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  • Iran Symposium and Launch of Task Force Publication: 6/2/11 - Transcript

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    THE ATLANTIC COUNCIL OF THE UNITED STATES

    IRAN SYMPOSIUM AND LAUNCH OF IRAN SANCTIONS: PREFERABLE TO WAR BUT NO SILVER BULLET

    WELCOME AND MODERATOR:
    SHUJA NAWAZ,
    DIRECTOR,
    SOUTH ASIA CENTER

    SPEAKERS:
    MEHDI KHALAJI,
    SENIOR FELLOW,
    WASHINGTON INSTITUTE FOR NEAR EAST POLICY

    ALIREZA NADER,
    INTERNATIONAL POLICY ANALYST,
    RAND CORPORATION

    DJAVAD SALEHI-ISFAHANI,
    NON-RESIDENT SENIOR FELLOW,
    BROOKINGS INSTITUTION

    BARBARA SLAVIN,
    NON-RESIDENT SENIOR FELLOW,
    SOUTH ASIA CENTER

    THURSDAY, JUNE 2, 2011
    TIME 3:00 P.M.
    WASHINGTON, D.C.

    Transcript by
    Federal News Service
    Washington, D.C.

    SHUJA NAWAZ: Good afternoon, again. I’m Shuja Nawaz and welcome, on behalf of President Fred Kempe, to this year-end – our first year of work of the Iran Task Force and also the launch of a fresh issue brief that we’ll be sharing with you today. I’m delighted that all of you made the effort to come here. This is our first major public event. We’ve had a number of briefings: five closed-door briefings with very high-level officials and experts to talk about issues relating to Iran.

    We’ve had two previous issue briefs and then the third one that’s been launched today. And we’ve had the very able guidance of our co-chairs, Ambassador Stuart Eizenstat and Senator Chuck Hagel. And, of course, our executive director for the Iran Task Force project, Mark Brzezinski – Mark unfortunately had another commitment due to his day job and couldn’t make it today, so I am the poor substitute for Mark Brzezinski today.

    But I do also want to thank the Ploughshares Fund for having the confidence in our ability to take on such a vast topic and to have provided support for it. And so we thought that we would culminate our first year’s effort at having a larger gathering and an open symposium to which we’ve invited at least three outside speakers who will share their wisdom with us.

    I’m going to step aside now and request Ambassador Eizenstat, if he could say a few words. And then I’ll come back and we’ll proceed with the rest of the program.

    STUART EIZENSTAT: Thank you very much and thank you all for coming. This task force has been a very action-oriented task force, which – we have tried to get, with every issue dealing with Iran, the world-class experts both here and outside of the country to brief us. I don’t think there is a more important issue facing the United States and the international community than the direction that Iran takes, all the more so with respect to the Arab upheavals and how that places Iran in this context.

    One can certainly argue, on the one hand, that the model of violent revolution and radical revolution has been very much undermined by the Arab spring. On the other hand, there are obvious areas where Iran can potentially gain a foothold in the area, as they are now in Syria. I think the first time that they’ve actually had the al-Quds force in a state neighboring Israel. So the whole topic of Iran is an enormously important one, with, of course, the nuclear issues as well.

    To summarize what we’ve done very briefly, we’ve had our first briefing of our task force – it was moderated by Ted Koppel; it was shown on the Discovery Channel – called “Iran: The Most Dangerous Nation.” We had a number of experts there. The second briefing involved Gary Sick, who was a former colleague of mine in the White House; Barbara Slavin, who has been – if there’s one thread that connects all of this, it’s been Barbara’s fantastic work. She is, of course, a journalist, an author of “Bitter Friends, Bosom Enemies: Iran, the U.S. and the Twisted Path of Confrontation.” And that involved the second briefing. The third focused on the nuclear issue and there were a number of experts, including the deputy secretary of energy and most particularly Dr. Olli Heinonen, who was a very senior official with the IAEA and gave us some really fascinating perspectives.

    We launched our first task force issue brief, “The Iran Stalemate and the Need for Strategic Planning,” during a roundtable discussion with Barbara. We had a fourth briefing of the task force with Undersecretary of State for Political Affairs Bill Burns, the new deputy secretary, and remarks by Ambassador Roberto Toscana, the former Italian ambassador to Iran.

    We then launched our second task force issue brief called “Strategically Lonely: Iran.” And that event featured a discussion with Barbara Slavin and others. The fifth, which was quite recent, with Stuart Levey, the immediate past undersecretary for terrorism and financial intelligence and, I think all of you know, was really the key person dealing with Iran’s sanctions. And his briefing was very insightful and very helpful for us in launching the third issue brief, “Iran Sanctions: Preferable to War but No Silver Bullet.”

    We are very pleased to have an outstanding panel today. And if I can ask each of them, perhaps, to come up as I call them. Mehdi Khalaji, the senior fellow for the Washington Institute. Thank you very much. Alireza Nader, international policy analyst with RAND. Djavad Salehi-Isfahani, non-resident senior fellow with Brookings, professor of the department of economics at Virginia Tech. Our old reliable – I should say youthful, reliable Barbara Slavin, non-resident senior fellow here. And Shuja will do the moderating.

    So thank you again and we look forward to another interesting and important step in this task force’s work.

    MR. NAWAZ: If I could now – since Ambassador Eizenstat has introduced Barbara already, I don’t need to say much more except that she has really been the force behind this task force, in not only keeping us on an intellectual path that was true but also in providing the intellectual heft through the production of the issue briefs, which she has worked extremely hard at producing.

    So one of the things we wanted to do very proudly today was to introduce the third issue brief in our series. So may I request Barbara to come and talk about it – thank you.

    BARBARA SLAVIN: Thank you all for coming. Thank you Shuja; thank you to our speakers, who I’m sure you’re going to enjoy. Thank you to Ambassador Eizenstat for calling me young. (Chuckles.) I’m going to be very brief because you have the issue brief in front of you and I invite you to read it at your leisure. So I’m just going to make a couple of points about it and then we’ll turn to what I hope will be a very deep discussion of Iran now, almost two years after its disputed presidential elections.

    This issue brief is about sanctions. And until the recent measures that were taken against Moammar Gadhafi’s Libya, there was basically no country on the planet that had been socked with more sanctions – tougher, broader sanctions – than the Islamic Republic of Iran. There are many things now that Iran is not supposed to do.

    It cannot buy materials that can be used for uranium enrichment or materials that can be used for missile development or major conventional weapons systems of any kind. It’s not allowed to sell weapons to anyone. Under U.S. restrictions that have arguably had the most impact on the Iranian economy, Iranian banks cannot legally use – process transactions in dollars and they’re facing increasing difficulty dealing in euros. Most Western as well as Japanese oil companies have now frozen investment in Iran’s energy sector and its sales of refined petroleum to Iran. As you all know, Iran still has to import 20, 30 percent of its gasoline because of the lack of refinery capacity. It’s increasingly difficult now for Iran’s national shipping line and airline to operate internationally.

    These sanctions have had a really painful effect on Iran. But they have not yet achieved their announced goal, which is to get Iran to halt activities that have been deemed illicit by the U.N. Security Council in regard to its nuclear program. There are two main reasons for this, and they’re pretty obvious.

    One is the high price of oil. And, of course, all the instability in the region and the fact that Iran is treated like a pariah is one factor in the high price of oil. This means that even if Iran’s oil production stays the same or declines slightly, it’s still making sufficient money to keep its economy going. The other reason is China. And this report is not meant to be an exercise in China-bashing, but China has basically displaced Europe and Japan as the major player in Iran’s energy sector and overall economy. One senior European diplomat who I interviewed for this piece called high oil prices and China together the, quote, “Achilles’ heel,” unquote, of sanctions.

    Now, the Chinese have supported, albeit reluctantly, four rounds of U.N. sanctions against Iran. But they draw the line at so-called secondary sanctions, in which the U.S. seeks to impose its policy choices on foreign countries and foreign companies. Such efforts, as Ambassador Eizenstat well knows, have a long history. They go back to 1996 and the Iran-Libya Sanctions Act – ILSA – which threatened penalties against foreign companies that made significant investments in Iran’s energy sector. Most of those penalties were – I believe none of those penalties were actually enforced. Thanks to Ambassador Eizenstat’s efforts, Europe agreed to stop the sale of dual-use items to Iran.

    But there is new legislation just last year which is a much more robust incarnation of ILSA. This one is called CISADA: the Comprehensive Iran Sanctions Accountability and Divestment Act. And this act has been used now to sanction nine foreign companies for dealing with Iran’s energy sector. Most recently, last week, seven companies were sanctioned for selling gasoline to Iran. One of them was Venezuela’s state oil company. One was an Israeli company, which caused all kinds of consternation in Israel. But none of them were – bless you – none of them were Chinese.

    WikiLeaks cables reveal that Chinese officials have threatened the United States, basically, to keep their hands off big state companies such as CNO, CN and Sinopec. Late last year, after CISADA was signed, a senior U.S. official went to Beijing and was able to negotiate a tacit deal under which China agreed to reduce its purchase of Iranian oil to some extent and freeze or go slow on investment in the energy sector in Iran. But Iran is still the third-largest supplier of oil to China – supplies about 9 percent of Chinese oil imports. China provides about a third of Iran’s oil imports – gasoline imports. And it’s Iran’s single biggest trading partner, and the largest foreign investor in Iran’s energy sector.

    John Garver, who is a scholar at Georgia Tech who scrutinizes Chinese-Iranian relations with great detail, has written that Beijing is playing a dual game when it comes to Iran. They’re doing just enough to try to avoid a major row with the United States, but not enough to keep Iran from becoming a nuclear weapons state, should it so choose. Despite public protestations from the Chinese that they oppose a nuclear Iran, Garver says that some elements in China would actually prefer a nuclear Iran because it would keep the U.S. military bogged down in the Persian Gulf and less able to use resources in East Asia to contain China.

    Where are we now? Iran is continuing, albeit slowly, its nuclear program. Its progress has been slowed primarily by things like Stuxnet and some of the sanctions, which have made it more difficult for Iran to get the materials that it needs to make centrifuges. But it has not yet agreed to curb – to suspend its uranium enrichment program.

    There are going to be more sanctions. Congress is very good at sanctions: This is something that Congress knows how to do. And there are bills that have just been introduced in Congress that would try to bar foreign companies from signing long-term oil contracts with Iran, to prevent Iran from having reliable revenues that it can count on. And there are other measures. Mark Dubowitz and Marc Reuel Gerecht of the Foundation for Defense of Democracies, which has been very active in this area – they want to require foreign companies to certify that all their products exported to the United States have no Iranian petroleum content. We’re talking here plastics – all sorts of things. I’m not sure some of these things are frankly practical. But it shows you where Congress is going.

    Still, even these measures are unlikely to achieve their goals. So we have come up with four recommendations the task force here has signed off on which we think might help to improve the picture and perhaps encourage Iran to abide by U.N. resolutions or at least show a different face.

    The first, obviously, is to try to convince China to use its growing economic leverage over Iran – it now has annual trade of nearly $40 billion a year with Iran – to use this leverage to try to reach a diplomatic solution to the nuclear dispute. The Chinese have an opportunity here to prove that they are truly a mature power that can use their diplomatic and their economic muscle in the service of a settlement on the nuclear front.

    Second: The U.S. and its partners in the P5-plus-1, which includes China but also the Europeans and Russia, should be more creative and more flexible in terms of their approaches to the nuclear dispute. We’ve suggested that they might put forward a proposal under which Iran would agree to cap its uranium enrichment at 5 percent U-235, and ratify and implement the additional protocol of the NPT, except the most rigorous international monitoring of its program. If Iran rejects this or if the Iranian political establishment is too internally divided to come to any kind of consensus – and you’re going to hear more about that soon – this will simply help to unify the international community more. One thing we’ve seen is that the Obama administration’s efforts to engage Iran at the beginning of Obama’s term helped unify the international community in support of the sanctions that we have.

    Third, if the U.S. and its allies decide that more sanctions really are needed, focus on human rights. This is a new trend that we’ve seen since the 2009 presidential elections and the government crackdown against Iranians that followed that. Particularly in Europe, this had a tremendous effect and it really changed the whole mood in Europe about sanctions against Iran. Many European governments decided that reform was not going to happen in Iran and that they really needed to get tough. The EU has now sanctioned 32 Iranians for abuses of human rights – United States, only 10. Measures like this show the Iranian people that the international community cares about more than nuclear proliferation and Iran’s support for Arab militant groups – that the international community actually cares about the Iranian people.

    Finally, the U.S. Treasury Department needs to take some steps to confirm or reconfirm its commitment to certain kinds of trade and transactions that are supposed to be legal, even under sanctions. These are remittances from Iranians to their families. Trade in food, medicine, medical goods: These are allowed. But the banking restrictions that have been imposed have made it almost impossible for people to conduct these sorts of transactions because foreign banks are terrified of any transaction that has to do with Iran. I think it would be very helpful if the Treasury secretary or the incoming undersecretary who is responsible for these matters, the successor to Stuart Levey who, I believe, is going to be David Cohen – if they made a public statement that these kinds of transactions are legal and they will not be blocked, there have to be some banks, somewhere that will handle these sorts of transactions. You can’t force people to go to currency traders to cash payments. This is not the way you want to go. You lose transparency and, once again, you hurt the Iranian people.

    So, to conclude, sanctions are preferable to war, but no silver bullet. This is what Congressman Howard Berman has said. Like a frog in a pot of water that is gradually getting hotter, Iran has adjusted to sanctions and even benefitted, to some extent, by using them to phase out subsidies of certain consumer goods. But it’s unlikely that this pot is ever going to come to a boil so long as the price of oil remains stubbornly high and China continues to be a major player in the Iranian economy. And I’ll stop there and we’ll go on to our internal politics.

    MR. NAWAZ: And now we move on to the second phase of today’s event, which is the symposium of ideas. And as Ambassador Eizenstat said, we are extremely lucky to have a very rich and highly qualified panel. And we will begin with Mehdi Khalaji, who is sitting to the right of Barbara, who is a senior fellow at the Washington Institute for Near East Policy. He will focus on the politics of Iran, and the clerical politics, in particular, as we approach the elections.

    Mr. Khalaji has, apart from being a senior fellow at the Washington Institute, been trained in the seminaries of Qom, the traditional center of Iran’s clerical establishment. Then he had a career in journalism, serving first on the editorial board of a theological journal, Naqd va Nazar, and then the daily Entekhab. And then he has studied in Paris, worked with the BBC Persian Service as well as with Radio Farda, the Prague-based Persian-language service of the U.S. government’s Radio Free Europe, Radio Liberty.

    So Mehdi, please.

    MEHDI KHALAJI: Thank you.

    As you most probably note, Iranian government will hold an election, a parliamentary election, in March 2012. This would be the first election after disputed election, presidential election, in June 2009. And also there will be another election a year later, presidential election, in 2013.

    The election is very crucial for Islamic Republic, despite the fact that it’s not a democratic government, but it’s one of the major tools in the hands of Iranian leaders to show or to provide legitimacy of their government. Iranian government came out of a revolution, so it pursued a populist policy, and it’s extremely important for this government to show that it’s still popular.

    Election and public street demonstrations on different occasions are main tools in the hands of Islamic Republic for achieving this goal, but both public demonstration and election have become problematic after election 2009, because for the first time in the history of Islamic Republic, at least in one occasion 3 million people came out and they protested against the result of that election, and it had created a big political crisis because government, instead of giving a right answer to people’s doubt, they cracked down the peaceful demonstrators.

    And as you know, the leaders of this movement, which started in – after that election, two major leaders are now under house arrest. So it’s very difficult for government to ask people to participate in another election while the dispute over the previous election has not been solved yet. And also, because government is very fearful about people’s presence on the street, it became very difficult for the government to ask them to come to participate in different governmental occasions. For example, on Saturday it’s the anniversary of the death of founder of Islamic Republic, and people are supposed to attend the grave of Ayatollah Khomeini in the south of Tehran, and there are heavy security measures there in order to prevent people from taking this opportunity to chant slogans against Islamic Republic.

    So for Ayatollah Khamenei as the supreme leader of Islamic Republic, one of the major challenges is how to fully suppress this movement and make it enabled to do anything or play a major role in next election. But more – the bigger problem is not Green Movement, because it almost went underground and there is no visible signs of its life. It lacks leadership, organization, ideology, all kind of problems that you can imagine. And little people has hope that this movement can pose a real challenge to Islamic Republic in near future, and my colleague Ali will speak about it.

    The bigger problem for Khamenei is Ahmadinejad, the president, who was famous for being the favorite president of Ayatollah Khomeini. Ayatollah Khamenei, who became a leader 22 years ago, he was very weak. His political and religious credential was under question; he was not the natural successor of Ayatollah Khomeini. The first president, Rafsanjani, was a very powerful and influential politician, close to the founder of Islamic Republic, and to some extent the power was shared between Khamenei and Rafsanjani for at least the first term of his presidency. But gradually, by empowering Revolutionary Guard, by empowering the intelligence apparatus of the country and getting full control over the judiciary, and also making the clerical establishment dependent on the government’s funds, Ayatollah Khamenei found right mechanisms to weaken the president.

    So Rafsanjani, in his second term, was a very weak president compared to his first term. And after him, Khatami came to power. Khatami’s election was exceptional; 22 millions of people voted to him, including many people in Revolutionary Guard, especially in rank and file people and in army. You know, he attracted clerics; he attracted the urban middle class; he attracted many people who never participated in any election in Islamic Republic. And so his legitimacy was very established by this election.

    But again, after four years Ayatollah Khamenei overcomed this sense of being, you know, overwhelmed by this election and started to weaken Khamenei (sic) by suppressing student movement, arresting journalists, and limiting the power of president. And in his last years as president, Khatami said president is nobody in this country and he has to always implement agenda of the supreme leader.

    Six years ago the major occupation of Ayatollah Khamenei was how to get rid of reformists, how to get rid of powerful politicians who have their own independent power center independent from Khamenei and do not owe their political credential to Khamenei. It was very important for Khamenei to bring up his own people, to bring up his – a new generation of politicians who look at him, who are loyal to him and who are nothing without him. So these are people that Khamenei is comfortable to work with, and he was looking to create this new generation.

    Ahmadinejad was the perfect candidate for this because he was almost unknown for people. He was mayor of Tehran, and as mayor of Tehran, he proved that he’s so committed to radical Islam. And also he created a very special image for himself that was very lovable for lower class in Tehran. He was showing that I’m against corruption; he had a very modest life, a modest car, modest house. So he was the antithesis of Rafsanjani, who is the symbol of economic corruption, and antithesis of Khatami, who was the symbol of political reform. So – and he was nobody, and obviously, if he could come to power, he would have been total loyal to Khamenei. This was Khamenei’s calculus.

    He came to power, and Khamenei put all his eggs in his basket, hoping that Ahmadinejad would make him get rid of reformists. And obviously, Ahmadinejad cleaned the government from old reformist and technocrat elements. So the government under Ahmadinejad was completely refreshed in favor of Khamenei.

    Another concern of Khamenei was also nuclear policy under Rafsanjani and Khatami, which was more cooperative with the West, and with little fruit, from Khamanei’s perspective. Khamenei realized at that time that we give up but West doesn’t give up, so we have to change this policy and go for a more offensive policy. And this policy needs a new figure. Neither Rafsanjani nor Khatami cannot implement a more aggressive nuclear policy, and they are unable to show their teeth to the West.

    So Ahmadinejad was the right person to do whatever Khamenei did not want to do himself, including denying September 11, denying – you know, saying very harsh statements about Israel, West, all those things which frighten the West but cost a little for Khamenei himself as the leader and make Khamenei look very moderate person.

    So for the first year, Ahmadinejad associated himself with two things. One is more aggressive nuclear policy, and second thing was an apocalyptic political discourse which tried – through which he tried to show himself I’m very religious, I’m a true believer in the main ideas of Shia Islam, in order to attract people in the religious strata of the society and also clerical establishment.

    The 2009 election happened. Ahmadinejad found out that this is the time to impose much of the presidential election’s cost on Khamenei and take this opportunity to challenge Khamenei himself. Interestingly, since 2009, except for the first week, Ahmadinejad did not say anything about disputed election. He did not condemn the leaders of Green Movement. He did not say anything about what Iranian government called itsnitsna (ph), or political unrest, and didn’t mention – it’s like nothing happened, and made it the task of Ayatollah Khamenei to actually come publicly and condemn – in a very obsessive way, in every speech he made, he was attacking Green Movement and its leaders and blah, blah, blah.

    So it was – and Ahmadinejad tried to also change his political discourse from apocalypticism to nationalism. Why? Because he knew that many people are unhappy about this government because of exactly the violence used against people after this election. So we have to attract those passive strata of the society who are not religious and who are not much political, but they are proud of being Iranians, and they can be attracted by a nationalist discourse. But interestingly, both apocalyptic discourse and nationalist discourse, what they have in common is that they are extremely anti-clerical. And nationalism in Iran traditionally, since Reza – the first Pahlavi Shah, was associated with secularism. So this really frightened the clerics. And Khamenei after a while, after his orders were ignored systematically by the president, after clerics’ advice on various issues were systematically ignored by Ahmadinejad, he decided to take this dispute to public and publicize this disagreement between Khamenei and Ahmadinejad.

    So Ahmadinejad’s point with Khamenei is not exceptional. All presidents fought with Khamenei. And even when Khamenei was president, he fought with the supreme leader. He was against his prime minister, and his prime minister, who is now under house arrest, he was much closer to Khamenei – Khomeini, the supreme leader of that time. So it’s very typical.

    But the difference is that by – this fight doesn’t have only cost for Ahmadinejad; it costs also Khamenei, too, because Khamenei, two years ago he paid a hefty cost for bringing Ahmadinejad to power. And now he’s saying that he’s not my guy, he is not right person, and he has mobilized state radio and television, all the imams of Friday prayers all over the country, the clerical establishment, newspapers and all media, to wage a very aggressive campaign against president and teams. And many people in Ahmadinejad’s team were either under interrogation by the Ministry of Intelligence, or some of them are arrested and so on.

    So we are going toward an election which is – the winner of which is Ayatollah Khamenei again, but this Ayatollah Khamenei, despite the fact that that’s the winner of this election – I mean the next two elections – his popularity and legitimacy is much more at risk than before.

    Thank you.

    MR.NAWAZ: Thank you.

