ukraine would be respected. You don't even hear that treaty. It's as though it doesn't exist. Completely bypassed. So that's what he's trying to achieve. And what's going on now is another bite of that apple. And, of course, the countries around it say, see this, and they're reacting. The Baltic states are reacting. So what should we be doing? I think we should be without, we should be describing it publicly as we see it. And we should set out what our strategy is. He manages to get somewhere by threatening people with their oil and gas. So we should have a major energy initiative to reduce the dependence of these countries on oil and gas from Russia. And, goodness knows, we're in a fortunate position right now. The world is awash in oil and gas if we can build LNG plants. There's a floating LNG receiving ship. You know, that's the Iranian port right now. So it's not that hard to get the receiving ships, getting the plant to liquefy natural gas takes a longer time, but those things are being built. So we should do that. And certainly there's plenty of oil around the ship. So we should be organizing that and what he's going to be confronted with. It's not only the prices are going down, but he's going to lose market share permanently because he's demonstrated that he's not a reliable supplier. So we should organize that. Then I think we're way behind in our own military. Sequestration is legislated in sanity. It's beyond belief that we think that we can cause people to run anything. You can't run your household on doing everything on a proportionate basis. It's one of the most ridiculous things that anybody ever invented. And let's get the funding to be adequate. I don't know what that would be, but you give some leadership and there'll be a NATO response and we have to show strength. It's just like the old Soviet days. You have strength and they respect it. And then if you work at it sooner or later, you can negotiate. And I think obviously we should keep open the possibility of negotiating and get Russia back to where it was for a while as a country that was going to be part of our system and good partner. But we're long ways from that, but we should be sure we keep it open to get back there. You mentioned energy and you've talked a lot, written a lot about energy and the possibilities presented by innovation and technology. I'd like to ask you a little bit about that, but also put it in the context of energy. Do we have the opportunity for energy independence? And what does all of that mean for climate change and where would you head on that issue? Well, first of all, I was Secretary of the Treasury when we had the first oil embargo. And it was mayhem. I'll never forget it. So when I have some oil that doesn't go through the spate of hormones, I say, come on. It's a no-brainer. It's secure oil. Give me a break. Get real. But in the energy area, I think we have a huge opportunity right now and there is a big problem. I understand in Washington new people think it's getting colder, and I can understand that. But the reality is that the world is getting warmer. We have a project on the Arctic at Hoover. There's a new ocean being created. It hasn't happened since the last Ice Age. There are major melts going on around the world, different places. Greenland, we actually may become green one of these days. It's getting warmer, and we have something to do with it. So I think we should be going about it. Now, let me tell you an experience I had on this in the Reagan period. Maybe you remember in the mid-1980s, there were a bunch of scientists who thought the ozone layer was depleting. There were some who doubted. They all agreed, however, that if it happened, it would be a catastrophe. Nowadays in Washington, as I understand it, if somebody disagrees with you, you try to beat them to death. Torture them. Or if you've seen a hearing, beat them on something. That's the way you approach it. In the Reagan period, we didn't do it that way. We reached out to the people who disagreed and said, well, you agree that if it happens, it's a catastrophe? So why don't we take out an insurance policy? The insurance policy concept appeals to people. But yes, there's a risk there. We hope the risk never materializes. But if it does, we've taken out insurance. So in the ozone layer case, it turned out, once people get serious about something that created juices, American entrepreneurial society kick in. In this case, the DuPont company came up with something you could do. Not what you pledged to do by 2050, but what we can do today. So we went around and got people to do those things, and it emerged into something called the Montreal Protocol. And it worked. As it turned out in retrospect, everybody acknowledges that the scientists who were worried were right. And the Montreal Protocol came along just in time. So what I learned from this is, let's look around for an insurance policy. And let's look around for something you can do today. Not pledged to do by 2050. Anybody can pledge what they're going to do by 2050. So what would the insurance policy be? It wouldn't even be that expensive. First, let's give sustained support to energy, R&D. The amount of federal money going is so small, it gets lost in the rounding here of the budget. I might say, I organized at Hoover once. I chair the MIT Energy Advisory Board and the Hoover one. So I know what these guys are doing. So we brought 12 MIT scientists to Stanford. I got a similar number of Stanford ones. We talked about game changers for a day and a half. Then a year later, we had the same thing at MIT. Then we brought our act to Washington. And I talked, I got John Boehner to set us up with Republicans on the House Energy Committee. These are supposed to be bad guys, right? So I brought our people, including some scientists, selling