    Ali, if I may introduce you briefly. Alireza Nader is an international policy analyst at the RAND Corporation. He’s recently joined RAND, specializing in Iranian national security policy, military doctrine and domestic policies. He’s been focusing his research on the 2009 presidential elections and the growing role of the Islamic Revolutionary Guard Corps in Iranian politics. He’s also been involved in a number of publications, such as ”The Rise of the Pasdaran: Assessing the Domestic Role of Iran’s Islamic Revolutionary Guard Corps.”

    He will speak today primarily on the Green Movement, but we look forward to his remarks on other topics as well. Ali.

    MR. NADER: Good afternoon. Thank you for the invitation, Barbara, to finally come. I think it’s an exciting time for Iran right now. I think Iran is headed toward a direction which shows a lot of upheaval and internal instability.

    Today I’m going to talk about the Green Movement very briefly. I want to address three questions regarding the Green Movement: What is the Green Movement, what are its objectives, and whether the Green Movement can be successful in any way. So if we look at the Green Movement, it’s not an organized political party per se; rather it’s a – it’s a social movement more than anything else. It’s a network of people across Iranian society. And the Green Movement does have broad support within Iranian society, has support among the middle and upper classes, the lower classes, the clergy, students, laborers, teachers. The Green Movement even has support within the Revolutionary Guards.

    The head of the Revolutionary Guards, General Jafari, actually admitted to this. He said: When we were going through the barracks of the Revolutionary Guards and the Artesh, the regular armed forces, they had pictures of Mousavi and Karroubi, the Green Movement leaders, in their barracks. So it’s not just a secular middle class movement, as it is often portrayed in the – in some circles in the West, anyways.

    Then these are some of the Green Movement’s strength; it cuts across society. But it has some fundamental flaws, and one of these flaws are divisions within the Green Movement itself. There are those who support the Islamic Republic and Ayatollah Khomeini’s legacy but who oppose the Ayatollah Khamenei as the supreme leader. Then there are those who oppose President Ahmadinejad but are willing to compromise with Khamenei. And then you have members of the Green Movement who are opposed to the Islamic Republic as a system of governance for Iran. They tend to be secular and nationalist, like Mehdi mentioned.

    But I think there’s even a bigger divide in the Green Movement that’s not often considered, and that’s the division between the ostensible leadership of the Green Movement and the people. Who are the leaders of the Green Movement? We have Mir Hossein Mousavi, who is a former prime minister, former speaker of parliament Mehdi Karroubi and former president Mohammad Khatami, and, perhaps more importantly, Mousavi’s wife, Zahra Rahnavard, who is considered by some to be the brains behind the whole operation. (Laughter.) The leadership, except for Khatami, is under house arrest. So we don’t hear much about them these days.

    So what does the leadership of the Green Movement believe? The leadership is wedded to Khomeini’s legacy. They’re devoted to the revolution. Mousavi was Khomeini’s prime minister during the Iran-Iraq War especially. He did a lot to save the Islamic Republic at that time. But unlike Khomeini, the Green Movement leadership believes that the legitimacy of the Islamic Republic just doesn’t come from the supreme leader; it doesn’t come from divine authority; that popular participation in the republic is important; that the constitution is important and should be implemented.

    So they’re not opposed to the concept of – (unintelligible) – or the rule of the supreme jurisprudent, per se. Their problem is really Khamenei and the system he has created, in which he is really in a lot of ways a dictator – an authoritarian figure.

    But if you look at a lot of Iranians today, they don’t necessarily share these values. You can argue that the Islamic Republic has had some achievements. It overthrew the shah; it made Iran an independent power to a certain extent. But Iran today faces many, many problems. It’s a society under extreme pressure. You have unemployment, inflation, corruption, drugs, prostitution, sanctions, international pressure. The list goes on and on. According to some sources, youth unemployment in Iran is as high as 50 percent. And of course, it’s hard to verify these figures because the Iranian government often cooks the data for its own purposes. And figures within the Ahmadinejad government have alluded to this, and some of them have been even more explicit.

    So simply, the Iranian people are exhausted. During the 2009 presidential elections and the protests that followed, I remember one Iranian was interviewed in the holy city of Qom, and he said, what Iran needs is a new beginning. And I’m not sure if the Green Movement is that new beginning or the leadership of the Green Movement is that new beginning.

    So can the Green Movement be successful? I think the Green Movement – the leadership, anyways – the figures I mentioned – are basically part of the political system still. They have been excluded from power by Khamenei and the Revolutionary Guards. But they want to come back. And recently, Khatami made a comment and he said, I think that the regime and the people should forgive each other, that Ayatollah Khamenei should forgive the people for their sins, and let’s make up, basically. And Khatami and the leaders of the Green Movement are basically seeing Ahmadinejad’s weakness right now as an opportunity to come back into the system. And this is what they’re angling for in the 2012 parliamentary elections and the 2013 presidential election in Iran.

    But we have to ask if this is a viable strategy. How can you run in elections? How can you implement the constitution if the regime in Iran holds all levers of power? We saw yesterday that during the funeral of a very prominent Iranian political figure, his daughter was punched in the stomach and killed. So if Iranians can’t even hold demonstrations peacefully – if they can’t even attend funerals peacefully, how are they supposed to participate in elections? Ayatollah Jannati, the head of the Guardian Council, came out and said, look, the reformists can’t run for election anymore; they should just forget about it. So we have to wonder what Mr. Khatami really has in mind for the Green Movement and for the Iranian people.

    And so that basically leaves demonstrations as a strategy. We had millions of Iranians going to the streets after the 2009 presidential election. Mr. Mousavi has said that he is willing to martyr himself for reforms in Iran. But I don’t think most Iranians are willing to risk life and limb for big notions of reform and unidentified objectives. If you’re an Iranian in Iran – if you’re a young Iranian, why would you go out into the streets? What’s the end result?

    When we look at countries like Egypt where they had these revolutions, there was an objective. Mubarak’s overthrow was an objective. With Iran, I don’t think there is an end goal because the Green Movement hasn’t identified the overthrow of the regime as its objective. And, as I argue, reforms are not going to work in Iran for the foreseeable future.

    So I think the utility of the Green Movement is basically a facilitator of change, not necessarily an enforcer of change in Iran. I think it has given Iranians some hope that there is a future for them. But interestingly, I think what has happened with the Green Movement today is that the people may have actually lost hope in avenues – in political options, that they have lost hope in reforms espoused by people like Mousavi and Khatami.

    So perhaps their best option is to jettison this leadership that basically is mired in the past and holds onto these outdated views that really do nothing to solve Iran’s problems. Thank you.

    MR. NAWAZ: Thank you, Ali. And now, our final speaker from the dais is Djavad Salehi-Isfahani, who is a professor of – in the department of economics at Virginia Tech. He’s also a non-resident senior fellow at the Brookings Institution and he’s also serving as the Dubai Initiative fellow at the Belfer Center for Science and International Affairs at Harvard’s John F. Kennedy School of Government. He has also served on the board of trustees of the Economic Research Forum, a network of Middle East economists based in Cairo. As his profession indicates, Djavad is going to concentrate on the economy.

    DJAVAD SALEHI-ISFAHANI: And choke up some graphs, if you don’t mind. I’m not going to show you all the slides because I can’t see them myself, but there’s nothing lost if you just – if you don’t care about memorizing the numbers. I’m going to throw some numbers out. But some of the numbers are here. I’m going to talk a little bit about the overall economic conditions in Iran and then focus on one particular issue that may be of interest to you, but this also demonstrates the kind of problems that Iranians are facing, and that’s the – (inaudible).

    So the economy is obviously not doing well at the moment. If you see that red line over there, it was going up for a while and then it became flat after 2008. Iran’s recession began a little ahead of the rest of the world because they had a housing boom that burst. It burst because the housing boom was fueled by expenditure of the oil revenues, inflation was rising, the central bank had to hold back on its – on money supply in order to lower inflation. And that caused the burst of the housing bubble.

    And, after that, you know, a lot of people work in construction – about 9 percent of the workforce. And the economy started – it didn’t really go on a tailspin. It didn’t start falling because the government is big and the government is rich. And as long as with the oil prices, the government can – government does what it does, which is repair roads, it built new ones, various kind of infrastructure activities, the economy can stay at a – sort of a steady level. And this may be a 1 percent growth rate since 2008, per year, but not more.

    They’ve been doing all right with oil revenues. I put here on the lower right a graph that shows the share of the oil rent in total economy. As you can see, before the revolution, this was much bigger. So the shah had much more in terms of oil revenues than these people have. The reason was that Iran’s population was much smaller and the real price of oil was about what it is now. So because population has increased in Iran and because oil production has fallen by at least 60 percent – oil exports, I should say, have fallen by about 60 percent since the revolution, there’s a lot – there’s less money to work with. But still, it’s about 25 percent or 30 percent of the economy that’s based on oil – the oil rent. These are calculated by the World Bank, by the way.

    Now, this stagnant economy comes at a very, very bad time because there has been an independent movement on the demographic side that has brought a lot of pressures, especially on young people. This is happening at a time when the government is least able to deal with employment issues. And there are a number of reasons why it is least able to deal with employment issues. But let me tell you a little bit about the demographic pressures.

    Iran had a baby boom around the revolution. It was about 30 years ago, and now that baby boom is ready to become adults. Should have been, actually, adults five years ago; they’re age 30 now. But about 50 percent of them still live with their parents. And their unemployment rate was about 25 percent until recently and it’s – for men. And it’s shot up to about 35 percent, according to my calculations.

    These are not cooked-up numbers, by the way. These are numbers you get from the surveys. One of the puzzles about Iran is that they do actually supply a lot of raw data that you can go work with. We have extensive surveys, even census data, that reveals very high unemployment rates. And they may not like to advertise it. For women, for example, unemployment rate has gone to 55 percent – for young women in their late 20s, 55 percent are unemployed. Those are huge numbers and it is from surveys that they collect themselves.

    The reason why you see these high unemployment rates is because for every one person who retires in Iran, six young people enter the labor market. That is a historical record. It’s also a historical record that 35 percent of the population is in ages of 15 to 29. Young Iranians in that age group outnumber all the adults age 30 to 64. So if you look at Iran and this demographic – this demographic view, what you’re seeing is a lot of people waiting to enter an economy and they know their numbers are larger than the people they’re trying to replace, and they have their own ideas. And the Green Movement is expressing a lot of those new ideas that the young people are bringing to the fore.

    So at the same time, the government that used to use public employment and various tricks to expand employment has run out of those tricks. The last one they did was to give $18 billion in terms of low-interest loans to young people to set up businesses. Most of the banks who participated unwillingly in that process have now – are now kind of bankrupt because they can’t collect the money.

    In Iran, if you borrow from the government, you don’t want to give back. And, you know, there’s all sorts of reasons: connections, corruptions, you know, the very rich anyway. So it’s a very bad idea to lend to people who are actually small players and they can run away and the banks are not able to collect the money. And they can’t expand the bureaucracy anymore – the bureaucracy is already very large.

    So, really, the solution is private sector. But private sector requires a whole atmosphere to operate. It needs to be independent. It needs to be able to predict the future. And what you have heard about Iran’s politics, it’s all in the other direction. Iran’s politics is not predictable and, because of the sanctions, the economy is not very predictable. So private sector is not moving in when the government – to replace what the government used to do, which is to create jobs.

    And on top of all this, there are very serious inflationary pressures. Some of them come from that project unemployment. When you lent money, people actually spended (ph) it. If they spend it right, there will be production, which will then increase supply as demand increases, so there will be inflation for a short period but not later. But anecdotal evidence shows that that didn’t happen.

    The central bank did one study of these quick-returns projects, and it was kind of hush-hushed. They found 46 percent had not spent the money on the things that they had promised to do. I’m not at all surprised. Anyone who sees Iran’s banking – it’s not a development banking system. It’s a banking system set up to understand projects and be able to lend to the most worthy projects.

    So the other part of the inflation that is coming is subsidy reform. And I have some slides I wanted to show you on subsidy reform because it’s about $30 billion – money that’s being distributed. And if you want to put some perspective on that, we see – I’m trying to get to the why – why they did it. Where is the why? Thank you.

    If you want to know how large the project is – subsidy reform – they basically raised the price of gasoline, natural gas, gasoil and even bread. And they’re collecting this money at the pump and the various places. And they’re trying to give it back to the people – it’s the only way this could have been implemented, if people knew they were going to get the money back. And it’s 30 – about $30 billion in size and about 40 percent of Iran’s oil revenue. So it’s a very significant project. For every person, every day, it’s $1.50 or $45 per month, per person. And the money has actually been deposited in people’s accounts, and they’ve collected it. Some 70 million Iranians who have new bank accounts with money going into it at the rate of about $45 per month.

    That’s policy reform that I think is at par with the reversal. This is, by the way, a reversal. It’s a reversal because the government thought it was going to keep going on with cheap energy – let people have it. And they suddenly decided to reverse themselves and raise the prices. They’ve been talking about it but they actually did it on very short order.

    Before that, they had done something similar with birth control. They first said, it’s good to have many babies. And then they suddenly changed their mind under Rafsanjani. And so they’re very good at this kind of pragmatic policy reversals, to do something that’s necessary to do.

    And the reason why they found it necessary to do, one, was because they had to reverse waste. Iranians consume about a liter of gasoline per person – they used to – over a year ago, they used to consume about a liter of gasoline per person per day. That is nearly twice as much as the French use – well, about one-third of what Americans use. But it’s still a very, very high number. And they clogged the streets with their cars almost endlessly going – traveling, visiting each other and relatives. They spent a lot of time doing that.

    So it seemed like a very good idea that they should pay for gasoline as much as the Turks do. And Iran has always admired Turkey as being a very sensible country. The ones who travel there for vacation, they come back saying it’s a good country. Well, it’s a good country – gasoline prices there are about $8 per gallon.

    They also wanted to respond to sanctions because years ago, they decided not to build more refineries because if you have refineries, people consume cheap energy. So they thought if they actually imported and it goes into the budget, then that would be a way to control the appetite for cheap gasoline. And it worked. At some point, they had $5 billion in the budget for imports.

    Then the government would run out of it. There will be huge debate about the government trying to import gasoline outside the budget. It’s always, last few years, have been a struggle about trying to stick to the budget approved for import of gasoline. But the best thing they did – and I think it was Rafsanjani’s idea – was not to build refineries in order to be able to educate the public about free gasoline.

    I talked to a press – one New York Times reporter about this, who thought the idea was bogus. And he wrote on front page of The New York Times, the country is so incompetent that they can’t even produce gasoline.

    The third reason they did it was to redistribute in favor of the poor. And this is why Rafsanjani could not do it; Khatami did not want to do it and Ahmadinejad almost had to do it. Neither of the previous presidents was very much for redistribution. Rafsanjani was definitely dead set against it. He was a very pro-market, pro-business guy. Khatami had some ideas about redistribution but never got very serious about it.

    Ahmadinejad has been obsessed with redistribution, to take money from the rich and to pay the poor. At one point, he said, alarmingly, to people of northern Tehran, where all the expensive apartments are, he said, I don’t understand all the apartments of the people who have run away. Why are the poor still not with apartments? You know, if you did the math, of course, there would be many, many fewer apartments or many, many more poor people to have the apartments. But his thinking goes on like this, that problems of Iran can be solved by redistribution, even just taking the apartments from rich people who run away and giving it to the masses of Iranian poor.

    Now, this plan is the most intelligent he has come up with. And his implementation is also very clever. Is this “how they do it”? No – let me go to “how do they.” He had to overcome a huge deficit in trust between people and the government. And the way he did this is to talk about the money that they were going to get back, then implement this program in three provinces and then finally putting money in everybody’s account, and waiting for them to see the money, but they couldn’t withdraw it.

    About two months passed, when people thought they had the money, and they were actually planning – I remember a taxi driver; I asked him, what were you going to do with the money? He said, I’m going to buy an LCD television because my wife really likes it, and our relatives have already bought it.

    I reminded him that the (mass ?) didn’t match to the money he was going to get, but then he said, you know, we are about 10. You know, if you’re 10 people, you can actually buy a 50-inch LCD television with your first – they pay two months’ money at once. And apparently, there were a lot of these kind of expenditures. So the money went to the Chinese and sort of to the Iranians.

    But the idea was that if you didn’t want to have riots in the streets and the petrol pumps, that people had to be first looking at the bank accounts and not at the petrol pumps. And that, they succeeded. So the program was started in December, last December, and it went very smoothly. You know, nothing in Iran is terribly smooth, so the people whose applications had been lost – there were – you know, various banks or the central statistical agency trying to remedy that. But eventually people got – and there was a website that helped them put in their applications.

    One of the clever things he did is after a plan completely failed to give nothing to the rich but all the money to the lower-third of the population, he backed out from it. So they announced where your location was in the income distribution from the numbers they have; a lot of mistakes were made. People were making jokes about it. So he went on national television and said, please forgive us. Forget the plan; we’re going to give everybody an equal amount of money.

    So his pragmatism really helped. It calmed everybody down. And he also realized that he couldn’t trust his bureaucrats. He had to fire the head of the statistical agency for having promised this system of distribution, identification of people by income class, that he had invented was actually going to work. When it fell flat, he fired the guard promptly.

    So now everybody gets the same amount of money. But because the previous subsidy was highly regressive, the distribution is the – this re-distribution system is progressive. And this is what I need – actually, the numbers – so if you look at the share of income decile in various subsidies – for example, look at gasoline, which is the most regressive – you see that the poor – the lowest decile only pay about two-point – only benefitted of 2.4 percent of the total subsidy that was given out, OK. The total subsidy – 30 percent of it went to the top decile of income.

    Electricity was another very highly regressive subsidy. Twenty-one percent went to the top decile; 4 percent went to the bottom decile. So you can see, only bread was actually equally distributed – subsidy for bread went about 10 percent to every decile. So when you take all the subsidy money by charging market prices, and give it back equally, you are going to benefit the rich substantially.

    Let me go quickly because I’m running out of time on this slide, which I have created – in order to create an impression, a scenario, this is not scientific calculation of general equilibrium models. All I did is to take – it does work with survey data. So we take everyone in 2009 survey, bring the incomes to 2010 when the program was implemented, and do the following: Assume that price have increased the same for everybody. In reality, the rich pay much higher price than the poor because every price that can be metered, like natural gas and electricity, has a sliding scale.

    And for the very poor, there is very little increase in the price. So they’re not going to get much of a shock when the new bills come for electricity and natural gas. But if you are consuming a lot, the numbers are going to be very high.

    So it is that the – if you take the payment that the poor will make because of the higher prices on these items, they’re going to pay only 14 percent – that’s the last column – of their earned subsidy cash back to the government. So they’re going to keep 86 percent of that for themselves. That’s actual money in their pocket they didn’t have before. That’s their oil money – the oil money they’ve been waiting for, forever. Nobody has actually sent them a check; now, finally, they’re getting a check like the Kuwaitis do, like the Bahrainis do, like people in U.A.E. do.

    The rich – as you go up, you see that this proportion increases, meaning immediately 60 percent of the money they got in the top decile will go back to the government at the pump. I actually think that’s close to 100 percent because I didn’t have time to implement this sliding scale. If I did that, you will see the rich are not going to gain at all. They’re going to come back neutral in this.

    What these numbers show, however, is that government’s going to go bankrupt because it’s collecting less than it’s paying out, right? This should be in total such that the money goes from the rich to the poor, but actually, the money is going from the government to almost everybody. And that is one of the big things now that people are fighting over in the parliament because he’s so keen to pay the money out, he is finding money everywhere to pay this cash subsidy. And he’s not collecting enough at the pump, and he’s now become the oil minister, so nobody can question what the pump money is. So a lot of interesting stuff is going on.

    But I have to stop. And let me just say one other thing, which is, I think, very interesting about this subsidy money – I don’t have the numbers here, but I’ll say it. If you think about this, Iran has been trying to reduce poverty forever. OK? There have been a lot of economic growth, yet you have a province, Sistan and Baluchestan, which is the poorest and is an outlier in terms of poverty. It seems like the money that comes of Tehran just doesn’t make it there, either because they’re too far away, or because they’re Sunnis, or because they just don’t have the infrastructure and the education.

    How would you try to equalize the money that goes out from Tehran? I think you will just get everybody’s bank account, and put the money in there. And if you do this exercise now – so poverty in Sistan and Baluchestan is about five times the national average. OK? We had about 10-percent poverty rate before this in Iran, and Sistan-Baluchestan’s was about 50 percent. These are, again, from the survey data.

    If you calculate in this cash the way I have done, poverty in Sistan and Baluchestan goes to 12 percent, which is something you could not have achieved with any other development program. I can guarantee you, in Iran, if you try to put the money in Tehran, half of it would be stolen, and things wouldn’t get built in, and so on.

    But at the moment, they’ve done something to Sistan and Baluchestan that nobody had been able to do for a very long time.

    And I’m going to stop here. Thank you very much.

    MR. NAWAZ: Thank you, Djavad. Obviously, there are many questions that you have. And I’m sure that the panelists themselves have questions for each other. If I may, I will lodge the first question, and then I’ll request you to indicate your desire to ask a question. When the microphone reaches you, if you would please identify yourself because we will be transcribing this, and we’d very much like to know who asked what question.

    And then, if you could please keep it to a question, that will be greatly appreciated. (Laughter.)

    So my first question is a point a number of the panelists made – and I’m going to leave it open to whoever wishes to answer it, or more than one person can answer it – which is the frequently asked question of the Arab Spring: And will the fact that there is a youth bulge, and will the fact that there is youth unemployment really translate to movement inside Iran?

    Now, I did hear a comment that Alireza made that the Arab Spring, or Egypt, for instance, they had a clear objective, that that clear objective is not apparent in Iran. My question is, if the objective was to remove an autocratic regime, and if that currently exists in Iran in the form of the supreme leader, would that not be enough to create the conditions for the “Iranian Spring?”

    MR. NADER: I think even with Egypt, if you look at Egypt, that’s in a very uncertain position. Just Mubarak is gone doesn’t mean Egypt is necessarily headed in a better direction. There are those who argue that the Muslim Brotherhood is poised to take power, and you can make arguments about the Muslim Brotherhood, whether it’s progressive, whether it’s fundamentalist, et cetera. But there was that objective, nevertheless, to overthrow Mubarak.

    I think with Iran, the question is, well, who will come after Khamenei is gone? The Revolutionary Guards have a lot of power in Iran. So if you throw this clerical-led system, will you have a completely militarized system run by the Revolutionary Guards? Is that a better system? And I think this is what worries Iranians because they have experienced a revolution, and a lot of them suffered because of this revolution. And they don’t necessarily want another revolution that will introduce even more uncertainty.

    I think they’ll look at the Arab Spring, and maybe they’re inspired. I think this notion that the Arab Spring is going to inspire Iranians is a little bit exaggerated, frankly, because what happened in Iran preceded the Arab upheavals. But I think at the same time, they’re very conscious because look at what is going on in Libya and Syria and Yemen. And I think there is real potential for violence in Iran. We’ve seen that in the southern city of Shiraz; there have been clashes between Ahmadinejad supporters and Khamenei supporters.

    And there are various components within Iran that are very powerful. There is Khamenei and his gang, Ahmadinejad and his followers, the green movement, the Rafsanjani camp. And each has a particular level of influence and power.

    The green movement or the reformists have relied on street demonstrations; other groups are armed. And so I don’t – I wouldn’t rule out the possibility of not an “Iranian spring,” but severe internal conflict in Iran.

    MR. NAWAZ: Thank you. Anyone else wish to add to that?

    MR. KHALAJI: I think Iranian just did a revolution 30 years ago, and you know, it’s very – and especially, they have gone through two major experience – one, revolution, and another one was eight years’ war with Iraq. And each of these events were enough to traumatize a nation for a long time.

    What Iranians fear is violence. They don’t want to go through a new experience which leads to uncontrolled violence. If they – the word “revolution” is a taboo in Iran because people don’t like this word. They don’t have a good memory about it, you know? They don’t have a good experience with it because of the huge wave of executions happened right after revolution. And now, people, you know, miss shah, even people like my father who did revolution, or participated in – (inaudible).

    So when they are talking about reform, they don’t really mean reform by staying within the framework of Islamic republic; they really want to get rid of clerics. That’s no doubt about it. But they don’t say “revolution” because in their mind, revolution is associated with violence. So I think Iranians are looking for a fundamental reform as long as they can prevent violence.

    They didn’t find a rightful mullah for this. And nobody – there is no theoretician for reform or fundamental reform. As Ali said, the green movement does not have an ideology. How you can get rid of this Islamic republic without going through that painful experience?

    MR. SALEHI-ISFAHANI: Let me –

    MR. NAWAZ: Djavad?

    MR. SALEHI-ISFAHANI: – just say quickly that I don’t think we should underestimate the level of political competition that goes on in Iran. And I’m not sure “autocracy” is the right word to describe Iran. You know, Mubarak, Ben Ali, they really look like very good targets for variety of people coming from different directions. And in Iran, you have both multiple targets – you know, Ahmadinejad, if you watched the election debates as I did in Tehran, tried to think what an ordinary Iranian sees, he came as an anti-mullah candidate. Mousavi kept talking about Ayatollah Khamenei and how great he was.

    Ahmadinejad didn’t mention him in particular, but he kept talking about several corrupt mullahs that were on television at the time – Rafsanjani; he accused Karoubi of corruption. And I think a lot of people saw him as pretty much an anti-mullah candidate. So if you have him, and then you have the mullahs – and then green movement obviously knew what he was doing. I think they were very much against Ahmadinejad because he had nothing for them.

    You know, a lot of the green movement people come from middle class and upper strata who wanted democracy, who wanted freedom to express themselves. They don’t need little handouts like this. But the people at the bottom are just waiting for these handouts, and it’s unfortunate they do that. You know, I don’t want to come across, by the way, saying that handouts are good. I’m an economist – (laughter) – you give people money if they do something; you don’t give it for sitting at home. So I hope they will change that; gradually, this will become money for work, or something else – or become infrastructure money.

    But essentially, I think in Iran, the game is not over yet. People are still watching with interest, this cast of characters who come; they compete with each other. And right now, they are mesmerized by this debate, this infighting between Ahmadinejad and Grand – I mean, Ayatollah Khamenei. So at this point, who do you want to overthrow exactly if you had the choice to overthrow – (laughter)?

    MR. NAWAZ: Thank you.

    Q: I’d like to follow up on this line of questioning just a little. My name is Robert Beecroft; I’m a retired U.S. ambassador, served twice in the region, although not in Iran, of course.

    The Syria connection is obviously one of great importance. And I’d just like to get your view on how far Iran is willing to go in support of a Syrian government which is now under great pressure, which is not Shia, for the most part – in fact, it’s not even Sunni; it’s Alawite – and what the strategic goal of Iran is in Syria.

    MR. KHALAJI: Hafez Assad’s regime has tried to legitimize Alawite by approaching to Shia even before Islamic republic; he approached Musa al-Sadr, the very prominent Iranian Shia leader who somehow reinvented Shia community in Lebanon, and after Islamic republic, is one of the main benefit (the) Syrian government got from its relation with Iran, is to portray itself as a part of Shia community.

    So Alawite is considered now a part of, or a branch of Shia. While there’s a huge difference between Twelver Shiism and an Alawite. So yes, Hezbollah in Lebanon and Iran Islamic Republic, they both portray Alawite – even in Turkey, not only in Syria – as Shia, though they’ve been considered a heretic branch of Shia.

    What’s Iran’s strategic interest in the region? Iran – I think – this is my understanding – Iran wants to threaten United States and Israel and confront them, but not on its own territory. Iran does its best to push the conflict away from Iranian territory and lead it to Iraq, Afghanistan, Lebanon and Palestinian territories.

    For this purpose, Syria is the main bridge Iran has to Lebanon, to use its leverage in Lebanon and also in Palestinian territories against Israel and United States. Losing Syria will make Iran look less frightening for the West. And this is against Islamic republic’s defined strategic interest.

    MR. NAWAZ: Thank you. Ambassador Toscano, and then we’ll come to the gentleman there.

    Q: Roberto Toscano, Wilson Center. I have a question for Mehdi Khalaji: How would you describe Ahmadinejad’s game plan? I imagine he has one; otherwise, he should be put in an insane asylum, given the level of the challenge.

    MR. KHALAJI: Who knows? He may end up there.

    Q: Maybe. (Laughter.) Soviet-style. Don’t you think that maybe the idea of combining nationalism, populism and anti-clericalism, which the three of them are very powerful, might give him some sort of crazy hope to prevail?

    MR. KHALAJI: Had it not been this green movement – and he had much more chance by using anti-clerical discourse. As Djavad said, Iranians are sick and tired of clerics. You know? If you ask Iranians – there is a joke in Iran that if you ask Iranians, what’s your TV set, they would say, it’s not a color TV, it’s a black-and-white TV because it always shows clerics, and they either have a black turban or white turban. (Laughter.) So they don’t want to see clerics.

    That’s the – the reason why Ayatollah Khamenei picked up Ahmadinejad for this job was exactly this, that he was so radical in terms of Islamic ideology but he was not a cleric. And the reason the speaker of Majlis is not a cleric is that it would make a better image for the parliament if you don’t have -- if you look at the members of the parliament. So it’s too appealing for people. But the problem is that people who are sick and tired of clerics, they are (the same ?) about the Islamic Republic itself. First.

    Second is that what – for example, Ahmadinejad’s record on culture is not so great. All writers, artists, opinion makers, all are against him. It’s not enough to be anti-clerical. It’s not enough to be against Khamenei. You know, it’s not enough to even be against Islamic Republic. We have many oppositions outside Iran, who are oppositions, who are against the whole system, but they are not popular in Iran, like MEK. So it’s not enough to be against the Islamic Republic; you have to offer something more positive.

    And Ahmadinejad doesn’t have this, especially, you know, his superstitious beliefs, his -- you know, the movie with – this DVD which was released which showed that they really believe that the return of his imam is imminent and he would come and Ahmadinejad is the head of army and so on. This is not appealing to the urban class. They don’t – look, what Islamic Republic did to Iranians was that Islamic Republic modernized Iran much more than shah did. Islamic Republic urbanized Iran much more than shah did. They are so urbanized that they don’t like Islamic Republic anymore. (Laughter.) You know?

    And I think that Ahmadinejad would have little – because he doesn’t have social power base, he has – he’s going to lose more and more his political power voice within the Revolutionary Guard, and, you know, he loses the support of Khamenei, and he would have little chance in next election.

    One thing was very interesting for me. Ahmadinejad is quoted to say to several people that had it not been the support of Ayatollah Khamenei, I would have had 35 million votes instead of 20 million votes. (Laughter.) So he really believes that he loses the ground because of Ayatollah Khamenei. It might be true, but he himself has – (little chance ?).

    MR. : Can I address that as well?

    MS.SLAVIN (?): Yeah, I also want to ask, if I may, the panel, how far does he go? Because every time, you know, they try to stop him from firing the intelligence minister, he fires another three ministers. He says he’s head of the Oil Ministry. He’s made the head of the Olympic Committee now caretaker oil minister. He does something crazy and outlandish every time they start to check him. Will there come a point where Khamenei will have to just say, that’s it, I’m sorry, and pull the plug?

    MR. : Well, there’ve been reports about him being arrested, his chief of staff – (first name inaudible) – Mashaei, being arrested. I think some of the figures around him were arrested. Supposedly the supreme leader – and who knows if this is all true, but – he told the Revolutionary Guards to arrest those around him but don’t go after them right now.

    I think with Ahmadinejad, the problem is that he’s, A, delusional, to a large extent. He’s getting very poor advice. He has very little social base. The commander of the Basij, either yesterday or today, said that – (inaudible) – he didn’t say Ahmadinejad -- doesn’t have a support base in Iran. I think Ahmadinejad thought he had the support of the Revolutionary Guards and the Basij, because he thinks of himself as a very charismatic figure. And I think he has vastly overstated, A, his popular support, and B, his support within the security force, especially the Revolutionary Guards. I think to a large extent the Revolutionary Guards are key to this.

    There was another report that the Revolutionary Guards went to Khamenei and said to him, let us just arrest all of them. And this isn’t beyond the realm of possibility. I think they’re after him and he has to be careful what kind of actions he takes, because if he doesn’t back down, they could really hurt him.

    The issue with Ahmadinejad is, he thinks of himself being on the media, being interviewed by CNN, his statements getting attention, as making him a consequential figure in Iran; and he’s not as consequential as he thinks he is.

    MR. NAWAZ: Thank you.

    MR. : Can I say something quickly?

    MR. NAWAZ: Yes, please.

    MR. : I think he also has a very important card in his hand. This is the subsidy reform. He’s the guy who is implementing it. If you replace him, will it continue? And what would people think about the future of these payments? I think one of the reasons why he feels he has a strong hand is because he started something – it’s like he’s juggling a lot of balls; you push him out of the way, you know, the balls are going to fall to the ground.

    MR. NAWAZ: Djavad, you said that the trend line is towards bankruptcy and there won’t be any money left for the subsidies to continue.

    MR. SALEHI-ISFAHANI: Yes.

    MR. NAWAZ: Well, when does he fit the wall?

    MR. : (Inaudible) -- to remove him, anyway. (Laughs.)

    MR. SALEHI-ISFAHANI: Well, governments don’t go bankrupt, as you can see in Washington. (Laughter.) So they will print money.

    MR. NAWAZ: Okay. We have a question here.

    Q: Joseph Costa. I’m a research associate at the Belfer Center. So my question is regarding sanctions. I think there’s no lack of reports that say that sanctions – use general statements such as “sanctions are squeezing the regime.” I have had tremendous difficulty in finding actual quantifiable data. I know the administration says 50 (billion dollars) to $60 billion have been lost in investments in oil, in energy industry. So Mr. Salehi-Isfahani, I’m curious, A, what your assessment is on the impact of sanctions, if any, if we have any data showing this; and what indicators would you look at when making this assessment?

    MR. SALEHI-ISFAHANI: That’s a very good question. It’s a very difficult one. You know, the data I work with have very little on sanctions, which is household data. I’m looking at what the family spent. All I have really is kind of anecdotal information. This is talking to people who, as Barbara said, are handicapped in financial transaction globally. Even people who have OFAC, which is the permission to export to Iran, are finding it difficult to open (the LC ?) and move the money.

    There are people who built stuff that may be 90 percent Iranian domestically manufactured. There’s a small piece that has to come from abroad. And because it’s a small piece, the seller doesn’t want to bother to go check to see what he’s using it for. You know, it could be a little (cap ?) or some gauge. So he just doesn’t return the call, doesn’t sell. So large projects are stuck sometimes for days.

    The reason why we cannot really know what’s going on is because there are too many things going on at the same time. You know, the government has really terrible macroeconomic policies. They lowered interest rates a year ago, at a time when inflation was picking up. Now they have raised it again. But still it’s 4 percentage points behind – below inflation. So if you put your money in the bank, you lose at the rate of 4 percent a year. That’s terrible macro policy. And so banks are not able to get cash from people, who are buying gold and buying dollars and so on.

    You don’t know whether investment is low because of this policy, some other policies, or is it because of the sanctions. It’s just very hard, unless you had very firm, specific information about what firms were connected more to abroad and so on. I don’t have that kind of information. But I know that it is one of the factors people mention all the time. They mention credit, which are mentioned because the interest rates are kept low, and they mention sanctions and they mention the general climate of uncertainty.

    MR. NAWAZ: Barbara?

    MS. SLAVIN: One indication, though, is the decreasing production of oil. Iranian oil production has gone down from something like 4.1 million barrels a day. I think it’s at 3.8 million now. Projections are it will go down to 3.3 million by 2015, which means there will be less to export. And one of the main reasons for this is the sanctions prevent Western companies – theoretically all companies – from investing in renovating Iran’s oil and gas infrastructure. Iran needs foreign – needs Western expertise to make liquefied natural gas, so – they’re not getting it, they can’t exploit their enormous reserves, the second-largest reserves of gas – natural gas in the world. They can’t exploit it. So, I mean, that is a concrete impact of sanctions that ripples through the whole economy.

    MR. : They’re having a hard time selling their oil to – if you look at their – they’ve been having a lot of problems with the Indians. The Indians can’t figure out a way to pay Iran for its oil.

    MS. SLAVIN: Right.

    MR. : And so they’ve been going back and forth. And you can argue that this is a big distraction for the regime that it can’t even sell the oil. It has a hard time producing it and then selling. And I think that’s one big effect of sanctions.

    MS. SLAVIN: If some of the sanctions strategists in this town who are concocting new ways to squeeze Iran look at ways to basically impose an oil embargo on Iran, but slowly and gradually, in such a way that it won’t increase the pressure on oil prices – international oil prices – so they want to make it harder for Iran to sell the oil. They want to make it so that foreign companies can demand discounts when they do buy it, so Iran gets less money. Squeeze, squeeze, squeeze. So in effect you will have, you know, an embargo on Iranian oil exports at some point if these folks have their way.

    MR. : Some Iranians are looking forward to that, by the way, because they think that the problem is the government has got too much money and the private sector doesn’t have enough. I think if the – it is yet that the difficulties with the oilfields affect revenues of the government. The government’s still getting a lot of money. But if that money goes down, you will see the balance of power – economic power – shift in favor of the private sector. And during the war, when they were really cut off and they had zero oil revenues, a lot of industries grew. A lot of industries grew because people had to find ways; they will import a piece, they reverse engineer it and start making it. You might see a lot of that stuff going in Iran if sanctions become tighter. And a lot of Iranians would say that’s not bad, you know, we need to have somebody impose – (inaudible) -- on us so we make our own stuff and create employment. Employment is a key thing. It’s not revenue. It’s not government revenue.

    MR. NAWAZ: Ambassador Eizenstat.

    MR. EIZENSTAT: Your presentations have really been excellent, very incisive. With this internal turmoil that’s going on, is there any reason to think in the near term that this will translate into any change in the policies which are particularly important to the United States, either uranium enrichment, support for terrorism or the like, or are they simply willing to pay the price for these policies and maintain them regardless?

    MR. NADER: I think the danger is, if the regime feels insecure and there’s instability in Iran, it might actually accelerate the nuclear program, because if you look at the Iranian regime, it claims one of its achievements has been progress on the nuclear program. So this has become, I think, an important pillar of the regime’s legitimacy. This is how the regime perceives it, that the population cares very much about this program and wants to see it come to some sort of fruition. So I think there is that danger.

    If the Green Movement, let’s say, wins, I think they could potentially be more amenable to U.S. interests on the nuclear program, but I think any government in Iran will not give up on uranium enrichment. Even if there’s a secular democratic government in Iran, it’s not necessarily going to let go of the nuclear program, because of the reasons Iran is pursuing it, regime survival being number one, but also defending the homeland against foreign invasion, and a feeling that Iran deserves this right.

    So I think – RAND actually did a survey, I did a survey recently on the Iranian nuclear program, and I believe 97 percent of the respondents said that this is Iran’s national right. And 43 percent actually said that Iran should weaponize its nuclear program. So there is some popular support for actually creating nuclear weapons. So I think this concept that if we just overthrow the regime, the nuclear program will be solved, is a little simplistic.

    MR. EIZENSTAT: And just as a follow-up, do you –

    MR. : Microphone.

    MR. EIZENSTAT: -- do the panelists think that the regime’s – as a follow-up, do the panelists think that the regime’s endgame on the nuclear program is weaponization, just short of weaponization, having a nuclear capability and declaring it, or going all the way to weaponization?

    MS. SLAVIN: Well, my belief is that the Iranians will not go all the way to weaponization unless they’re attacked, in which case they will throw out the IAEA and move toward weapons. But barring that, I don’t see the percentage. They can continue to build up stockpiles of low-enriched uranium or slightly more-enriched uranium, work on other – on their missiles, other aspects, and be ready to make that choice if and when they want to. But I don’t think they have and I don’t think they will yet.

    MR. : One option that – the IAEA just produced a report saying that Iran is looking at, I think, seven different ways to create a nuclear warhead, to weaponize. So they’re doing their research and they’re building the infrastructure and the know-how so if they need nuclear weapons, then they can go that route. I don’t think the leadership necessarily believe – that made this decision – that it needs nuclear weapons right now, because the costs associated with having actual weapons are very high. And the Chinese have been supporting Iran under the cover of this is a peaceful nuclear program. So if they develop nuclear weapons, they could potentially lose their biggest international partner.

    MR. NAWAZ: Djavad.

    MR. SALEHI-ISFAHANI: I might say something with respect to the first question Ambassador Eizenstat asked about the relationship between turmoil inside Iran and what will happen in terms of benefits or yields for U.S. foreign policy. I think something people ignore is that Iranians are also trying to solve their problems. They’re not sitting there, Iranian leaders, just trying to piss off the United States. They have serious problems they’re trying to deal with. To the extent that in dealing with their problems they are successful, they’re going to go in that direction. The subsidy reform hasn’t failed – so far it hasn’t failed, but it may. And if it fails, I predict that Ahmadinejad will go back to being who he was, which is – (inaudible).

    But since he started on this program, he’s become an economic reformer. He’s getting to like being a modernist president. If the avenues for domestic reform are closed, meaning that whatever they do, things get worse – well, okay, regime change happens, United States may be happy, but it’s quite likely in the interim that the leaders will go back to the rhetoric – to the hostile rhetoric, which does seem to yield benefits, both in region and within Iran. Personally, I would like the former. I would like Iranian leaders to become so good at solving their domestic problems they will just do that.

    Q: Ian Brzezinski from the Atlantic Council. I just want to follow up on some of the points that were made about the impact of sanctions. And what have been the impact of sanctions on public perceptions in Iran, Iranian public perceptions of their government, of the outside world, particularly the West? How have the sanctions played in the last elections? How are they likely to play as an issue in the upcoming elections? And are these sanctions helping us develop constituencies of common interest in that country or otherwise?

    MR. : Let me say something about -- with all due respect to the survey that RAND and Ali did on the nuclear program, there is no real way for doing a scientific survey on any issue in Iran. You can invite some people to Turkey and ask them some questions, or you can call some people in Iran and ask them a question and say them: I’m calling you from Washington, D.C., what’s your view about weaponizing nuclear program? And I don’t know whether they’d tell you the truth or not

    But if you want to have an idea about, for example, what’s the impact of sanctions on political dissidents or political – you know, the current Green opposition, you may go to the statements made by the leaders of the Green Movement. For example, Mousavi in his televised debate with Ahmadinejad and also in his later statements highly criticized Ahmadinejad for his nuclear policy, which had shown its consequences in these U.N. sanctions resolutions.

    So what is interesting for me is that if you look at Mousavi’s statements throughout last two years, he never asked the government for doing any referendum on any issue. He could have asked for, you know, referendum, for election procedure, for – I don’t know, there are many issues which generated the tension between Mousavi and the government. He never asked referendum for anything in domestic policy, but once he asked referendum on nuclear policy. And he said that nuclear policy is wrong and the decisions on this crucial issue should not be made by a few people behind closed doors.

    So it shows that not only many people in Iran, but also many political elite who – you know, officially still Mousavi is a part of government. He’s a member of the Expediency Council. And many other people, like (Nateq Nouri ?), are – they are critical of Ahmadinejad. They are not happy with the direction that the nuclear policy takes.

    So I don’t think that if you ask Iranians – the majority of Iranians who are, for example, in this Green Movement – I don’t talk about all Iranians. The Iranian society is so, you know, pluralistic. One of the problems – Shuja asked why what happened in Egypt did not happen in Iran. One of the – there are many explanations. One of the explanations for me is that – look at the beneficiaries of Islamic Republic. They are not comparable to the beneficiaries of Mubarak regime, you know. I don’t know how many people were beneficiaries of Mubarak or Ben Ali. Few thousand people. But millions of people are beneficiaries of Islamic Republic. How many people work in Basij? How many people work in Revolutionary Guard and all companies which are related to Revolutionary Guard? Look at clergy. Clergy, Iran, the Shia clergy now is the richest clergy in the history of Shiism. So these are beneficiaries of the Islamic Republic.

    But if you look at the Green Movement -- which is, you know, you can say at least a great deal of – a great part of Iranian society, they are advocating its ideas -- they don’t like weaponization, weaponization of nuclear program, (neither the current ?) nuclear policy. And they blame – this is what Mousavi said. Mousavi told Mr. Ahmadinejad that – in his televised debate – that the direction you are taking in your nuclear policy would take the country to the Hell. And he said that there are some elements in the Revolutionary Guard that they tried to design the nuclear policy in a way that provoked Israel and United States to attack us; they are warmongers. This is what Mousavi says. And if this is what Mousavi says, I don’t think that, you know, 90 percent of Iranian people would love Ahmadinejad’s nuclear plan.

    MR. : Can I address that really quickly? I agree there’s no scientific way to prove anything, really, said here. I think in terms of sanctions, it’s even more difficult to measure their effects on the Iranian population or the regime. But I think one thing we could do is look at their effects on various constituents in Iran. So if you look at Rafsanjani and his supporters, they may not like the nuclear program because it disrupts their social, political and economic agenda for Iran’s globalization, privatization. The nuclear program doesn’t help that. The same with the reformers.