R&D, energy R&D was a piece of cake. As soon as you say, okay, now there's a good idea come the government can fund it and run with it as a commercial enterprise, everybody leaves you and they won't go for anything. So I say, stop doing that. Focus on energy R&D. And there are plenty of people who know how to commercialize things. You might say at both Stanford and MIT, the private money is three to one of the public money. Because once something like that's going, the energy companies, the energy users want to know what's going on and they want to be part of it. A lot of universities are nervous about private companies and at Stanford we figure what the hell, Silicon Valley's just a big Stanford spin-off. We know these guys. It'll work out fine. And these are the people in the end who know how to commercialize something and scale it. So what's going on in the energy R&D field? A lot. We had a guy from MIT and he was in California. I got him to come up the other day and present to our science group. And I think he has cracked the code. He's building a factory. We'll see if not in reality yet. But I think he's cracked the code of large-scale storage of electricity. That is a game changer. That takes the intermittency problem out of solar and wind energy. It also does something else of great importance. Our grid is very vulnerable. I don't know if you've thought about this or think about it. Cyber attack or other things, not just natural. The grid is very, very vulnerable. So if you're halfway alert, you want to have some energy available where you are not dependent on this carrier. So that's an R&D thing. There are a lot of first-class people working on this area. And I think that's getting accepted. That's one part of the insurance policy. The other part is a revenue neutral carbon tax. And I prefer to put a tax on rather than this huge number of regulatory things that keep telling you to do this and don't do that and so on. Put a price out there and let the market operate. It'd be interesting to have them in the market works. And you put a good substantial price on and people will react to it. And I would make it revenue neutral. So there's no fiscal drag on the economy. The money isn't going to be used for some other purpose. In California, we have a cap and trade system. It's a tax, but I don't think it's as good as a tax. But anyway, it generates money. And our governor Jerry has taken the money to use for high-speed rail, which most people don't want. That's why he can't do it any other way. Well, now people will be against the cap and trade system because it's funding cap and high-speed rail. So keep it revenue neutral in all kinds of ways in doing that. I might say British Columbia has a revenue neutral carbon tax. It's been there for five years. It's working pretty well. And the income per capita in British Columbia has gone up slightly faster than the income per capita of Canada as a whole. So you can't say it's ruined the economy. So I say, all right, some people think the climate isn't changing and so on. Let's have an insurance policy. It isn't even that expensive. And if we can get a carbon tax operating here in the United States, if you're worried about other countries, we can put some border taxes in to tax, in a sense, goods that would come in that aren't carrying their share of the need to reduce carbon. And I think it would tend to spread also if the United States is serious about this. So I think this is a big issue. And there are ways of dealing with it and have a history that you can point to that can work. Thank you. I want to open the floor to questions. I'm a little uneasy about what could happen in Washington because I testified yesterday at a hearing in the Armed Services Committee and somebody knocked my wife over and beat her up. I had to stand up and defend Henry Kissinger from physical assault, so I don't know what's going on in this town. But the hearing used to be safe places. This is the U.S. Institute of Peace. So we're very a laid-back community here. Questions for the Secretary? Yes, ma'am. My ears aren't too good, so you have to speak clearly. I'm Samuel Kittwee from UAE, Heading Emeritus Policy Center. Regarding Iran, does U.S. have a plan B if there is no deal and taking into consideration the expansion of Iran in the whole region? Does the United States have a plan B for dealing with Iran's efforts to expand its influence in the region if there is no deal? Do we have a plan B if there is no nuclear deal? And as part of that, do we deal with Iran's expansion of influence in the region? I don't know the answer to that. We should have a plan, but I would hesitate to say that we do. I remember Jim Mattis, retired four-star Marine, was sent com commander, and he got relieved of duty. Somebody asked him, how did he appraise our MIDI strategy? And he said, tell me what it is. I'll tell you how it's doing. He got fired. John. John, microphone. Mr. Secretary, you have spoken eloquently about Iran and Russia today. Would you also talk a little bit about China and the issues in South China Sea, particularly the level of aggressiveness in relation to offshore ocean issues? Thank you. Well, China also seems to be in the pattern of sphere of influence. And I think we need to combat that. China is actually getting a lot of pushback from all its neighbors. It isn't working that well. And I think China, in relation to the US, has probably reached its peak. Here's why. Beginning about 30 years ago, fertility in China dropped like a stone. So for a quarter of a century, China has had a rising labor force and a shrinking number of people that had the support. And it had a large surge of people coming from rural to urban areas, which meant greater productivity. So your GDP growth is a sum of rate of growth of the labor force and