    But if you look at the regime as it stands today, Ayatollah Khamenei and the Revolutionary Guards, the nuclear program is beneficial for them. Iran’s increasing isolation is beneficial for them to some extent. And I think they’re willing to weather the costs of having some sort of nuclear capability because I think the end result is important for them. They’ve gone through the Iran-Iraq war. The regime has always been in a state of crisis, under internal and external pressure, so why not have this option that may come handy in the future?

    I would argue that it doesn’t benefit all segments of the Iranian population, that the Iran population is subject to a lot of propaganda from the state on the nuclear program. They don’t have access to independent sources of information. But in terms of sanctions, I would argue, because of these anecdotal evidence we’ve discussed, that yes, there is damage to the economy, but not great damage to the regime, not great damage to Ayatollah Khamenei, necessarily.

    MR. NAWAZ: Thank you.

    I’m afraid we’ve reached the end of our time that we allotted, and I’m very grateful to all of you that you came. I know that there are still a number of questions that need to be asked, and I’m sure that our panelists, as they – as we disband this particular session, would be happy to take your questions individually.

    But I would like to take this time now to thank, on behalf of the Atlantic Council and on behalf of our co-chairs, Ambassador Eizenstat and Senator Chuck Hagel, and our president, Fred Kempe, want to thank the audience and our panelists and our own Barbara Slavin. So thank you all very much.

    (Applause.)

    (END)


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  • Panel 1 “Reform, Revolution, or Repression? Finding Positive Paths Forward for a Region in Transition” Transcript

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    THE ATLANTIC COUNCIL OF THE UNITED STATES

    UNCERTAIN FORECAST IN NORTH AFRICA: PREVENTING THE “ARAB SPRING” FROM BECOMING THE “SEASON OF DISCONTENT?”

    PANEL 1: REFORM, REVOLUTION, OR REPRESSION? FINDING POSITIVE PATHS FORWARD FOR A REGION IN TRANSITION

    WEDNESDAY, JUNE 1, 2011
    9:30 AM – 10:45 AM
    WASHINGTON, D.C.

    WELCOME AND MODERATOR:

    J. PETER PHAM, DIRECTOR, MICHAEL S. ANSARI AFRICA CENTER, ACUS

    SPEAKERS:

    GEOFFREY PORTER, PRINCIPAL, NORTH AFRICA POLITICAL RISK CONSULTING, INC.

    ANTHONY J. CORDESMAN, ARLEIGH A. BURKE CHAIR IN STRATEGY, CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES

    YONAH ALEXANDER, DIRECTOR, INTERNATIONAL CENTER FOR TERRORISM STUDIES, POTOMAC INSTITTUE FOR POLICY STUDIES

    HON. EDWARD M. GABRIEL, FORMER U.S. AMBASSADOR TO MOROCCO

    Transcript by
    Federal News Service
    Washington, D.C.

    J. PETER PHAM: Good morning. I’m Peter Pham, the director of the Michael S. Ansari Africa Center here at the Atlantic Council. And on behalf of our chairman, Senator Chuck Hagel, and our president, Fred Kempe, I’d like to welcome all of you here today to the Atlantic Council and to this discussion.

    A warm word of welcome also to those who are joining us from the George C. Marshall European Center for Security Studies via video teleconference link. The Atlantic Council was founded 50 years ago to promote trans-Atlantic relations and U.S. engagement with Europe in global leadership. So it’s wonderful that they’re joining us via video conference and sharing the benefits of this morning.

    If  I may be permitted a word on the Ansari Africa Center, the Africa Center was founded in late 2009 with a mission to help transform U.S. and European policy approaches to the entire continent of Africa from one primarily focused on donor aid to one anchored in strong geopolitical partnerships with African states and strengthen economic growth and prosperity on the continent. Within the context of the Atlantic Council’s work to promote constructive engagement and U.S. and European leadership in international affairs based on the central role of the Atlantic community in global challenges, an important part of our work at Ansari Africa Center is to engage and inform policymakers, as well as the general public, of the strategic importance of Africa, globally and as well as for our own parochial interest, through programming, publications, as well as a robust media presence. So I welcome you to this event and, hopefully, we succeed in making some of those objectives through this event.

    Certainly one might ask why this is so important to the U.S. Certainly one looks back to U.S. engagement in this region and goes back to the North Africa region in particular to the very founding of the American public. There’s – if you’ll bear with me – goes back actually to 1777, when Mohammed III, Muhammad Ben Abdullah, the sultan of Morocco was the first sovereign to actually recognize the independence of the U.S. when he sent a diplomatic note around to the various counsels posted in his kingdom that Americans were among the nations and citizens whose ships were welcome in Moroccan ports. And this year there’s a particular anniversary with recording: the 225th anniversary since 1786, the Treaty of Friendship, with its additional article and ships signal agreement, the oldest treaty of friendship that the United States has still in existence and arguably the oldest security agreement still in existence, signed by Thomas Barclay, Thomas Jefferson and John Adams with Morocco.

    This is also a region which was helped by dint of its military challenges shape the foundation of the federal government in the United States. The ambassador of Israel to the United States in his previous incarnation as Ivy League academic points out – makes the interesting thesis in his book on America’s role in the Middle East – the role of the Barbary War in shaping the federalism in the United States and the creation of our national government, and certainly the proximity to our European allies, the proximity of North Africa, the status of Morocco as an associate of the European Union, points to its importance – the importance of our topic this morning as a trans-Atlantic topic; also the importance of this topic of North Africa, the status of the revolutions, the results, the reforms to Africa, the impact on Africa of what’s going on in the northern part of the continent when we deal with the continent as a whole. But also I make the argument that there’s also – that dialogue goes both ways – lessons for Africa, from what’s going on in North Africa, but also perhaps some lessons from sub-Saharan Africa back to the transitions going on in North Africa.

    If you’ll indulge me as an Africanist, pointing out that for example, major upheaval in system of government or regime that had been in place for a long time, the South African case, probably – gives us probably six pointers that we might bear in mind fruitfully in our deliberations: one, that transitions require time for groups to emerge, to develop cohesion and political leadership; two, that political and strategic deadlocks are not necessarily bad things if they can be used constructively to facilitate dialogue within society and democratic change; some conflict is unavoidable, but the goal is to limit and to contain it; fourthly, the need for constructive reform within the transition period; fifthly, the importance of economic and social reforms to bring in those who’ve been previously marginalized; and the finally, the need for the process to be internally driven and a process that’s organic, the system, rather than one that’s imposed from the outside. And we see all six of those in the South African transition, so maybe some points to bear in mind as we look at transitions in North Africa.

    Today, we’ve put together two really stellar panels that I’m very grateful to the panelists who’ve agreed to join us – some with great sacrifice on their schedule and even their well-bring, especially those who just arrived quite literally – I know at least two of our panelists came back just in the last 24 hours or less from extensive travel abroad. So I’m very grateful for their presence this morning.

    I’m also grateful for the presence of those of you who’ve joined us, a number of distinguished guests. In particular, I point out my good friend, Professor Mohammed Benhammou, the head of the Moroccan Center for Strategic Studies, and also the current president of the African Federation for Strategic Studies who is in Washington and joins us this morning. So we’re grateful for and honored by your presence and that of others here.

    With that, let me proceed to introducing our first panel.

    Our program this morning runs in two panels, where each panel is asked to speak on their assigned themes for between 10, 15 minutes and then leave time for dialogue between the panelists, friendly disagreements, whatever have you, and as well as have an question-and-answer both from the audience from here and then we’ll be receiving questions via email from our audience in Garmisch, Germany.

    The panelists, you’ve got their biographies in the program that was handed to you, so I won’t consume their valuable time, because I think you’re much more interested in hearing them than hearing a recital of their very distinguished resumes. But we’ll begin this morning with Dr. Geoff Porter, who is the principal of the Northern African Risk Consultancy, and a long-time observer who brings us not only subject matter expertise in the region, but also I think something that’s a good balance for those of us in the think-tank world: relations with the business community and business sector.

    And he’ll be followed by Dr. Anthony Cordesman who holds the Arleigh Burke chair at the Center for Strategic International Studies, certainly one of the distinguished students of strategy and security issues and practioners in this town who needs no further introductions from me.

    And then he’ll be followed by Dr. Yonah Alexander from the Potomac Institute, another very distinguished figure whose lengthy curriculum vitae is available in your programs, and a great scholar of not only this region but also -- currently also the editor of NATO’s Partnership for Peace Journal and distinguished fellow.

    And then finally, rounding off our panel, we’re very honored to have Ambassador Ed Gabriel, who served as America’s ambassador in Morocco, and distinguished businessman, communicator and, again, to round off our panel.

    So without further ado from me, I’d like to turn the floor over to Geoff. Thank you.

    GEOFF PORTER: Well, thank you. I just want to thank Dr. Pham for inviting me down here. I flew in from New York this morning, and I want to assure you that New York is as hot as D.C. is. I also want to thank the Atlantic Council for hosting me today. And it’s a real pleasure to speak with you about the Arab Spring and some of the events that have transpired since January – or December of 2010 and January of 2001.

    I just want to say first of all that I was trained as a historian, which gives me a lot of pleasure and actually gives me an excuse for not having anticipated anything that’s transpired since – during the course of the Arab Spring. I think every political scientist has some explaining to do, and every political scientist model about transition or succession scenarios in the Middle East has been – has been disproved in the last three months.

    I just want to – my comments today are going to focus on three main observations about the Arab Spring and what has taken place. And bear with me: Some of these are shockingly simple, but I think they bear mentioning, and some of them are I think a little bit more nuanced and I may spend a little less time on them and leave them – leave them for discussion.

    Just for example, one of the most simplistic observations that we’ve seen over the course of the Arab Spring is that, in fact, every country in the Middle East and North Africa is different. Despite a regional grouping, one is at – you know, at pains to make comparisons between Tunisia and Egypt. It’s hard to say the events that transpired in Egypt are likely to unfold in Algeria, that the domestic and international circumstances of each country makes the likelihood of a transition in government there different from one capital to another, but it also makes the implications of the revolutions in each country different.

    Another thing that’s worth mentioning, and also potentially remedial or relatively simplistic, but historians and political scientists have known and observed for a long time, based on the events that have unfolded in other revolutions and rebellions, is that rebellions and revolutions depend upon the participation of the elite and you need, at some point, for the elite to buy into the protests, to buy into the rebellion, and that will ultimately determine a rebellion or revolution’s success or failure.

    The last observation is that it’s generally the combination of these two, the domestic and international circumstances, plus the willingness of the elite to participate in a rebellion or revolution that determines how the succession transpires, how long it takes to unfold and what the ultimate outcome in the new government is going to be.

    So there are some other observations that could be made based on the events that have occurred over the last couple of months. Some of them are less compelling than others. There’s a lot of talk about the resurgence in Arab nationalism or the mistake in having counted out Arab nationalism, having said that Arab nationalism is dead. I think the jury is still out on this issue, whether we’re actually witnessing a resurgence of Arab nationalism or whether we’re just simply seeing the participation of a community that speaks a common language. You know, when you – when you tweet in Arabic or in the fake Arabic characters that people are using now as sort of the Latinized Arabic or whether you have a Facebook page in Arabic, you have a – there’s a certain facility and there’s a certain community that grows around this. But this community may in fact be different from an Arab nationalistic community. So I think, you know, it determine – it’s yet to be seen how – the degree to which Arab nationalism has been embodied or has been revived in the – in the Arab Spring.

    You know, at the same time, we’ve got Anthony Shadid writing in The New York Times about the resurgence of nostalgia for the Ottoman Empire. And he wrote it – I read it in the Herald-Tribune. I’m not sure when it was actually published in the Times. But, you know, the Ottoman. The Ottoman Empire was, you know, to say the least, hostile to Arab nationalism, very hostile to Arab nationalism. And it’s something that Shadeed acknowledges in his article, but nonetheless, these two ideas seem to be antithetical. On the one hand the Arab Spring epitomizes the resurgence or renaissance of Arab nationalism, on the other hand, you have the potential for the resurgence or nostalgia for the Ottoman Empire.

    Another observation that we’ve seen, which I’m certainly not all qualified to talk about, is the role of social networking in having brought about protest movements, having brought about the coalesce of large parts of the Egyptian population, the Tunisian population, the Libyan population, Bahrain, Syria, Yemen in protest against the government. I just got on Twitter, and as far as I can tell – and I’m certainly no expert – Twitter is very good for making a lot of noise, but it’s not very good for expressing nuanced ideas. And there are certainly plenty of people here in D.C. who are much more component at talking about the role of social networking in having brought about the Arab Spring, having perpetuated the Arab Spring and potentially bringing about future changes in the Middle East and North Africa, but I’m not one of them.

    So this brings me back to my free fundamental and perhaps simplistic observations. The first one is simply that, you know, every country is different. Every country is a hodge-podge of domestic circumstances, international relations. And these conditions that are unique to each country reflect how the revolutions or rebellions unfold.

    You know, if we take the example of Tunisia, Tunisia is – was an interesting case study. And I don’t think many people had anticipated that what transpired in Tunisia would actually lead to what we have today in Cairo or in Benghazi or in Damascus or in Manama. You know, if – Tunisia was a country that had almost no geostrategic importance. It was very closely tied to Paris and Washington. It didn’t have any or much interference with its neighbors. Relations with its neighbors to the east and west were fairly curtailed and primarily focused on its relations to the north. It didn’t have a large military component. It had a large secular population. Even the Islamist Party, which has now been reconstituted, is largely a very moderate Islamist party. It has strong technocratic capability. And I think from the perspective of the West, from Paris and Washington, and perhaps London and The Hague as well, Tunisia was low-hanging fruit, that Tunisia – a revolution could unfold there with a strong likelihood of success and with very little post-revolution investment from the West, you could probably see Tunisia transition to a democratic and free market country.

    Egypt was a much more different calculus, and it responded to its own unique set of circumstances. Just to begin with, on the international level, obviously Egypt has a profound and significant geostrategic position. It’s a strong ally of the United States. It has a peace treaty with Israel. It has an enormous population. It has a de facto statist economy, having the intertwining of the military and so-called SOEs or quasi-private companies. It also has, unlike Tunisia, the Muslim Brotherhood. Now, I think the – what happens with the Muslim Brotherhood is still an open question, how it positions itself. What its ideology actually turns out to be is still undetermined. But the presence of the Muslim Brotherhood in Egypt is a source of tremendous anxiety here in Washington, but also in London and Paris and The Hague. These have determined how the revolution has unfolded and how – the degree of international involvement in Cairo’s revolution.

    Libya itself is again a unique country, and the Arab Spring there has unfolded differently from the way it did in Tunisia and Egypt. You know, despite his brief return in 2004, you know, Gadhafi, Colonel Gadhafi, has always been a pariah. And one of the things that determines the course of the revolution and the rebellion in Benghazi I think is the fact that Gadhafi has nowhere else to go. You know, Ben Ali had some place to go. Mubarak had allies within the military who would at least vouchsafe his health and well-being while he might be incarcerated. But Gadhafi has no place to go, and he still has no place to go, and that has determined and has been a huge determinant in the way in which the rebellion has unfolded there.

    Likewise, you know, Libya plays a much more significant role in the global economy than either Tunisia or Egypt, and I’m speaking primarily in this case about oil. The – I don’t have the exact dollar figures – and I’m not sure oil traders do either – but there’s certainly upward pressure on oil prices due to the Libya risk premium, the fact that there’s 1.4 million, 1.8 million barrels a day of light sweet crude pulled of the market because of the conflict in Libya has pushed up oil prices to the point where they’re jeopardizing the global economic recovery, and so there’s a huge economic role that Libya places and the Libyan revolution plays in the global economy, and that determines the degree to which, you know, the West or NATO will get involved in the conflict there and determine the outcome of the Benghazi rebellion.

    Another example – not to belabor this point – is Syria. Syria faces its own set of unique of unique circumstances. The Syria one can challenge whether Syria is, in fact, the uncontested sovereign within its own borders. The role that Saudi Arabia plays, the role that Iran played, the role that Saudi Arabia plays in Lebanon, the role that Iran plays in Damascus, all impact the ways in which the international community is willing to step into the Syrian conflict to protect civilian populations, to curtail the activities of Bashar al-Assad and to try to limit his own crackdown against his population.

    So again, a unique set of circumstances. Perhaps the Syrian protesters are responding to the Arab Spring. There’s a sense of common experience shared amongst the Syrians and the Egyptians and the Tunisians and the Libyans. But the ways in which they are able to carry out their revolution is curtailed or is determined by the specific set of circumstances in each country.

    This brings me to my second point, which is – that I had raised earlier, that the participation of the elite is ultimately critical in the ways in which these revolutions transpire. One of the things that we saw in the very early days of the Tunisian revolution was the willingness of the elites to join the sides of the protesters, and we saw very early on, very fast elite fracture within the Ben Ali camp. Ben Ali fled and we had a new government within three weeks – well, an interim government.

    In Egypt, I’m sure everybody has their own story to tell about their friends who they know in Cairo who went down to Tahrir and joined the protests, and I’m sure everybody, more importantly, has a story to tell about their friends’ fathers or mothers who left their jobs and went down to Tahrir to join the protests. My own story is from an Egyptian analyst. His father is a successful businessman. The analyst has been studying and monitoring Algeria for about – or Egypt for about a decade. And he was sort of, you know, reticent about the Tahrir protests until he got a call from his father on his cellphone that his father was in Tahrir. And once he got the call from his father, he knew that this time was different, that the revolution was going to be successful, because his father, a 70-year-old businessman, left his job to join the protesters and you had the full-on participation of the elite in the protests which ultimately led to the toppling of Mubarak.

    Libya, we’re also seeing elite fracture, particular from the Gadhafi camp. It’s much slower. It’s much more glacial. But certainly without the participation of the elite, the fracturing of the elite from Tripoli, their defections to Tunis or to Rome or ultimately to Benghazi, you know, I think the rebels would be at a much more significant disadvantage. And one of the things that we are – that the NATO campaign is trying to do, that the international community is trying to do, is speed up that process of elite fracture and break away supporters – significant supporters from Gadhafi and lead to an ultimate regime change.

    The counter example to this, of course, is Algeria. In Algeria, there have been periodic popular protests throughout the capital, primarily down in the – in the center city, but there have also been protests in other secondary cities in Algeria. But one thing we haven’t seen, and I don’t think we’re likely to see, is the participation of the elite. The elite in Algeria are content with the current situation. They are content with the political process such as it is, and they are content with the way that the economy is unfolding. So without the participation of the elite in Algeria, there will be periodic popular protests, but it’s unlikely to lead to regime change.

    So this brings me to Morocco, and just a couple comments on this and then I’ll conclude my statement and pass the microphone to Dr. Cordesman.

    You know, Morocco is a – is a fascinating country, and I’m a – I started traveling to Morocco in 1986, and I spent most of the 1990s living in Morocco. And it’s remained – it remained very, very dear to me on a personal level, in addition to a professional level.

    You know, Morocco, I think, is like Egypt. It’s a geostrategicially critical country for the United States. It sits obviously on the Strait of Gibraltar, which is a strategic chokepoint for both the U.S. Navy moving in and out of the Atlantic Basin, but also for oil flows moving out of North Africa into the Atlantic Basin and serving terminals in the U.K. and on the Eastern Seaboard here in the U.S. It – Morocco maintains very strong ties with Washington. It’s a major non-NATO ally of the United States. It maintains very strong ties with Paris, less so with Madrid, but nonetheless the diplomatic ties with Madrid remain open and communications are clear. It – Morocco has limited engagements with its neighbors both to the east and also to the south. There is – unlike Syria, I think there is no question about Morocco’s sovereignty; Morocco’s sovereignty, Havat sovereignty remains contested and entirely coherent within its own borders. The monarchy, which is the seat of this sovereignty is a sound institution. It has made gradual progress over the last two decades. I think we have to look at Morocco in the long duree. But Morocco has made gradual progress over the last two decades towards democratization, towards human rights, towards rights for women, towards rights for minorities. I remember when I first began traveling to Morocco that there was no Berber on TV. Now you can turn on the TV and see every show duplicated in Berber.

    The economy is also growing. I’m sure that people who have traveled to Morocco over the last two or three decades have recognized that the massive investment in infrastructure, the changes in consumer retail, consumer goods, the increasing use of Morocco as an offshoring destination by European countries, both for customer service representatives but also for manufacturing, the increasing integration of Morocco’s north into the European economies – we’re starting to see a real flourishing of economic activity to the extent that if you go to Marrakesh or if you go to Rabat, you’ll see young Europeans working as waiters and waitresses – you know, young French just out of school will take a job as a waiter or waitress in Morocco rather than staying in Europe. You’re seeing a lot of Moroccan families or second-generation Moroccans who were born in France returning to Morocco to participate in the economic activity there, which is much more dynamic than it is in France itself.

    Lastly, you know, people I think refer to the elite as a dirty word, unless it’s part of a frequent flyer program or a hotel loyalty program, which then has a sort of cheaper quality to it. But, you know, people think of the elite as a – as a bad thing. But that’s not necessarily the case. And I think if we look at Morocco, the elite certainly has a role to play in the political processes unfolding there.

    You know, it’s true that – and I think I would be remiss if I didn’t acknowledge that, you know, Morocco’s elite is embroiled in corruption scandals. It has been accused of all sorts of nepotism and ties to politics. But this is the problem of elites everywhere. Elites, you know, throughout the world are – use their wealth to influence political – or politics or economic regulations, and they’re always involved in scandals. There are plenty of elite in Morocco that have no regard for social issues. They have no regard for the welfare of the state. They have no interest in doing anything except ensuring that they remain elite.

    Now, this is – this is unseemly, but it’s not a crime. And it’s – in fact, probably one of the characteristics of the elite – and certainly the elite in the United States share many of these same characteristics – where the sole interest is ensuring that one remains elite.

    But among Morocco’s elite, there are also good actors that do care about the welfare of the country, that do care about social programs, literacy programs, youth programs, housing programs. A good example of this is Mulig Shavi, the entrepreneur, and one of Morocco’s wealthiest men. He is – embraces – I think he would be what we would call her in the United States a socially-conscious investor. He intertwines his investment profile with a social agenda.

    Many of these good actors or members of the elite support the institution of the monarchy. They see the institution of the monarchy as ultimately a sound institution and an essential institution for the stability of Morocco.

    I’d like to – just to close one final comment about this – about Morocco exceptionalism. I think – you know, people speak about Moroccan exceptionalism, but to me, the notion of Moroccan exceptionalism stems from a miscategorization of Morocco. You know, Morocco, for those of us who have lived there, for those of us that travel there, especially for those of us that speak, you know, Morocco is not the Middle East. Morocco – it’s also not Africa, and it’s not Europe. And, you know, Morocco has always existed – you know, putting on my historians’ hat again, Morocco has always existed sort of on the margins of these three different larger regional groupings: Middle East, Africa and Europe.

    But in a certain sense, it’s always also acted as a bridge among these three regional grouping between Morocco and between Africa and Europe, between Middle East and Africa, between Middle East and Europe. You know, I’m speaking in part from my personal experience when I used to be – I used to be a history professor. And when I was applying for jobs, people would also ask me, well, do you teach African history or do you teach Middle Eastern history? And I always tried to say that I taught Mediterranean history. And the response was always, well, Mediterranean history is a European category. So do you teach Middle Eastern or African? And you’re always forced to choose. I always decided that I was just going to teach Moroccan history, which is why I’m no longer an academic.

    So I think, you know, this notion of exceptionalism comes from the perception that Morocco should fit into a category of Middle East or Africa, but I don’t think it does, and I don’t think it ever has or nor will it ever in the future. You know, so to measure Morocco and its current political trajectory against the events that have transpired in Tunisia or Egypt or Libya I think is a mistake. Likewise, you know, I think it’s a mistake to measure Morocco against sub-Saharan Africa or against Europe. And in fact, it may simply be best to measure Morocco against its own aspirations and its own desires and its own stated political objectives, and that may yield us with a better understanding of where Morocco is going and how it wants to get there. I’ll leave my comments at that.

    J. PETER PHAM: Thank you very much. Geoff, go ahead and pass the microphone to Dr. Cordesman.

    ANTHONY CORDESMAN: Thank you very much, and thank you for the opportunity to be here this morning. I had come back from the region and I was a little struck by one meeting on the instability in the area where I was one of the few Westerners where a very leading Arab politician talked about the phrase “Arab Spring” with intense disgust and said: What you need to understand is, for us, the spring is a time when things get extremely hot and the area is filled with sandstorms. And I think that’s in many ways a very insightful comment, because I would suggest that most of the upheavals we see, even if they succeed in getting rid of the current regime, are not going to in any sense produce near-term stability or effective governance or be able to cope with the mix of economic and demographic and other changes and tensions the societies face. Historically, revolutions rarely succeed in either being kept in power by the elite that starts them – although it may get through a year or two – or in meeting the stated objectives that people have and demonstrating and overthrowing the regime they overthrow. And very often they are hijacked by something marginally better, or sometimes worse.

    And I think if we look at this region – and I’m very glad that Geoff made two points: one, countries differ; and second, I think there are successful countries. And I would have to agree that I think Morocco has done well.

    But what we need to consider is what’s really happened in this area over time. International economic indicators are always uncertain. But if you compare the growth in per capita income in the region as a whole between 1980 and 2010 by World Bank indicators, it increased by 29 percent. If you look at South Asia, it increased by 200 percent. If you look at East Asia and the Pacific, it increased by 221 percent. Logically, developing countries, to survive, have to increase more quickly in per capita income than developed countries. But this region’s 29 percent, compared with 62 percent for North America, which includes Mexico, and 52 percent for Europe and Central Asia. And as many of you have noticed, Central Asia is not the most developed place in the world.

    When you look at what are the impacts of these kinds of pressures – and I’ll get into some of them in more detail, we do have enough pulls to provide some warning signals. One is that there are very sharp differences in how people do react to the pressures their societies create by country and ethnic group et cetera. But there are also some very common things. None of these countries fails to have a massive employment problem. Economic growth is not related to per capita income in terms of equitable distribution of the increase in income. In virtually every country there are perceptions that the system is unfair and inequitable. Looking at how people define the word “corrupt,” which is often very different from the way it is measured in the West, corruption is often perceived as unjust economic, social or political advantage.

    Now again, people define these terms very differently by country and area. And we in the West tend to assume that there is a common semantic belief. And frankly, again and again, when you poll in detail, you find that, for example, there is no agreement event on a term like “sharia” in the Arab world. It’s very nice to spotlight it in the West, but when you ask people in Yemen what it means, they don’t agree with what it means in Iraq or in any other place. You do find that there is the feeling of being excluded, of dealing with a system that has gotten progressively more corrupt and more authoritarian and more selfish in far too many countries. And that is a perception which is, to go back to Geoff’s point, largely a perception among elites, because you cannot poll the very poor. You cannot poor people in rural areas or in urban slums. We tend to use things like statistic deviation for polls. This is analytic rubbish. A poll can be perfectly statistically valid and completely wrong, and the samples that we are using are essentially those of elites.

    As somebody who has to look at the military and strategic side, what you also see is a major shift over the last 15 years or so towards larger and larger internal security structures. There is within the police, within the intelligence branches, within the internal security services, a growth of both size and the role and pervasiveness of the operation. It is, I think, a reflection on perhaps the low quality of area studies that we tend to focus either on the military or the civil side but we have virtually no analysis of police, internal security and intelligence forces. And when you have aging regimes, what you can see from the budget and the numbers is the increase. And if you look at the United States State Department Civil Rights Report, which I think is often as balanced as civil rights reports get, and you look at that over time, you see this steady increase in repression and pressure and control. This has been disguised to some extent by the war on terrorism, and that has had a mixed impact. Some of the training, a lot of the efforts to help countries deal with terrorism, have actually had, from the outside, from the West, a beneficial effect in softening some aspects of this repression. But more counterterrorism is also abused, and it’s abused not only in arrests and detention, but in the fact virtually every country in this region has a special court system which exempts the standard rule of law and can produce disappearance, torture and sometimes killings.

    There are exceptions. There are countries which have tried to work this out. And I think, again, you look, strangely enough at Morocco and Saudi Arabia, which would not logically be the countries as monarchies that have done most to moderate this, but it is those countries that have done best and countries which are titular democracies, like Egypt, which has often does worst.

    We find too, I think, as you look in this structure, a warning. With repression comes a fact: There are no real political partners. People do not have experience in running for office, in giving up power and, above all, in acting as a political structure that can govern. I would caution people in the West that one of our great abuses of political science is assuming that legitimacy consists of how governments are chosen and not how governments choose to govern. The fact is that elections do not historically produce stable or beneficial results unless you have mature political parties. And you do not have governance unless the revolution produces a stable structure within ministries, governance and the justice system in the process of political change. And if you consider what’s happened in Iraq and what probably will happen in Libya and may well happen in Egypt and Tunisia if you do not see the army retain its power, one has to be very careful about throwing terms like democracy and justice around when you do not have any of the key elements that make them work in the West present in the systems that are coming into power.

    You also have a history of failed secularism. It’s all very well to talk about the threat of Islamic politics, but one might talk about the threat of failed secularism. Socialism, Arab nationalism, 19th-century capitalism, swollen bureaucracies, 30 years of hiring people in the government and into the state without having a function and without having salaries that allow them to operate without having extra charges delaying, leaving the office or a second job. You do not normally think of the bureaucracy as a major threat to the state, but frankly, if you consider Egypt and far too many other governments and you would ever try to do anything with an Egyptian ministry, you may have a different view.

    We have also, in the West, forgotten – or it has become politically unpleasant to talk about – demographics. My first trips into this region were as a student in the 1950s, which dates me, but it also gives me a different perspective. Morocco had a population of around 9 million. Its population is now 32 million. The most conservative demographic estimate I can find is 42 million by 2050. It will probably be substantially higher. Our demographic models frankly assume that women are going to have a lower birthrate and higher rates of employment much more quickly than has been the case.

    Algeria was under 9 million in 1950. It’s now 35 million, and it’s headed towards 44 million. Egypt was 21 million in 1950. It’s now 80 million, and at current rates it will be 137 million by 2050. You can go down the list. It’s Jordan, Syria, Iran, Iraq, Saudi Arabia: They all are under these conditions. These are countries with finite resources, finite supplies of water. Only the countries that have massive oil and petroleum resources at this point in time have begun to be able to cope with the level of investment in education, infrastructure, job creation necessary to deal with this population growth. We talked about the youth bulge, and the figures are somewhat controversial, but when half the population is under 25 and you can at this point employ about 20 percent at most of the young men entering the labor force in the first year of leaving school throughout the region – and that is as true for petroleum economies as it is nonpetroleum economies – you have to worry.

    The exception of course is agriculture – except the whole trend in the economics of agriculture in the region is grossly distorted by water subsidies, state interference and the fact that basically more and more people are pushed off the land and into cities. The most glaring example of hyperurbanization is outside the area, but Saudi Arabia was about 8 percent urbanized in 1950, and it’s now over 85 percent. To talk about traditional societies under these conditions or stable structures is to simply ignore reality. And if you look at satellite photos of major cities in North Africa or in the region, you can see immediately large areas that are not served by meaningful urban infrastructure – power, water, sewers – and you can find areas where the school system is grossly underinvested. This is a key factor, although it is also true that education systems have not adapted to the point where there’s any clear correlation between education and employment. In fact, there seems to be a growing lack of correlation between university degrees and people getting anything like the job they will accept on an immediate basis and without several years of delay.

    There seems to be a growing lack of correlation between university degrees and people getting anything like the job they will accept on an immediate basis and without several years of delay. We also frankly – looking at some of this, need to understand where we are.

    We do not have good measure of most of the data on economics. The few cases we do have show that for nearly 20 years, the poor have been relatively frozen; the lower middle class has been pushed down in relative earning power. The middle class itself has been kept fairly constant and a small elite has gained more and more of the wealth. In short, GDP growth is irrelevant in terms of social stability, particularly if you take into account the number of young men who do not have real or productive jobs and the exclusion of women from the labor force.

    A metric we’ve played around with but do not have numbers on is something totally different from the sort of subsistence level of the economy. And a petro-state like Libya is 30 percent of the population at the subsistence level. That’s less than $2 a day.

    When you hear those figures, you have to be careful about economic growth and wealth. But another index is can you afford to get married, which affects both men and women, and can you get a house? And frankly, every year, the problem is getting worse – and the social pressure on families – because people do have parents – has grown.

    I think it’s also interesting to look at some of the data on the idea that oil states are wealthy. There are – Kuwait, the UAE and Qatar. Qatar is arguably one or second in global per-capita income. Algeria rates 128th, which is roughly the same as Gaza. When you look at Iran, it’s 100th. Iraq ranks 160th, which makes it one of the least supported countries in the world. Oman is 52nd. Yemen is 172nd.

    With statist economies, with this kind of interference, with poorer infrastructure, with weak governance, regardless of what happens, most of these revolutions are not going to succeed in meeting any of the basic expectations of many of the people who caused them in less than a decade, because it will take them half a decade at the minimum to create something approaching a competent elite and at least half a decade to move forward.

    Now, these are realities that are not going to be terribly popular with people who believe that you get instant democracy and miracles follow. But I think this is a good description of the region.

    Now, let me just close with another observation from being out in the region. A very sophisticated Kuwaiti businessman did not hand out a book on Arab politics. He handed out a book on the revolutions in 1848. Why, because most of them failed even when they appeared to succeed. Most of the regimes that did survive didn’t learn. Living standards – and this is one of the things people tend to forget – during that period of the Industrial Revolution actually dropped for more than a quarter of a century. And eventually, reality did take place. People did change. And real revolutions actually succeeded.

    I would say that some Kuwaiti businessman may have more insight into the future than a lot of American regional experts and political scientists.

    J. PETER PHAM: Thank you very much, Dr. Cordesman for those remarks and for reminding us of the importance of keeping ourselves grounded in reality.

    Turning now to Dr. Yonah Alexander, the director of the International Center for Terrorism Studies who speaks to us – pick up on those themes and talk about a very specific reality that faces us in this region.

    YONAH ALEXANDER: Thank you very much for inviting me. It is indeed a great pleasure to participate. Listening to our two colleagues here, it triggers a lot of questions. And hopefully, we can all discuss it a little bit later on. Particularly, what does interest me is the crisis of identity in the region in terms of loyalty to whom, which is really fundamental. But hopefully we can discuss it a little bit later on.

    I’d like to bring in some other dimension, particularly related to security concerns. Just in the interests of time – and we have another panelist – and hopefully we can have some discussion. First, I would like to bring to your attention a number of studies that we prepared in the past couple of years, which relates to the situation in the region now and, I think, if you are interested – it’s not a commercial; it’s not for sale. I would be delighted to share some of the studies with you, which again relates directly and indirectly to the situation now, the potential development.

    One is related to the refugees in Algeria. I think the Western Sahara issue – I’m talking about some of our studies in the past two, three years. So you’re welcome to have it. The other one relates to why the Maghreb matters, particularly related to the strategic threats – terrorism, insurgency and so forth – and the opportunities and the policy options for the United States. The third – (inaudible) – it’s about the rising threat from al-Qaida terrorism in North Africa and Western, Central Africa. Earlier this year, we had a report again on the consequences of terrorism based on a trip to the region.

    Then, one particular report that we had about Iran – involvement in Latin America and the Maghreb – and the link with the narcotrafficking in Latin America and the West Africa, which I hope we can discuss. And some of the articles we had in the NATO journal. So you are welcome to have this report. Again, it’s not for sale. And we would like to share it with you.

    Peter, if I may, to make – to save some time, can I distribute this? Is there anyone who will – OK, no, I can do this. (Inaudible) – materials so we can save a little bit of time on that.

    I have some other things for you anyway. OK.

    But what I would like to basically to do is to share again in the interests of time just a few ideas. One, basically, I think an idea that if you look at some observations by statesmen, I picked up Lord Salisbury who – British, as you know, statesman and foreign minister and all that. And he made some very profound observations when he said that if you believe that – if you believe basically the doctors, nothing is awesome. If you believe the theologians, nothing is innocent. If you believe the soldiers, nothing is safe. And as an academic, my own observation is to what he said that if you believe the academics, nothing is new under the sun.

    And again, in reference to what Tony said about the uncertainties, the only certainty obviously is uncertainty about trying to deal with this particular region. As a historical footnote that provides maybe a context in general to nothing is new, I think this month – month of June – marks the 97th anniversary of the assassination in Sarajevo that triggered or contributed to the outbreak of the First World War. And clearly, I think in all our studies over the years, it is evident that terrorism triggers war. And war triggers terrorism. And it is related to basically what is happening in the North African area. And I’ll come back to it.

    So this is in terms of the threats. Nothing is new. Another, I think, observation in terms of the response that I like to share with you – 27 years ago, I received a letter from a very prominent U.S. senator, who chaired the intelligence committee and so forth. Later on, he became the candidate for the presidency for the United States, Senator Barry Goldwater. And he said – and I quote, the only approach to terrorism, in my view, is to use strong, almost terrorist-type tactics against those initiate such action. And this in itself is not acceptable to the average American.

    In other words, at that time, he felt that, for example, assassination or targeted killing is not accepted and obviously today we see what is happening and particularly most recently the killing of bin Laden by the American commandoes and so forth. What I’m trying to say is that when we talk about counterterrorism, the question is what is the perception of the threat. And what tools, what means do you have to deal with that? And it relates obviously to North Africa.

    But in general, if I may, just one second to provide a broader perspective to the security concerns in the region – before the Arab Spring, if you will – and the post-Arab Spring. For example, the theological and political radicalization in the area, the increase of propaganda and psychological warfare, the violations of human rights, the internal political and economic dislocations, the organized – the increase of organized crime, the narcotrafficking, for example; the human trafficking; the weapons proliferation and so forth. State-sponsored terrorism is still alive and well. And we can discuss it.

    We mentioned, for example, Libya. I want to stress that one of the grave concerns is the use of mercenaries in the region from the entire area – we can go into some details and perhaps my colleagues will deal with that. But at any rate, I think in terms of Libya itself and what concerns NATO. And I’m saying this because I work with academically – with some people in NATO who are concerned not only what’s happening in North Africa, about what’s happening in Latin America and the role of Iran in particular.

    Then, the question of piracy and maritime threats, the development of weapons of mass destruction or the resort of the weapons of mass destructions – and I remind not only Iran but aspiring nations and the al-Qaida ambitions in this area. The employing of the energy weapon by some of the states in the region and all the question of regional destabilization that was discussed previously.

    The other important point that I think we have to keep in mind in terms of the region, which is a permanent fixture, I think, of strategic threat is basically the network, the informal and formal network relationships among the various terrorist groups in the region and beyond the region. And I’m going to refer specifically to the region in a few minutes, meaning what kind of relationships – and the relationships include, for example, the theological and the theological affinities, the organizational assistance, the propaganda that I mentioned before, financial assistance, recruitment in the region, sharing of intelligence, supply of weapons, the trafficking that I mentioned before and operational activities. I think this is a permanent fixture in the region itself and would continue and in the coming months and years.

    Now again, we distributed some information, some data up to, I think, this month in May. You can see for yourself. I don’t have to go into details. But to indicate that the most turbulent area is Algeria. And if there is no stability in Algeria, there is not going to be stability in the region itself because of the impact. Usually when we talk about the Arab Spring, somehow, you know, Algeria is not being considered from that perspective. And then the – (inaudible) – area.

    So you can see that there is an increase actually – we tried to monitor the situation in the region, particularly after 9/11. And there is an increase over 500 percent in the past couple of years. And what concerns strategies – and I can tell you again from personal experience in the region and other regions – that there is a concern about the so-called hotspot – the linkages, the interregional linkages all the way from Asia, the Middle East itself into North Africa and then Latin America and Europe.

    So from the strategic point of view, I think we have to ponder the potential threats not only to the region itself and the debate whether Morocco or some of the other countries that are in North Africa or the Greater Middle East, whatever. I think this is a fiction because we don’t deal any longer with boundaries. In some sense, yes; in other sense, we live in a different kind of a world and we have to be adjusting to this kind of reality. In other words, the entire world is in the same boat. If we have instability in one region, it does affect the other region.

    So therefore, it is in the interest of the United States, its friends and allies around the world to find some sort of solutions, strategic, economic and social. What I’m trying to say is that it’s not only the question of the hard power but it is also the question of the soft power. And hopefully, we can discuss what are some of the specific recommendations that we can offer to the policy-makers, not only in the United States but around the world. So I’m going to stop at this point.

    J. PETER PHAM: Thank you very much, Dr. Alexander. And now we turn to Ambassador Ed Gabriel, the former U.S. ambassador to Morocco. Ambassador Gabriel?

    EDWARD GABRIEL: Thank you, Peter. And thank you to the Atlantic Council. This morning’s presentations remind me of a story I once heard about Ronald Reagan who, as a young man, came home early from school one day and they had – the parents were trying to grow grass on the lawn and had horse manure all over the lawn. And he ran inside the house and he said, where’s the pony? My job today is to associate myself with my three colleagues, Yonah, Tony and Geoffrey and try to find a pony through this whole mess that we’ve been talking about this morning.

    I’d like to do that by associating myself with the Moroccan experience that I’ve had over the last almost 15 years and talk to you about what this could mean for American foreign policy under the circumstances that we’ve seen with the Arab Spring. Foreign minister of Morocco recently remarked in March that he can’t be sure that the Arab Spring will produce a bright summer or a dark winter. We’ve been talking about that today. And we know that there is change of seismic proportions going on in the Arab world. We’ve talked about Tunisia and Egypt a lot today. Yemen, Libya and Syria are bound to be faced with further turmoil and unclear outcomes.

    That puts up five countries for discussion that we’ve been talking about through this Arab Spring. And although we’re hopeful about what this all means in terms of U.S. foreign policy, stability in the region and the hopes and dreams of people, we really can’t be sure that this is going to be for the better or worse. And we have a very important stake on what happens in this part of the world. And so it’s going to be very important to us to follow these matters closely and hopefully have some influence.

    Geoffrey said earlier and I agree that we’ve been taken by surprise. We’ve been caught off guard. It doesn’t speak very highly in my opinion about our foreign policy apparatus. In the past, maybe we couldn’t have predicted it. It was like the collapse of the Soviet Union in the late ’80s. And despite the steady signs of discontent in this region, none of us seems to have seen this coming, not at least in the way it has. But history has shown us that once again, popular discontent, left to simmer, is going to boil over.

    America has, of course, traditionally been in a debate in making foreign policy and trying to measure its values against its interests. In the Middle East, we have decided to enact policies in the last several decades, one that puts our interests and the issue of stability over what we considered values. And the Arab Spring has kind of taught us that perhaps we were wrong. Maybe in this case, although we focused on our interests and we focused on stability and we focused on jobs, maybe a lot of this came down to the value of freedom, which we didn’t predict.

    The question now is what can we do about it? And I was a little encouraged by the G-8 summit in France last week when they put this at the top of their agenda and the talk of – their talk to assist nations of the region to meet challenges that have led to these circumstances. Fortunately, some countries recognize the need for change and offer us perhaps an opportunity to help negotiate a better way forward if we’re prepared to also help them and we see that reliable partners in the region are going to be important to us.

    We must understand the discontent that brought down the governments of Egypt and Tunisia and have other nations in the region under immediate duress that we’ve talked about are just not confined to these five countries that we often talk about. Others are going to face similar issues and similar consequences unless they are able to avoid mistakes that brought down Egypt and Tunisia and will surely affect others in the region.

    Obviously, I’m pointing to the country that I know best and that is Morocco. As many of you know, I was ambassador to Morocco under President Clinton and still represent the country’s interest in the U.S. today. Over the past dozen years, we’ve worked very hard to work on our interests with Morocco and we have found that Morocco’s interests and Morocco’s values happen to be our interests and our values. And that’s where our interests and values have converged into what I now call our interests. Our values are our interests there.

    Much has been said in the international press about the Moroccan exception. And Geoffrey talked about it. And I would like to associate myself with your comments that I’ve often heard about – I’m asked, what is Morocco like? And you can’t quite say it’s Arab. You can’t quite say it’s African. It’s not French. It’s not Spanish. It’s Moroccan. It’s a very hard thing to try to describe to people.

    But there is some association to the region. Ask any Moroccan what they think about Palestine and the Palestinian problem and there is going to be a consistent Arab view. There is also an ‘Arabness’ about their feelings towards the Arab Spring. So there is some connection there, although I generally agree with you.