rate of growth of productivity of the labor force. And this has generated the very large GDP growth numbers that China has had. That's about... It's changing right now, almost like throwing a switch, because the low birth rate generations are now coming into the labor force. That means the labor force shrinks, and the large labor force groups are getting into retirement. So the number of people in the labor force has the support was increasing. Furthermore, at least as I read Chinese history and culture, the... always historically, the social safety that has been the family and the community. And people have moved out of that context into urban areas into rather anonymous places. So I think China has a big problem on its hands in managing that. They're very well aware of it, as I have talked with Chinese leaders. But it's a bigger issue. And I don't see how the growth rates that have been there in the past can possibly be sustained. So I think you'll see slower growth, more internal issues that have to be grappled with. There's an additional point that I'd like to throw in here. There isn't just China, but it's more general. As we have now in the world, an information age and a communication age, is very powerful. People in China and elsewhere know what's going on very easily. They can find out. They also will have cell phones. They can communicate. They can organize. And they do. Which means that any government of whatever style has to pay attention. Because people know what's going on and they can organize and so on. So you better pay attention to them. And it means in a sense that body politics is somewhat more fragmented. Let's call it federal. And China has huge diversity. You tend to think Chinese is Chinese. That's not true. There's huge diversity in China. And they have to develop their government so they pay attention to it. And at the same time now, they're going to be in a less easy position because of these forces that I mentioned. So I think these are all things that are at play with China. And you have to have them in your mind as you're looking at these progressive moves in the South China Sea and elsewhere. When you have something like these islands, they're contesting with Japan. I think that's something done that happened and ought to be put to bed. It was totally put to bed. And then the Chinese bought the island and that inflamed it. And what you have to... It's not possible to have a negotiated solution. There's no solution. So the right solution is just to put it to bed leaving alone, which was the case for decades. And don't inflame it. So I think that's the way I would respond on China. But China we should work with closely and I think it's easy to do. And I know when I took office our relations were a little rocky. And I went over to China and Deng Xiaoping and Wu Qichen and my counterpart. And we said, okay, you put it on the table, anything you want to talk about. I'll put it on the table I want to talk about. Let's form that into an agenda. And I'll agree to come to China at least once a year. Will you agree to come to the US at least once a year? Probably three or four places that we meet for some international meeting and let's carve out three hours for private meetings and work through this agenda. It worked very well. So I think we should be trying to do something like that. What they're actually doing now I'm not informed. We're going to have time for two more questions, Tara and then George. Secretary, as you watch this potential hostage or foreign fighter negotiation between Jordan, ISIS, and Japan, I wonder what goes through your mind as you see this unfold and more broadly how we deal with these video beheadings and the notion that foreign fighters could end up in Europe or here. How would you begin to put a game plan together for responding to these threats short-term and long-term and will ultimately mean boots on the ground? We're seeing a drama of hostage situation involving Jordan and Japan and ISIS. We're going to see more of it. What should be the right approach to dealing with these hostage situations both short-term and long-term? How would you think about it? How would you approach it? Well, I think that fundamentally it's a bad idea to make trades for hostages because it only encourages taking more hostages. It's a cruel thing. The Reagan administration, against my advice, got into deep trouble in what became called the Iran Contra mess, but they were trading arms for hostages. It was a mistake. And I think underneath it, you have that. Now, as far as Jordan is concerned, we have all of these refugees. We had a meeting the other day at Hoover and there was a very able Jordanian there and I mentioned something about the refugee camps. He said, that's the least of our problems. These people from Iraq and from Syria, they're spread out all over the country. It's only a minority that's in the refugee camps. Basically, they have no intention of ever going back. In fact, our population has been increased and our problem is how do we deal with this big increase and integrate it in some way? It's a hard problem. But we should be working with Jordan, working with the king to help on problems like this. Some of it involves money, but other things as well and we should be working with them very strongly. Regrettably, the Secretary has a hard stop here at 11.45. So we're going to have to stop the question period. I want to invite Robin West to come back and make a presentation to the Secretary. George, on behalf of the United States in suit of peace and in recognition as our sixth Dean, Adjuson Lecturer, thank you for a superb job, not only today, but for everything you've done for the Institute of Peace. That's the drawing. Right there. It's that sketch. He brought a certain panache to the audience. Thank you, sir.