    But I think the first thing that helped Morocco adjust to sweeping demands in North Africa is that it realized more than two decades ago that such changes were coming. They were inevitable in that these changes needed to be embraced for the good of the country rather than to be resisted. I happened to have been there at a very interesting time under the reign of King Hassan when the opposition government of the Yousif USFP government came in. King Hassan died and King Mohhamed took over. So I got to see this up close and personal.

    Morocco didn’t set itself on a course of political and social reform because the West was pushing them to do it nor because streets were erupting. Morocco began this process and has pushed forward with great determination during the past two decades because Morocco very clearly understood that participatory politics, social equity and economic opportunity for all its citizens was very necessary for its future and not a luxury or something to be feared.

    Some may say the reforms didn’t happen fast enough. Some may say it happened too fast. I think that’s a legitimate debate that we should have. But I think by any objective examination, when you check the record, Morocco has made a decision for democracy and reform and change. The king himself said there’s no turning back. For us, we’ve made a strategic decision.

    Nevertheless, Morocco faces the same demographic pressures and growing frustration of the youth about the future as the rest of the region as Tony has talked about. And has less wealth than a lot of the other countries. So there are legitimate demands placed upon Morocco that it’s going to have to deal with.

    It’s fundamental in our interest to the United States that Arab nations that have a clear track record like Morocco and the experience of pushing forward reforms become our reliable partners in the region. And we must begin to think about going beyond the immediate emergencies of these five countries that we’re talking about and looking at other countries like Morocco where we can join in partnership.

    Certainly, we’re going to have to deal with Egypt and Tunisia and debt relief for them is important. And while crisis in Yemen and Libya and Syria are still in full swing, we’re going to have to get past our crisis management mode if we’re ever going to be in the projecting mode in the public policy mode of knowing what’s going on in the region and being able to predict it and make good U.S. foreign policy. Otherwise, there’s going to be no choice for us other than playing catch-up in the region and always being behind the 8-ball.

    And so, we have to look at a new policy in my opinion. And I happen to think that Morocco and the experience it went through and how we analyzed it this spring and how it’s holding up relatively compared to other places is a case in point of what we should do.

    I want to propose to you some actions that we proposed in 2003 under a CSIS study, which I chaired and directed, which addresses this issue still today except it’s almost 10 years later. And that is that I would suggest the development of the Arab Growth and Development Partnership Initiative – that’s what we called it in 2003 – to help the U.S. and its prospective Arab partners to set and meet long-term – and I want to underscore long-term – objectives. The initiative would tailor the right mix of strategies with country needs that we consider progressive partners, so working with progressive partners. It would encompass the implementation of a long-term strategy with those countries that have undertaken reform seriously in the region, like Jordan, like Morocco, and are willing to partner with us on a new way of doing business in the region and meeting defined, understandable requirements.

    As part of this strategy, long-term strategy, I propose the establishment of a formal dialogue bilaterally, maybe through a commission that commit to mutual interest and goals and conduct the work over time, not just due to emergencies that come up like we are faced with now. The effort can begin immediately. It doesn’t need presidential direction and it doesn’t need legislation.

    Such an effort was addressed by Secretary Clinton last month in her meeting with Foreign Minister Taieb Fassi Fihri of Morocco in which they agreed on a new structure around a strategic dialogue process. Such an effort should address regional stability, security, of course, which are the traditional issues that we get involved with but also really consider in a more strategic way, economic and political reforms including trade, aid and commerce. And aid and trade, in our opinion, should be positively conditioned – should be conditioned on a positive basis mutually together as an incentive for meeting common interests and goals.

    Secondly, as part of this, embassies should be empowered to carry out the agenda for the bilateral dialogues because they are the only entity that has the bilateral relationship at heart. And we don’t get it at the State Department. We keep saying this has to go up the ladder. But no one cares bilaterally other than the desk officer about the bilateral relationship. So strategic dialogues have to empower the embassies. This long-term strategic kind of looking together at the future and bilaterally, combined with an empowered embassy will have dual results of creating incentives to speed up reforms and cooperative strategic efforts as well as preparing the U.S. to better predict political changes in the future, thus reducing the kinds of surprises we saw with the Arab Spring.

    Let’s face it: If you can see around the corner, you can predict these things. Well, if you live on the block, you can see around that corner a little better. And those embassies are on that block. And we’ve got to really relook at the way in which we treat and deal with embassies.

    The second part of this recommendation deals with political, economic and social reforms, which are often difficult but are going to be essential to the Arab world. Remember, this was said in 2003 not this spring. Yet right now there is a central initiative – there is no central initiative that is ambitious to face this region. When you think about what America is doing compared to what is happening, you have to ask yourself whether or not we get it yet. We were proposing at that time – and would continue to propose – a presidential advisory board on Arab growth and development to help determine and oversee the right package of trade aid, debt relief, other resources to facilitate long-term improvements in the regions.

    We do have programs. We do have policies. But they come up in an emergency fashion and they don’t really deal with the long-term nature of where we’re headed with the region and bilaterally with countries. This is something that the president could do. He could appoint – have six appointments himself and then plus ask the minority and majority leaders of the House and Senate to add representative so you can make this bilateral in nature. We have to begin to think beyond emergencies and think more long term.

    Third part of this recommendation is investing in the future leadership of Arab leaders. And for that, we are recommending a new independent fund that would encourage and greatly add to education, business and academic exchanges of all kinds called the Arab Partnership Foundation. It would not be part of government. It would be a 509(a)(1) corporation, which would foster education, entrepreneurship and reforms among a new generation of Arab leaders, modeled after the British Council or the Asia Foundation.

    So in summary, what I was trying to say this morning is we must go beyond the immediate crisis, which is taking up all of our policy-makers’ time concerning our intervention in Tunisia, Egypt, Libya, Syria and Yemen – and probably more to come, unfortunately or fortunately. If we don’t also start investing, however, in our friends who are doing the right thing like Morocco and opening up opportunities to exchange ideas, opportunities and long-term thinking, America will forever be prone to intervening in crisis without future thinking in the region.

    And the ultimate question is whether or not we’re going to truly start looking around the corner. I stole that from President Obama’s famous speech on the campaign trail. And hopefully, looking around the corner, as he once said, will help us avoid larger issues further down the road.

    J. PETER PHAM: Thank you. Thank you, Ambassador Gabriel, and thank you to our distinguished panelists. I realize we’ve gone a little bit over our scheduled time, but we’ll try to make that up. And I do want to allow for some questions from the audience, and because of our time limitations, I would please urge you to make it a question and not a statement or a speech. And please identify yourself.

    Q: Thank you for that. Those were great presentations. I’m Commander Billy Bushman, Joint Staff, J-5, Libya desk officer. I also handle Morocco, Tunisia, Algeria and the Sahel. So we’re pretty busy, but one question I have for the panel is – particularly for you, Ambassador, as you said, we need to look at how to empower the country teams in the various countries. But we’re trying to look at what this means and how and if we should change the way DOD does engagement in that region based on the Arab Spring. What does this mean for us? And so, you know, in particular to your comment, how do we empower the DATT to gain more access to help us have more knowledge of these incidents? And so should we change the way we’re doing engagement, whether it’s less FMF or more – and more IMET going in line with the education and the partnerships? Thank you.

    J. PETER PHAM: I think – actually I think Tony’s going to have something to say that and I would, too. Tony, do you want to –

    ANTHONY CORDESMAN: I think within the resources we have available, this is an issue we really need to remember, because we already have put in an FY 2012 budget submission, which is going to cut those resources. And the guidance for 2013, which you may already have seen, is a great deal more draconian. In other words, you are cutting your resources in direct proportion to the increase in the need for them.

    But what I would say is, within the problems we face, there are areas where FMF could ease the economic situation in a few countries like Morocco. The IMET program is very inexpensive and has produced consistently good results in introducing foreign military officers to the kind of civil military structures that are going to be critical for success. But I frankly do not believe that there is more of a margin or need for arms sales. I don’t think we need larger use – (inaudible). What I do think is missing that has begun to be pioneered in Saudi Arabia and a few other areas is trying to provide that kind of advisory effort to deal with the internal security and counterterrorism forces. The problems is, if that is not a Department of Defense mission, the State Department has 50 years of failure in trying to come to grips with police training. Its example in Iraq and Afghanistan is all too clear. And the question is, is the Department of Defense at this point in time going to be able to deal with that? Because it is not so much the competence of people at State: It is the fact there aren’t any people at State. The entire mission is turned over the contractors. And to be honest, contracting in this area has a reputation roughly equivalent to a nine-month-old carp. The smell is, shall we say, totally memorable.

    EDWARD GABRIEL: I would – I would like to say one thing. It’s probably controversial. But as long as the State Department doesn’t have the resources and funds, we need DOD money for nation building. Whether we like to hear it or not, we need to find the resources wherever we can find it to serve the mission that we’re about.

    The second thing I would say is, again, if the embassy was empowered correctly, it’s that ambassador who can bring the country team together, including the DATT, for a country-wide mission. There shouldn’t be functional efforts in the country, DATT does one thing, AID does another, USIA does another, whatever, public diplomacy does another. There’s a CEO supposedly in that country. There should be a strategy. They do strategies now at the State Department; they laugh at them and put them on the shelf. They do have a strategic planning process. They don’t use them. But if there was and the CEO of that country was working correctly, the DATT would be an integrated part of solving the problems that the United States has set for its relationship in that country.

    J. PETER PHAM: Do we – and do we have a question from – (inaudible)? OK. We’ll take one more and then we’ll have a more extended period of questions after the next panel.

    Q: First of all, I want to thank you, Peter. I’m Bernadette Paolo, and I’m the president of the Africa Society, and I worked on the Committee on Foreign Affairs, on the Maghreb specifically, many years ago.

    My question – and I’d like, Dr. Cordesman, I’d like for you to answer this, in addition to other panelists – is that we have a dilemma in that we’re naturally concerned about our national security interests and tend to gravitate toward leaders of countries that, you know, have to share our values. At the same time, we’ve made friends with people who are so unpopular with their own citizenries. So how do we become perceived as an even-handed broker in North Africa and the Middle East, given the conditions that are unfolding? Thank you.

    ANTHONY CORDESMAN: Well, the answer is very simple. We don’t. Frankly, this gets back to the dual-standards issue, which generally gets centered around the Arab-Israeli issue. We’re going to have not only dual standards but multiple standards indefinitely. We act in our natural interests and we do not have an infinite set of good choices, so we take the best choice that we have at a given time.

    And here, quite frankly, we have governments that are likely to remain in office. Morocco is a case in point. It’s not clear that the Gulf states are states where we can have that much influence. When we come down to the cases which are radically unstable, we look at Egypt, Tunisia, we may be able to do some things – although debt forgiveness is scarcely going to provide the kind of stable stability that Egypt needs. But what choice do we make? Until you have an election, until you see what the election produces – and if Iraq is any model, you can have an election which, what is it, nearly a year into the election has still not produced a government.

    These are uncertainties we’re going to have to deal with on an opportunistic basis, because there simply is not going to be a Saladin democratically elected to deal with in most of these states, and I think we have to get used to that fact. And we do have, as Ed has suggested, deal with this country by country and deal with the specific conditions in those countries as revolutions evolve, often unpleasantly, because that’s what most revolutions tend to do during their first couple of years, if not longer. This is not the kind of hope or aspiration that – Ed said we should find a pony, but children have been looking for ponies for a very long time, and very few of them have ever found them.

    J. PETER PHAM: Just as we wrap if, Geoff, the other panels want to add a concluding remarks. Geoff.

    GEOFF  PORTER: Yeah, I just – I want to return to – in answer to both of the questions that we received, just return to, you know, my initial comments, which is simply that, I mean, and I guess this is my own sort of methodological bias – sense that, you know, each country should be approached according to its own conditions and circumstances. And, you know, my remit actually corresponds almost exactly to the remit that was mentioned earlier about North Africa and the Sahel states, and the degrees to which the U.S. can engage with those countries depends on the willingness of the governments to engage with the U.S. And each of them is distinct from the other. Likewise, the ability of the U.S. to engage even-handedly with the countries of the region depends upon the nature of the governments in the region. And I do want to echo Tony’s comments about the ugliness and messiness of revolutions, and I entirely agree that it’s going to be a fairly messy region for some time to come, perhaps with the exception of Morocco.

    YONAH ALEXANDER: Yeah. I understand fully why the focus is on what the United States should do and whether State Department or Defense Department – clearly the leadership of the United States is very critical. But when we deal with the security issues and the consequences, for example, in Europe, how can we deal with this unilaterally without the full cooperation with the Europeans? After all, if there is no stability in the North Africa or the Maghreb area or the Middle East, there is no stability in Europe.

    In addition to the European countries individually, the collective, I think, response – and we’ve seen what NATO was doing or – and is doing now in Libya. This is a case in point. How come they’re involved? In other words, from a regional security provider, they’re becoming a global security provider. As I said before, they’re even interested what’s happening in Latin America. So what I’m trying to say is that there is no unilateral response that can be effective vis-à-vis the security, the economics, social development in that region without involvement – the full partnership of the Europeans, NATO, OSCE, of the United Nations and so on, because, fundamentally, when you said before that we were totally surprised – well, in some ways we were surprised, but we were surprised about the surprise because the writing on the wall was there for a very long time.

    In fact, the studies that – you know, that we tried to indicate as academics, we were very clear that you must have economic and social development in order to diffuse some of the grievances – I mean the unemployment and so on. I had the opportunity to work at the United Nations at some point in my life, economic/social development. And I remember very vividly this Asian proverb: If you give a man a fish, he will eat for the day. If you teach him how to fish, he will live for the rest of his life. That’s what it is all about: Technical assistance, support, not only what Tony was talking about, the counterterrorism – always this is the first responsibility of the police and the intelligence and the military and so on – but we cannot stop there. So economic/social development is very critical. And we see what’s happening there with the revolution.

    J. PETER PHAM: OK. Well, thank you. Please join me in thanking our distinguished panels for their remarks and – (applause).

    (END)

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  • Panel 2: "The Way Forward? The Moroccan Model and Imperatives for U.S. Engagement" Transcript

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    THE ATLANTIC COUNCIL OF THE UNITED STATES

    UNCERTAIN FORECAST IN NORTH AFRICA: PREVENTING THE “ARAB SPRING” FROM BECOMING THE “SEASON OF DISCONTENT?”

    PANEL DISCUSSION II: “THE WAY FORWARD? THE MOROCCAN MODEL AND IMPERATIVES FOR U.S. ENGAGEMENT”

    WEDNESDAY, JUNE 1, 2011
    11:00 AM – 12:00 PM
    WASHINGTON, D.C.

    WELCOME AND MODERATOR:
    J. PETER PHAM, DIRECTOR, MICHAEL S. ANSARI AFRICA CENTER, ACUS

    SPEAKERS:
    ANOUAR BOUKHARS, ASSISTANT PROFESSOR OF INTERNATIONAL RELATIONS, MCDANIEL COLLEGE

    GARY CLYDE HUFBAUER, REGINALD JONES SENIOR FELLOW, PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS

    CLAUDE SALHANI, FORMER EDITOR, MIDDLE EAST TIME, FORMER INTERNATIONAL EDITOR, UNITED PRESS INTERNATIONAL

    Transcript by
    Federal News Service
    Washington, D.C.

    J. PETER PHAM: Welcome to the second panel which, now that we’ve discussed some of the issues more broadly of the Arab Spring and the challenges faced, as well as perhaps the case of the Moroccan exception made by Ambassador Gabriel but certainly echoed by the other panelists, to drill down on that case where perhaps U.S. engagement, European engagement, trans-Atlantic engagement might have an effect – the case of Morocco – as the way – the way forward, the Moroccan model and some of the imperatives for that engagement.

    I’m very pleased to have with me this panel this morning. We’ll begin with Claude Salhani. He’s the former editor of the Middle East Times, former international editor of United Press International and a very prolific author on all things in the region and currently at work on yet another book which probably will join the significant contributions he’s already made.

    We’re also very pleased to have this morning a very good friend. Dr. Anouar Boukhars now much closer to Washington as assistant professor of international relations at McDaniel College, and a former visiting fellow at the Brookings Doha Center. Anouar just returned literally less than 24 hours ago from the Gulf, so we are very appreciative of his making the effort to be here today. Anouar and I have known each other for a number of years, and he’s authored a very good volume that was just published last year on – a little bit ahead of its time on democratization in Morocco; should have timed the timing of the release for the spring and you could have done all the talk shows. But Anouar and I met a number of years ago at one of those nondescript buildings on the other side of the Potomac where they run loud rackets in the background and make you surrender your mobile phones on the way in. And we had a very interesting discussion, and I’m glad we’ve continued that over the years.

    And then finally, Dr. Gary Hufbauer, currently the Reginald Jones senior fellow at the Peterson Institute for International Economics, a very distinguished CV that’s there in the program, and one of the great experts on the economy, political economy, and the regionalization issues facing in particular the Maghreb region. His book – just tell you that he led on that certainly – remains one that’s frequently cited by many other authors, yours truly included, on that topic. So we’re delighted that he’s able to join, as I know leaving later today, so coming and going. So we’re very grateful to the panel.

    So without further ado, Claude.

    CLAUDE SALHANI: Thank you very much for inviting me here. I must say, I am indeed honored to be here. And this is a difficult panel to kick off seeing what we’re – just heard. The quality of the previous panel makes, I think, our life a little bit more challenging. Having said that, I had to change what I was going to say because it has all been said already in the previous panel. So I was furiously taking notes and trying to think what to – what was missing from this last panel. And I think the question that we can ask ourselves is, why this change, this sudden change of pace in the Arab world? The Arab world that has been stagnant for so long all of a sudden is changing.

    Let me start off with a little anecdote about a question I was asked. When my first book came out, I was on a radio show here in Washington. And the interviewer said to me, Claude, when do you think – first of all, will there be peace between the Arabs and the Israelis, and what will it take for that peace to happen? And you have 30 seconds before commercial break. (Laughter.) So I said – thinking fast, I said, well, yes, I do believe there will be peace, because I’m the perpetual optimist. But there will be peace when the antagonists develop more love for their children than hate for their enemies. And he thought that was a good quote and we went to commercial break, and that was the end of it.

    Now, let’s ask ourselves the same question about why this change in the Arab world. What brought about this sudden change? And I think that basically one issue keeps coming to the surface is the disappearance – the gradual disappearance of fear amongst the people. The people are so fed up that they are no longer frightened of the security imperatives. They are no longer frightened of the secret police. They are no longer frightened of being tortured and killed.

    See what’s happening in Syria for example, what happened in Tunisia, in Egypt, in Bahrain, in Yemen. People are just so fed up; they want change, that they have almost taken a step beyond fear. And this frightens the governments more than anything else, because fear was the one tool they had to fight the people. That tool has disappeared. And I think that’s very important to keep in mind.

    Now, when we talk about the Arab Spring, there is – there are two sides, as far as I’m concerned, to the Arab Spring. First, there’s the disconnect between the old generation and the young generation. There was a joke going around the Internet amongst Lebanese users of Facebook about a Syrian opposition advocate who was stopped at a checkpoint and the soldier ask him – asked him, do you have Facebook? And he says, no, I don’t have Facebook. He says, OK, then you can go. And while this may be an anecdote, it may very well be true, because this is the level of disconnect that you’re dealing between the old generation and the new generation, and that brings us to the fact that the new generation has lost the fear.

    Now, two things again that come into play in this Arab Spring: One, I believe, is a genuine result of people losing that fear and wanting change, and the other one is a continuation of old politics. And if we look at what happened in Tunisia and Egypt, I think that’s a genuine reaction of the people who want to change. When we look at what’s happening in Yemen and Bahrain, I believe it’s an influence of Iran, through the Shia population in that part of the world, trying to impose its politics on that region. I think it’s two very different issues we’re dealing with, one in North Africa, one in the Arabian Peninsula. And they should be treated very differently.

    Where does Morocco come into all of this? Well, Morocco is part of the system. If one is to believe in the systems theory, that everything and everyone is part of a system, Morocco is part of the Arab system, it’s part of the North African system, it’s part of the Muslim system. And when one element in the system is touched, it affects the rest of a system.

    Now, that could be good, that could be bad, depending on how the Moroccans themselves react. In general, it’s been positive. There has been some shall we say less than positive aspects in the way that some of the demonstrations have been treated in Morocco. But we’re still a long, long way from what’s been happening in other parts of the Arab world. I think if we understand that, we come a long way in understanding what’s going on in the region. The military, again, play a big role in this Arab Spring. The fact that the Tunisians and the Egyptians wouldn’t join in putting down their own people and the difference in other parts of the Arab world where the military has participated in putting down demonstrations: That also plays a major role in what’s going on.

    So I know – I know I was asked to keep it brief, and I will just add one more thing that I think is important in this development in the Arab world, is one of the reasons of this Arab Spring idea is also the fact that the Arab world has a lack of leadership at the moment and – which is one of the reasons why the Turkish prime minister, for example, and the Iranian president – non-Arabs – have become so popular in the Arab world. Mr. Erdogan on a – on recent visit – recent, let’s say, six months ago, I think – visit to Syria was greeted in a way that even made President Bashar Assad comment that he was more popular than – the Turkish prime minister was more popular than the Syrian president. I think today would be a totally different scenario. But there was that lack of leadership in the Arab world that led to, first, the rise of Islamism and then second – the second reaction is the beginning of a new change – takes me back to the disappearance of fear and the emergence of this new system generation – call it what you will – which I think it’s too early to really know where it’s going to take us. But it’s certainly going to introduce changes in the region. Thank you, Peter.

    J. PETER PHAM: Thank you very much, Claude, for those remarks and helping once again set the context for our discussions.

    And I’ll turn the floor over to Anouar.

    ANOUAR BOUKHARS: Thanks, Peter, and thanks for the Atlantic Council. Keen observers of the region have been warning us for years now that the Arab authoritarian regimes are faced with two choices, for years now: reform or you’ll rot internally until you’re swept away. The same choices face these regimes today. Those who have decided to dug in and try to reassert their authoritarian controls will find only temporary reprieve. Experience tells us that regimes who have lost their legitimacy cannot survive. And the legitimacy, as you know, of the Syrian, Libyan and Yemeni dictators is totally spent, therefore it’s only a matter of time before they are overthrown – if not now, then in the coming years.

    In Morocco, the monarchy has managed to weather the storm because the regime decided to spend its legitimacy on measured political reform. The Moroccan monarchy has always distinguished itself by – historically by its flexibility, an ability to reinvent itself. When under pressure, it reshaped its discourse and reorganized its governance practices. When in the early 1990s, for example, Ben Ali of Tunisia was brutalizing the Islamist movement and pulverizing the political landscape, and the Algerian generals decided to hijack the democratic process, King Hassan responded to the real prospects of unrest, which arose at the time from an economy in crisis and popular resentment against his support for the American-led Gulf War in 1991, by installing a controlled liberalization process. Unlike his neighbors, he relaxed restrictive controls on civil society activity, and he redesigned the political rules of the game.

    In 1998, as probably you know, that process culminated in what was then described as a historic alternation of power, when a long opponent of the king, Youssoufi, was tasked with heading an opposition-led government. That same year, an Islamist party was integrated in parliament. At his death, King Hassan was transformed from being an enlightened authoritarian monarch into a visionary reformer who cleverly fended off threats to his throne and set the country on a liberalizing trajectory.

    Today, in these trialing times, the monarchy once again faces serious challenges unless it quickly readjusts to the dramatic changes sweeping the Arab world. In the face of the 20 of February demonstrations King Mohammad VI reacted flexibly and intelligently, and he traced a no victor, no vanquished trajectory. Unlike the win or lose outcomes we’re seeing in Libya, Yemen and Syria, the monarch acted proactively and proposed to cede significant legislative power while retaining considerable executive power.

    In a dramatic speech March 9, he implicitly acknowledged that the rules of the game that governed the country have reached the end of life. The 1998 political bargain between the monarchy and the opposition has reached its limits with the protagonists unwilling or incapable to undertake the necessary political reforms to bring accountability, transparency and credibility to the country’s elected institutions. Today, only political reforms can pacify the people, because remember – and this was touched on on the previous panels – the explosions of rage and frustration that set neighboring Tunisia ablaze has been building in Morocco over time. The only difference is the legitimacy of the rulers.

    There are many parallels between Morocco and Tunisia, said Muhammad Tuzi, who was – who was recently appointed by the king to the commission entrusted with revising the constitution. That’s what he said. They both have the same demographic structures, quote, “and both suffer from serious governance problems.” Like in Tunisia, the blend of technocratic rule and centralization of economic policymaking has not led to equitable economic development. There is economic growth – significant, I think, economic growth – but it has not led to equitable economic development.

    Large scale investment projects have been beneficial to the country at the macroeconomic level, but at that the same time they have not significantly reduced the economic disparities between regions and within regions. Marrakesh and Agadir is a case in point. Both received substantial amounts of investments, tourism investment, but both rank near the bottom of poverty scales. Out of 16 regions – but this is changing, by the way – (inaudible) – less than 16 – Marrakesh ranks 12 and Agadir ranks 11, leaving many to question the impact of tourism and the failure of the benefits of investment to trickle down, at least not yet, to the majority of the people.

    So to wrap it up, reform efforts that have been engaged by King Muhammad VI, and previously by his father, they have enhanced the legitimacy of the monarchy, and they have strengthened the king’s campaign to ease social pressures on the population. The danger, however, has always been that political reforms have lagged behind socioeconomic modernization. Right? The focus was on socioeconomic modernization.

    Samuel Huntington warned us that instability are most, quote, “likely to occur in societies which have experienced some social and economic development and where the processes of political modernization and political development have lagged behind.”

    So the kingdom of Morocco faces the same typical dilemma that every modernizing state grapples with – and Morocco is a modernizing state – which is you provide a glimpse of what modernity has to offer, but then you have trouble to fulfill wholly and to deliver fully that promise. As theory and history – political scientists here knows – demonstrates over and over again, socioeconomic liberalization processes, they unleash popular expectations of change which often quickly outstrip what the regime can or is willing to do. So put succinctly, revolts are a product of increasing promises to the common man while failing to fulfill them.

    And always remember, Morocco is not a stranger to social protests, for example. Protest movements driven by unemployed associations have been going on for years now. The only difference between Morocco and Tunisia is that these locally based protests did not find immediate echoes in other areas of the country. That’s why the king’s speech was extremely important, extremely significant in March 9, because his quick reaction, right, proactive reaction to the fast-developing events regionally and nationally is a clear testament to the monarch’s sound judgment.

    As one scholar said, today, the two most effective vaccines against democratic contagions are two things. First, there’s the rentier effect, money, the Gulf countries, with the exception of Bahrain; and second, the legitimacy of the political system. In terms of the legitimacy factor, Morocco, as we all know, the monarchy enjoys considerable moral authority and political legitimacy, and that’s what has enabled the country to ride out the current epidemic protests.

    So unlike previous promises, the king in March 9, he set out a clear timetable for enshrining the separations of powers, the independence of the judiciary and parameters for the decentralization in the constitution. He also allowed protests to proceed largely unhindered, with few exceptions as happened in the last few weeks. He freed political prisoners, he empowered the National Human Rights Council and the Competition Council with additional – (word inaudible). These reforms were carefully considered to meet the most pressing demands of the Arab Spring, if you want to call it, which is to tackle the major problems of corruption – and Morocco does have that – the lack of accountability and impunity for some governmental officials.

    So the king’s announced reforms will not transform the nature of monarchial powers, right, but they will pave the way for an evolution towards a better equilibrium between the king and other branches of government. If such peaceful, democratic transition that the king has announced in his March speech, March 9 speech, proceeds, that event, if those reforms are translated, would be as seminal as the extraordinary revolutions in Tunisia and Egypt. The Moroccan monarchy would once again be a powerful model to other monarchies.

    Remember, after the king’s speech in March 9, we heard some rumblings in Jordan asking for the same thing, asking for their monarch to follow in the shoes of King Mohammed VI. So it’s important that Morocco’s friends in the West, especially the United States, support this very important transition that the country is engaged in by offering economic incentives for quickly promoting programs that prioritize the people’s demands. These are rule of law, social justice and job creation.

    There will be a resistance to change in Morocco within some quarters in the corridors of power. Remember, the keepers of the status quo – there are some entrenched elite which they applaud the king’s boldness, but at the same time they work to derail any meaningful democratic change from taking root. If this democratic transition takes place, there will be a lot of losers, right, especially at the top. And we should expect that there will be resistance to the changes that the monarch has announced, and they will be unveiled very soon.

    So if political reforms are not implemented quickly and the tense social climate is not tempered, the risk of destabilization cannot be overruled. That’s why it was heartening to see the speech in March 9. And we are all looking forward to unveiling these – from what I heard – the news that it’s ready. And the draft is being circulated as we speak, new constitution. And I’ll stop right there. Thank you very much.

    J. PETER PHAM: Thank you, Anouar.

    And to round us out with the rounding of the dismal – but very necessary – science of economics, Dr. Gary Hufbauer.

    GARY HUFBAUER: Well, thanks very much, Peter. And since I’m going to Casablanca this evening for a program that’s organized by OCP for Moroccan government officials and business executives, I very much appreciate the tutorial you put on for me.

    One can question Karl Marx’s contribution to economic analysis, but one thing he did was to put economic determinism front and center in my profession, and in that respect, I’m one of his disciples. So let me emphasize the economic side of the story.

    Morocco is in many respects the best of the MENA countries, but it is just not good enough. And you can contrast, as Tony Cordesman did, the developments in MENA generally, but let’s take Morocco specifically, with East Asia. And I think you all know the numbers, but, I mean, Korea’s the outstanding country in East Asia. You can’t quite see this chart. But, you know, back in 1960, Korea had twice the per capita income of Morocco. There’s Korea, Morocco’s still down here; it’s now nine times.

    East Asia is an area of autocratic governments. I’ve done a fair amount of work in East Asia. They’ve only become democratic recently. But had they had – they’ve had coups, but have they had revolutions such as we’re seeing now in North Africa and the Middle East? And the answer is no. And I think the big reason is that East Asia has delivered growth and jobs and prosperity to the people in a way that the MENA region has not and nor has Jordan and many of the other countries in the area.

    So what are the – let me quickly and very quickly go over some of the problems in Morocco and maybe some possible economic answers. By one classification, Morocco is a stage-two country where you have a three-stage kind of trilogy. And I won’t go into the details, but examples of stage-one countries are Ghana, Honduras, Bangladesh, Tajikistan. Examples of stage-two countries are Guatemala, Morocco, Sri Lanka. And then you go up to countries moving from stage two to stage three, and you have, you know, Estonia, Hungary, Taiwan, China.
    Now, amongst – compared with its peers in just the stage two – so that’s not all countries, just its own peers in the stage two – Morocco looks pretty good on macroeconomics – in fact, very good in macroeconomics – by which I mean inflation, fiscal position, exchange rate stability. It actually also looks pretty good on health and primary education, primary. Stops there. It doesn’t do well, compared with its peers in stage two, in institutions and quite a bit of infrastructure.

    In terms of economic characteristics, Morocco is blasting out with growth, with a fairly large economy, certainly compared to many stage-two countries which are really quite tiny. You can take an extreme example like Swaziland, but many of them are fairly small economies. It’s fairly efficient in its goods markets, and it’s moderately OK on the financial markets. Where Morocco is quite weak, compared to other states at least, the labor market – I’ll come back to that in a moment – and technology.

    So Morocco, while it’s reasonably open, has been very poor in attracting foreign direct investment. I mean, despite this terrific location, good linguistic abilities, connecting with Europe and so forth, but very poor; the numbers are quite modest. And the result, as was mentioned earlier, is there’s high unemployment amongst young people, certainly young women, but I guess from a standpoint of social stability, young men.

    And a recent statistic I heard – Anouar can tell me if this is right or not – but is that if you’re a university graduate in Morocco, your chance of being unemployed is roughly five times the chances of a technical or a high school graduate with some technical education. I mean, the universities are not turning out people who know what they need to know for the economy. So as has been famously said in this country, it’s jobs, jobs, jobs, in Morocco.

    And where are the jobs going to be created? Well, Morocco is not going to replicate the East Asian story, which is a manufacturing story. That’s just not on in terms of the training of the young men, or young women, for that matter, and the current level of income where Morocco would have to face Vietnam as well as China and other obvious competitors. It’s just – we’ve written books on this, but take it from me – that’s not where Morocco is going to develop.

    It’s going to develop, if it develops, in the services sector. And there, there’s a big fork – (chuckles) – fork in the road. Either it’s going to be an expansion of government services – and this is true generally for the MENA region, Egypt and so forth – an expansion of government services; this is how you buy peace right now, right here. You create a lot more government jobs – you, the government.

    And that’s what university graduates have typically done in the – so it’s government, meaning civil government, but also the security apparatus which we have heard a lot about, which is already a growth sector, is a growth sector, or it’s going to be private-sector services jobs.

    Now, if you were sitting across the river, as we all have, you would predict the first – that these countries are unfortunately going to go for government jobs. That will buy short-term stability. It will not buy a Korean story; it will not buy a Taiwan story. But it will be stability for now.

    The way the U.S. should want to press and hopefully enlighten governments – and I think Morocco is probably the most enlightened in the – amongst its peers – is the second fork, which is private-sector jobs in the services sector. Yes, there’ll be some manufacturing, but just as the U.S. has declined in manufacturing – we have 9-percent unemployment – employment, excuse me, 9-percent employment in manufacturing; we’ve come down a lot – Morocco is never going to have a 20- or 30-percent employment in manufacturing. It might get 10, 15 percent at most, but mostly it’s going to be services.

    Now, what can be done? Well, I guess contrary to Tony Cordesman – who has left, so I don’t need to worry about him responding immediately – I believe in urbanization. Every country which has succeeded – prosperity – has urbanized dramatically. You do not prosper on the basis of some idyllic notion of the farm in any country, with the possible exception of New Zealand. And even there, it’s a highly urbanized country. Or Australia, one of the highest-urbanized countries – and I happen to know Australia fairly well – but it’s an 80-percent urban country.

    You urbanize, but you have to make urban living a decent proposition. It’s not bad in Morocco; it’s just not great. It’s kind of like Mexico. Mexico is not bad as an urban country, and has a fairly large rural population, still, about 20 percent, but the urban areas are pretty dreadful on the whole, with some noticeable examples – I mean, exceptions – Guadalajara, and so forth. But there are many dreadful –

    Well, the government has to really make the urban areas a pleasant place to live, and the economics of this is quite simple: People are much more productive when they live close to other people. It’s as simple as that – people who live remote distances from one another, they tend to do a lot themselves – it’s all very inefficient, all this taught by Adam Smith and Ricardo. And it’s the same today.

    So government has to concentrate on making the cities even better places to live than they are now. Let me now turn to labor reform.

    Unfortunately, one of the inheritances Morocco got from France – got many good things from France – but it has accepted or embraced or whatever the French notion of labor laws, which are about the worst you can get for a developing country, and they don’t work very well in France, either. But leave France to one side – prosperous country on the whole.

    For Morocco, it’s terrible. And what these labor laws try to do is guarantee lifetime security, or at least a long term of security once you get a job. OK, what’s any employer going to say? He’s going to say, I don’t want to hire people – it’s as simple as that. It keeps employment from growing because you hire them, you marry them. And you create all these problems: flexibility and so forth. We write about in length in our books; I think probably everyone here knows about it. That’s a tough thing to reform once you get it.

    But the government has to start reforming, starting with probably the new entrants, which is where Sarkozy tried to start for a while in France, has kind of given up on it now. But that really has to – you have to flex – you have to introduce flexibility into the labor market in whatever way you do it.

    The second thing is on the education system – you cannot turn out liberal arts graduates who know Arabic, classical and so forth, but don’t know health, don’t know finance, don’t know computers, don’t know engineering, and so on. I mean, it just has to be a pretty radical change in the university education system to have the people be suitable for the jobs in the future.

    What else can be done? And I’m going to talk about some internal things. Business taxes: Morocco – and I’ve urged this in the past; haven’t got a – haven’t sold the idea yet – but Morocco should emulate the best part of Ireland, which was the 12 ½ percent corporate rate. Yes, Ireland did a lot that was wrong; its financial system went wacko – housing market, et cetera, which I think you’ll know.

    But the – but Ireland’s growth starting in the ’80s, and for two solid decades, was based on a very low corporate tax rate – very simple, very flat. And that’s what Morocco should do. Morocco has a very complicated system with a lot of exemptions and so forth. All the exemptions to get them probably means some corruption along the way, and so forth. So it should reform that.

    Then, turning to a point that Anouar has emphasized on – losers of reform: If you’re going to have a services economy, which is dynamic – and Morocco is positioned so they can be the interface between Europe or North America and rest of Africa in all kinds of services, obviously finance, but health and education and so on – you need to have competition there. You have to allow firms to come in. Unfortunately, Morocco as now exists – and it obviously lines up with the power system as it now exists – is a series of monopolies and oligopolies, especially in the services sector. That’s not going to – it’s obviously good for the people who – money systems now, but it is not good for growth; it’s not the way to create a lot of services jobs in the future. It needs to be liberalized.

    There are parts of the goods trade which also need to be liberalized, but the services is the growth area, and that’s where the liberalization should be very, very strong.

    Now, what should the U.S. and the EU do? Well, the EU has done quite a bit. And I think out of the developments, political developments, it’s going to do more soon. They recognize, as was said in the previous panel by Mr. Alexander, that instability in MENA means instability in Europe, particularly in France and Italy and Spain. So they’re going to bolster this Barcelona process, and so on.

    But what should they do, and what should the U.S. do? Well, the U.S. – and I know the ambassador is here, Ambassador Gabriel – and I guess the agreement came in place before he was ambassador. But the problem with the U.S.-Morocco free trade agreement – it has various problems, but one of them is that we have excluded in the agreement the stuff that Morocco can sell today, here and now, which is a lot of specialty agriculture. And Morocco has a lot of good specialty agriculture.

    Is that the growth of the future? Probably not. But is it where the U.S. could fire up Morocco today? It is, same with EU. EU has a pretty deep agreement with Morocco, which covers everything but two things which count: One is immigration on a controlled but reasonable basis – and that’s not part of this story – and second is agriculture.

    So the U.S. and Europe should really open up these agreements in ways that are quite constructive to growth. And I will toss in one other thing that the U.S. can do, which Europe has already done – we have an absolutely absurd corporate tax system in many respects, but one of it is that we try to tax income earned abroad.

    And we ought to at least have an exception for income earned in responsible countries like Morocco – if it lowers its corporate tax rate, we shouldn’t pick it up by our corporate tax rates, so we ought to have a special exemption. On that, I could talk at length about that – but in any event, to encourage investment in countries like Morocco, which are doing a good job.

    Now, there are other things you could go down this line, and it’s very similar to the CSIS package that Ambassador Gabriel outlined. We have a similar package that our institute outlined. And that we need to go forward with urgently soon.
    Let me just end on one point – you know, the United States cannot afford massive entitlement programs at home and ambitious nation-building abroad. I mean, look at the cost of the Iraq and the Afghan war where we expanded the mission quite dramatically from dealing with a handful of terrorists or one bad guy to rebuilding them. And we haven’t exactly, by my standards, succeeded, but we certainly have spent a lot of money. We can’t do that worldwide – can’t do it.

    And we’re not probably going to cut back the entitlement program to the point where we have the resources to do it. It might kind of backslide. But what we can do is engage these countries with open access to our markets here and in Europe to a far greater extent than we’ve done so far. And we should do that.

    Thank you.

    J. PETER PHAM: Thank you very much, Dr. Hufbauer, and thank you to our panelists. Before we open to questions from the floor, we do have a few from our colleagues joining us from the George C. Marshall Center in Garmisch. From Ms. Haddaoui: a question, I think, follows immediately upon both what you said, Anouar, and what Dr. Hufbauer said: How do we ensure Morocco that the corrupted parts of the elite won’t overshadow the efforts at democratizing?

    It’s both an economic and a – (inaudible, off mic).

    MR. BOUKHARS: That’s a good question. And there is a debate, I mean, within Morocco because as we all know, obviously, there is the monarch, and we know where he stands. I mean, his reformist credentials have been proven for over a decade now.

    But within the regime, there was always two, at least two to three schools of thought – I mean, one school of thought is, do as little as possible when it comes to political reforms because the ones you engage in that trajectory, then people would be encouraged to demand more. And you don’t know where the ball would stop.

    Then, there is another camp within the regime – the – (inaudible) – generally – that said, let’s focus on socio-economic modernization, and put political reforms on hold because the belief was that political transition to democracy cannot succeed unless you develop those preconditions, preconditions like, you know, decent economic growth, GDP about 6 percent, et cetera.

    And then, there are – there’s another school of thought that said, you can’t do economic reforms without political reforms. I mean, the two have got to go together. So you’re right – I mean, there is resistance on it and the United States has a role to play; Europe has a role to play – as, you know, through economic aid has to be conditioned, and there has to be criteria that have to be met in terms of the economic and political reforms that the monarch has announced in March 9th, and would know very soon. So you can’t just disperse aid without meeting that criteria.

    But there is obviously resistance. The good news is that we know where the monarchy stands. That’s as far as political reforms is concerned, I guess.

    GARY HUFBAUER: Thanks. Well, very briefly, coming back to my economic roots, I would classify corruption at two levels – retail corruption and wholesale corruption. Wholesale corruption, by which a ministry controls, let’s say, a big transport project, power project, whatever, electrical project rakes off 5 million, 10 million – that can only be controlled by the king. So he wants to do it, or he doesn’t.

    Now, let me talk about retail corruption, by which I mean all the administrative corruption which goes on in so many countries. And that, we know more about, I mean, analytically. And the answer is simplification, simplification, simplification.

    When you have a customs schedule, which Morocco does, which is quite complex, every bit of that complexity invites corruption. When you have a tax system quite corrupt – quite complex, invites corruption – same with licensing – you have to deal with this by simplification, which actually means reducing a lot of jobs in the government, and I know that isn’t popular. But that’s the retail corruption.

    J. PETER PHAM: Thank you. We have a question –

    Q: Thank you very much. Peter, thank you very much for the Atlantic Council for hosting this today. I found it to be really very educational.

    I got to ask you a rather – a large, philosophical question, and it’s on politics and the development in the Arab Spring: What effect do you think what’s going on in the MENA region right now is going to have on the evolution of political Islam as a political force in the region? What do you think’s going to happen with it?

    J. PETER PHAM: Let’s go down the row.

    CLAUDE SALHANI: Well, thank you for the question. Matter of fact, I address that in my book, “Islam Without a Veil.” It’s coming out in two weeks – a little bit of publicity here. (Laughter.)

    (Off-side conversation.)

    CLAUDE SALHANI: Thank you. I was – right after I sent the manuscript to the printers, I was beginning to have double – second thoughts about this. And I went to a conference for the 10th commemoration of 9/11. And Michael Hayden, a former CIA director, was there. And he gave the keynote speech in which he said, he believed based on what his analysts had given him that al-Qaida was on the way out. This was about three days before the killing of bin Laden. And he believed that Islamism – militant Islam was beginning – the very beginning of the end.

    And I – that’s exactly what I’m saying in my book. I went up to him and spoke after his speech, and I said, you know, I can’t tell you how happy I am to hear you say this because you back up what I’m saying. He says, well, this is what my analysts tell me. How long will it take to get there is unknown, but it’s the very beginning.

    I predict in my book – I don’t give a timeline because that’s impossible, but I make the analogy with communism – that communism was a phase; Islamism is a phase. How long that phase is going to be is unknown. But I think we’re seeing the beginning of the change with this Arab Spring.

    Now, when you start a revolution, it’s always hard to know how it’s going to turn out. But this is where we are today.

    ANOUAR BOUKHARS: Sure. I mean, here we lumped all Islamists as one. And as we all know, I mean, there are different shades. And I’m glad Claude talked about the militant aspect of it, and that’s true: I mean, if there is – the biggest loser out of these evolutions, if obviously they evolve into a democratic system, is al-Qaida and its affiliates. Right?

    And then, there are the moderate political Islamists like the PJD in Morocco, for example, or even the Muslim Brotherhood to some extent in Egypt. And in my view, this evolution or this transition is – the Islamists would play a major role. Right? But based on history and political experience, right, when the system opens up in different contexts – Middle Eastern context or Asian context, Indonesia is a very good example as well – I mean, the Islamists’ share in the market, electoral market, did not exceed more than 30 percent.

    In Indonesia, which has exceeded more than 40 percent, in time that number dwindled because it was easy – or it is easy for the Muslim Brotherhood; they throw out this – (inaudible) – resistance movement to stand against something. Right? Now, they have to stand for something, right?

    When you come to power, you have to govern. The Muslim Brotherhood and others, they would learn, as their Indonesian counterparts and Malaysian counterparts and Moroccan counterparts have learned, that decisions, that the backroom dealing, for example, is messy. When you govern, you have to make compromises.

    So when you open up the system, there is going to be a moderation effect. We have seen it in Morocco and even in the Muslim Brotherhood. I mean, we cannot lump that movement as one. I mean, is there a radical – it’s not radical? Well, you can’t say there are generational divide on the Muslim Brotherhood – there are progressives, and there are hardliners, and they’re fighting it out right now.

    That’s why when you open up the system, it’s good. Let them settle out their ideological debates because anti-Americanism or anti-Israelism or anti-whatever you want does not feed bellies. When you govern, you have to deliver. Same thing in Turkey – look at the Islamist movements, how it has evolved – yeah, Turkey, special case, true, but so is Egypt.

    Turkey, it has evolved, whether based on principle or not, the military, right, as the guardian of secularism played a major role. Then there is the European Union. That lure played a major role to constrain the Islamists and to have this evolution.

    And the Islamists that are in power in Turkey are moderate. I mean, regardless of you may like their foreign positions, their stand – their regional stand. But they are, I mean, progressive. I mean, every Arab society would love if you can evolve as Turkey has done. It is – it has progressed economically and it is a regional powerhouse. That’s not that odd.

    But Islamism, there are different shades out of it. And we will see those battles play out in the next five to 10 years. How the Muslim Brotherhood evolve, we don’t know. Based in history, it would moderate. But we don’t know. The good news is that it’s not a monolithic movement.

    CLAUDE SALHANI: Can I add something real quick? If you look at where the Islamists are the strongest – sort of Hezbollah in Lebanon, Hamas in Gaza – it is due to a weak government or a lack of government. And therefore, because they provide services; the government doesn’t. If you look at Hezbollah and Hamas, they have a similar infrastructure. They’re made up of three elements: the political party, the social services and the militia. You put in a strong government; you take away the two – the social services and the militia. You’re left with a political party.

    And I think this is something that has been overlooked is the fact that if you strengthen the central authority, you weaken these groups.

    J. PETER PHAM: Okay, another question from Garmisch, this one from Professor Martha McSally. The first 2002 Arab Development Report identified three deficits that needed to be addressed in the Arab world for it to develop and prosper: the freedom deficit, the knowledge deficit and the gender equality deficit. My question is about the third deficit. Women and men contributed to the revolutions in Egypt and Tunisia yet they are pretty much left out as usual from participating in the leadership of the transition. What are your thoughts on this dynamic and the implications for the transitions to democracy?

    You want to take that on?

    ANOUAR BOUKHARS: Do you want to start?

    CLAUDE SALHANI: I can start. Well, I think we’re going to see a change there as well. In Egypt, for example, women are beginning to play a little bit of a major – a more prominent role. Women in Morocco have been empowered in a way that has been quite different from the rest of the Arab world. So there is a change.

    I think what we’re fighting is we’re fighting a culture, a longstanding culture that is reluctant give women equal rights and empower them as they are in the West. And this is something that we can change through education, education and more education.

    ANOUAR BOUKHARS: You’re absolutely right. I mean, there is a gender deficit. The good news is that women played a major role in the Egyptian revolt, for example, in the Tunisian revolt. There are some good stories out there – Tunisia. I mean, Tunisia, the women had more rights than anybody else. Even within the – (inaudible) – of the Islamist party, for example, 50 percent right now must be women in the new elected parliaments. We will see 50 percent. The Moroccans have already done that. There is a quota for women. Women are having more right.

    So you’re right; it’s going to be a long journey. But the good news is that women have been empowered. They are standing up. They are challenging that patriarchal order that has, I mean, put down whole societies. I mean, even in Saudi Arabia. I mean, look at that woman for example who challenged the apparatus by going to drive. And we’ll see what happens in 20 days, whether women will – which was a – I mean, Saudi Arabia is a different model. But still, I mean, that’s unprecedented in my view. So you are right. I mean, we are seeing a change. And the more freedom there is, the more open debates there are, the more women, I mean, will find their voice and will excel.

    GARY HUFBAUER: If I could just add something to what’s been said, it’s that gender equality is not only important for, you know, the women but it’s really important for the economy. And I’d emphasize the service economy. And this is an area where women excel often. Often they are a little bit faster at learning computers, some of the technology, than men – very good in law, very good in health, very good in design. Right across the service economy, women make a terrific contribution in countries where it is permitted.

    And right now, of course, Morocco has a youth bulge as does most in the – (inaudible) – region. So maybe you don’t think – one does not think about, you know, a shortage of employment – but look at – or a shortage of workers for employment. But look at the problems that Japan immediately faces and China in not very many years. And Japan’s case is acute because it’s basically excluded women from the workforce for many, many years or limited, capped their opportunity. And boy, that’s a devastating limitation on the future growth of Japan and ability to cope with its demographic problems. That may well happen to Morocco. Not now, but in 50 years, it will.

    J. PETER PHAM: We have time to take one more question from the audience if there is one. If not, I thank you for your participation this morning. Just got to pull it together – I think we have in both panels. I’m grateful to the panelists, both the first panel and the second one. I think despite the diversity of perspectives and viewpoints, we’re really left with perhaps four takeaways.

    I think first is that – or takeaways or lessons – first is that this process is one that is going to take time. And so, we have to be, as policy-makers and analysts – we have to be patient and let it play itself out. Secondly, unfortunately, our preferences notwithstanding, it’s going to be messy. We don’t know the paths, the byways it’s going to follow. And so we have to be humble in our policy about what we can achieve and the timeframes in which we can hope to achieve it.

    I think the third takeaway is the importance of the socio- and economic factors. Where are these economies going to develop to take in the aspirations, integrate these people into their own economies, into their own societies and into the global economy? So it goes back to that dictum from the 1990s: It’s the economy, stupid.

    And then finally, I guess, the lesson we take away is that this process has to be organic. It has to come from within. It can’t be imposed from the outside. It has a dynamic of its own. And in that context, we have to support those countries, those regions – places like Morocco and others on the way where organic developments have begun. Reforms have begun – to build support for those as oases or islands of stability as we don’t know whether, as was said earlier at the very beginning, whether we face a sandstorm or what sort of summer or winter comes afterwards. So support for the organic development.

    So again, thank you again for joining us today, both those in the audience here and to those who are joining us from the Marshall Center. And we’ll look forward to having you again with us as we continue to explore these and other related issues. Thank you very much.

    (Applause.)

    (END)


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  • Creating Shared Value Forum 2011 - Session One Transcript

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    Atlantic Council - Nestlé 2011 Creating Shared Value Forum

    Washington D. C. May 19th 2011

    Transcript of “Creating Shared Value: The Role of Business in a Changing Global Context”

    Maria Cattaui: First of all I'd like to thank our co-sponsors, our hosts for today which are the Atlantic Council and Nestlé and particularly their leadership. Senator Chuck Hagel who is the Chairman of the Atlantic Council, who will be with us a little bit later today, and also from the Atlantic Council their CEO, Mr. Fred Kempe. And from Nestlé their Chairman, Peter Brabeck and the CEO Paul Bulcke.

    As you can see from the programme we have a set of world-renowned panellists who are leading practitioners in their fields, and we thank each of them for taking the time to contribute to today's forum. I would also like to thank the members of the Nestlé Creating Shared Value Advisory Board, who are seated here in the front and whose input was invaluable in designing and developing this year's forum.

    And of course I'd like to thank all of our participants for being here today and for your active contribution, which I definitely will solicit from you during the course of all of our discussions. There are people here in this room and there are also many people around the world who are participating through a global webcast.

    A forum is by definition an exchange of ideas, and our format today will be conversational. Our discussions are aimed at what we need to do in a pragmatic way over the next decades to address the three challenges of nutrition, water and rural development. Nevertheless we will also look at present and urgent needs. Current models seem to be often insufficient in tackling these three challenges. It seems that the silo approach isn't really very effective with development aid on one side, NGOs on another, the private sector on another still. We are not delivering on the progress we need.

    We particularly want to explore a concept called creating shared value, looking at how companies can serve both their shareholders and society as part of creating a long term profitable business.

    We will examine how the power of business can be better leveraged in collaboration with governments and non-governmental organisations to improve nutrition, to meet needs in access to water, to ensure food security, and reduce poverty; particularly in rural areas of the developing world.

    With that let me make some housekeeping announcements, first there will be no pause in the morning or afternoon sessions. But as you need to, please get up, slip out of the room, this is an informal discussion and you are free to get up and move. There are plenty of people all along there to help you - those are the two exits for you to know, they are the emergency exits.

    Lunch is at 11.45, and it will be one floor below us, is that correct? One floor above us - one floor above us, that would be very odd if I got that wrong. One floor above us, and we ask you if you would be so kind as to leave the tables at lunch an hour later so that you can be back here around one o'clock.

    Finally those of you who have telephones and other beeping instruments, would you kindly see that they're on - what is it now, vibration or off. And I was told that preferably not to be used in this hall, if you'd be so kind as to use them outside.

    Now our first discussion will be with Fred Kempe and Peter Brabeck concerning the major trends and factors affecting global development today and into the future and an overview of how business can more effectively contribute to developing and development through creating shared value.

    We're going to first show a two minute video which captures in images some of our main themes and then we'll ask our two first speakers to come to the platform. So could we please have the video?

    Video playing

    Applause

    Maria Cattaui: I'd like to call to the stage now Frederick Kempe, President and CEO of the Atlantic Council and Mr Peter Brabeck, Chairman of Nestlé.

    And so we'll start our morning's discussion with you Fred Kempe and jump right into things. You maintain that there are some key inflection points in history, in fact you've written recently on one of them, which is Berlin 1961 Kennedy, Khrushchev and the Most Dangerous Place on Earth, which has become immediately very popular. And you maintain that we're at another geopolitical inflection point right now, what exactly do you mean, first of all by inflection point and why now?

    Frederick Kempe: First of all thank you very much for plugging my book right at the outset of this, on sale at all stores near you. But before I answer that question I do want to thank Peter Brabeck, I ran the Wall Street Journal Europe for many years and we always considered him one of the most gifted visionary business leaders, not just in Europe, but in the world. And of course Nestlé which is doing such ground breaking work on creating shared value.

    We always put our best reporters on covering your company, we weren't always successful in finding things out, but we've always found Nestlé one of the most fascinating countries anywhere - companies anywhere, country is a slip but it gets to the point really which is non-government organisations like Nestlé are playing a larger and larger role.

    I'm delighted by the partnership, the Atlantic Council and Nestlé, I just want to say that right from the outset and then I'll get to answer the question. Because I think we're both about harnessing the considerable political and economical weight of advanced countries against global issues, which is what a lot of this is about, and then just the enormously impressive list of speakers today that we've got.

    Let me answer the question; I do think it's an inflection point, 2011. 1961 was an inflection point in a much different way in the sense that the Wall went up, the Vienna Summit and it shapes the contours of the Cold War for another 30 years, locked things in place. Right now things are coming apart, we're in a state of reinvention and I do think this year will go down as one of the great turning points, like 1989, perhaps like 1961; not just because of the Middle East upheavals but because of the context that they're in.

    And let me give you, very briefly, four points of context which I think will help lead in to today. The first is we are experiencing the most dramatic shift of economic and political power and influence since the 18th century, west to east, west to south. The recent financial crisis and recession have only accelerated these trends. This year three times more growth will come from the emerging world than from the advanced industrial countries.

    We've got a growth in emerging markets middle class, you saw everything about the size of the poor population, which is true, but the middle class from poor countries has grown from 250 million to 1.2 billion from 2000 to today; so huge growth of expectations in that middle class.

    At the same time the gap between rich and poor is growing within countries, even though it's shrinking between countries. So China and India are coming up, Brazil is coming up, but within countries like China, India, Brazil, the gap between rich and poor is growing. And this then gets me to my second point, which is global interconnectedness is accelerating the speed and the likelihood of change. So not only do we have the biggest inflection since the 18th century, you have a global interconnectedness that's going to accelerate how we experience it and how it happens.

    It makes it more difficult for policymakers to manage change and to understand it, more bottom up, less top down and we're seeing this play out in the Middle East. And the disparities between rich and poor and between those with less liberty and more liberty - so that's another kind of rich and poor, frustration about these things is going to spread more quickly. Who would have ever thought that the self-emulation of a fruit vendor could start a revolution in Tunisia that would end the regime?

    Number three, globalisation has been broadly successful at increasing aggregate incomes across countries, but as I said it led to inequality within countries. In the US you have the top 10% - the percentage of income in the top 10% is 73% of all income. But now in China it's already 31% and growing and in Brazil it's 42% and growing. And then finally, and this gets to the point of business, non-state actors are increasingly important as global power shifts, not only from east to west and south, but also from state to non-state actors.

    But at the same time, you have the raise of state capitalism in China, Russia and elsewhere, most of the natural resources of the world are now held in state companies, so you have this odd mixture of things. Diffusion of power has good and bad qualities, dictators fall, power shifts to the people, that's good. NGOs and businesses become global, the most responsible of them, like Nestlé, can have greater influence. The bad side, terrorist groups, organised criminal organisations are also becoming powerful non-state forces that in some states are becoming more powerful than the state.

    So I'm going to leave it to my colleague Peter Brabeck to comment on the role of business in this new world. Let me just say that I'm a discordant voice sometimes on these questions, because I'm a little Milton Friedmanesque, in the sense that I still think business most of all has to make profit and that profit then allows you to employ people, and pay taxes, and build infrastructure. But part of the reason I'm enamoured by this notion of creating shared value is it's not expecting businesses to be charitable organisations, it's expecting businesses to be businesses. And I read with great interest in this Harvard Business Review a story about Nespresso, Nestlé's Nespresso where the growth since 2000 has been 30% a year.

    Maria Cattaui: You're taking all his ammunition away.

    Frederick Kempe: Well, I won't talk about this any more. But let me just say this, I'm still a little bit of a sceptic about trendy phrases, but if one can really do this, really do this in a way that it appreciates that businesses are businesses and capitalism is not bad, but actually good. And there is certainly a PR issue that we've got to deal with. But we haven't found a more effective way to create jobs and growth and prosperity. So I embrace this because it does appreciate that.

    But that's my final point, these four trends, the last one was non-state actors, and growth of non-state actors - business is going to play a crucial role now.

    Maria Cattaui: Fred, I won't let you off quite so easily. An inflection point also means, as you have implied there, that the roles of the different actors are changing. And you haven't told us enough about how you think governments' role is changing. Some people would say that in fact over the last years government has become, not less active even if business has become more important and citizens' voices as well, but even more active. Is this your view or not?

    Frederick Kempe: Well, you know sadly through the financial crisis that's what happen and TARP and the Obama administration had to respond with a growth of government. There's a country …

    Maria Cattaui: Why sadly if I could ask you?

    Frederick Kempe: Well because I don't think government - I don't believe government has the solution to a lot of the issues now. I think government can be an enabler and government can provide the incentives. But whenever we've relied on governments to actually solve the problem without - and that's part of what we're talking about today, government has to do it with the private sector, government has to do - it's very popular now in Washington to talk about, whole of government solutions. So you look at Afghanistan and you say, you know we've really spent too much money on military and DOD and we didn't go in enough with our soft power, our development power, our educational power. But it's not just whole of government solutions, now it's whole of world solutions. You have to bring together not only government, but also the private sector and NGOs.

    The last thing I'll say is an inflection point - inflection points are plastic moments where things can be shaped, more dramatically, more quickly. You can take advantage of these kinds of moments or you'll lose opportunities of these kinds of moments. But this when business leaders, government leaders, NGO leaders, actually have to step up, you know particularly in the Middle East right not, but not just, because we have a moment where we can shape the future. It doesn't look at dramatic as it did post World War II, but the world situation actually is as dramatic as it was post World War II. And we had a number of great leaders who stepped in at that time, created most of our great international organisations - right now, which aren't working as effectively as they should, and we need the rise of that sort of leader again.

    And this gets to your role of government, government can set the agenda, government can set the guardrails and can give indications about where things go. We need visionary leaders to do that. But I think government is less capable than it was in 1945 to take on the issue on its own.

    Maria Cattaui: Do you think people still accept that you call visionary leaders, and by the way when you look that word up in the dictionary it isn't very flattering, visionary - it means slightly off your rocker was the original definition of it. But do you think that people are still willing to accept such kinds of leadership that is more top down than defused? And second of all, the other popular phrase around, global governance gaps?

    Frederick Kempe: It's a more difficult situation. In my book Berlin 1961, Kennedy through his entire presidency Bay of Pigs, Vienna Summit, everything, his popularity stays above 70%. It was the dawn of the television age for politics, a much more forgiving time for our politicians. And now the scrutiny, you know who knows how Kennedy would be viewed today, looked at in all the critical ways that we do with 24/7 television, the internet, Tweeting, all of that business. I think it's harder, I think it's harder for a visionary leader to emerge.

    On the other hand I think the Whitehouse was pleasantly surprised to see the global response to the killing of Osama bin Laden. I thought that they expected much more cacophony, they expected much more mixed response than they got. And I think it was almost a relief, you know whether or not you think it was all the right thing, whether or not the killing of a single individual, perhaps one shouldn't celebrate that greatly, although he was a criminal, a terrorist and he killed thousands of people. But still the response itself told me that people were ready for US leadership, Western leadership and we were almost relieved at the fact that this president made such a courageous and relatively risky presidential decision.

    So I think we're hungry now for that visionary in the positive sense of leadership, not in the wacky sense.

    Maria Cattaui: We might have time at the end of our discussion for one or two questions, so start thinking about what you would like to ask Mr. Kempe and Mr. Brabeck. Peter I will start a little bit from that and carry on.

    Business is now accountable to absolutely everyone, it's accountable to governments, it's accountable to society, as always it's accountable to its shareholders, employees and its suppliers and so on. It seems to me though that while governments are becoming more and more perhaps intervening in certain areas, I wonder if they're becoming less and less capable to implement that intervention, sometimes because of lack of funds, sometimes because it's a very complex world. Where does this exactly leave business in the context - what really would make with all of these demands on business, what really in the long, long term makes a business successful and able to navigate in this context?

    Peter Brabeck-Letmathe: Yes, I would say first of all thank you very much for your nice words in the beginning Frederick and we're also very pleased to have this partnership with the Atlantic Council here and to be in front of such a distinguished audience that we have. And I think this alone proves to me that putting up this question about the role of business in society is a very important one. And it is becoming, through this definition of inflection point even more important frankly speaking. Because one of the answers to your question straight away is I personally am convinced that today's problems of society cannot be solved by anybody alone. It cannot be solved by business alone, it cannot be solved by government alone, it cannot be solved by NGOs alone. It will only be possible to solve those problems if we find a way to work together.

    In this sense I was just flabbergasted this morning when I woke up early and the first thing I was seeing was an initiative of NGOs in Geneva saying that business shouldn't have any contact with WHO because WHO Is losing its independence because it is in close contact with the business.

    You see if this is the mentality that is still prevailing today, well it shows me that at meetings like this it's important that hopefully we come to at least this one conclusion that we need to work closer together and not work in silos as it was mentioned before. No silo solution is for those social problems that we have.

    Now the global challenges which Frederick has been pointing out and which also were on the charts if you're looking up there, double food production, increased energy demands, the water management issue and all of those things. I mean they just demand for business to rethink a little bit its role and how it can continue to be successful. And I would say if you want to be successful in business today you can only achieve that if you achieve long term sustainable, and profitable growth.

    And growth is for me still the most important word in this thing. We have to ensure that we can continue to grow. The moment we stop growing we're starting to die and if business is dying communities are dying and in think in the US there were sufficient examples in the last financial crisis - what it means when business dies in a community and what the consequences are for the whole community.

    So let's not fool ourselves, this is for me more important that what Milton Friedman said in the past, because this is the way - how we have to run our companies, how we have to involve social aspects into our mainstream strategies. And they are the three words for me, long term, this short term thinking about quarterly profit, I think this is of the past, this was the measurement of the shareholder value increase of the 1980 - 1995 that's the reason why we never accepted to go to a stock exchange where they demand quarterly profit.

    Now it was not good for a certain moment for us, but today more and more shareholders are recognising that this was the right way to do it. So you have to start to think much more long term, you have to think about sustainable. If we want to continue to grow we have to confront a fact, and the fact is that our resources are not infinite, our resources are finite. And therefore a model, as we have it up today, where we are using resources as if they were eternal is not a sustainable model for the future.

    This model of the Western society is not a model for the developing countries. I've just come back from African where we had the World Economic Forum meeting and one of the outcomes was very clear, African states saying - please think about another model, but don't bring us a model which you have been implementing in the Western world because it is too resource intensive, it is not sustainable in the long term. So that's a very important aspect that we have to think about.

    And profitable, because there is no - from a business point of view there is no business if it is not profitable. So there I join again Milton Friedman saying that one of the most important things for a business is to be profitable.

    Maria Cattaui: When you ay that the current Western - let's call it the Western model is not sustainable, it seems however that many parts of the world are trying to copy that, particularly in consumer practices. How can businesses, in what way can businesses work to change that model?

    Peter Brabeck-Letmathe: Well as I said before, we have to become more conscious that in the pyramid I would say of corporate social responsibility you have on the base of the pyramid you have to be compliant, you have to be compliant with the laws, you have to be compliant with the codes, with your own way and values that you have. But immediately afterwards every strategic decision has to take into consideration whether what you are doing is sustainable in the long term and how you can create more value out of limited resources.

    That's extremely important and I think we should have a measurement system that this like the financial results of a company, where we all have a beautiful financial thing, we should have the same thing on sustainability and on the social aspects. A measurement system which is as open and transparent as we have it on the financial side.

    Maria Cattaui: We seem to be moving that way but it's not required, it's still voluntary.

    Peter Brabeck-Letmathe: Well you know if many companies apply it's as good as if it is regulatory …

    Maria Cattaui: … Competitive advantage.

    Peter Brabeck-Letmathe: And I must say, I mean slowing this understanding comes. But what it is - the underlying subject is here that when you recognise this and I'm sure I can talk to many of my colleagues, they would recognise, they know that we have to do better with the limited resources. And then you start to integrate this into your strategy thinking and strategic decision-making.

    Maria Cattaui: For businesses, this is a kind of an inflection point, not so long ago the thought of, what you're questioning our quarterly reporting would be anathema almost, it would be against proper market principles. In your view Fred how is business itself inside of a more geopolitical framework, how is it coming to an inflection point? And one of the areas that I would like to ask you, until now most of the large important multinationals that have an influence on these issues have come from North America and Europe, that's changing.

    Frederick Kempe: I think it changing. I'm watching Chinese companies with huge interest. One of the things in this inflection point, we’re not at war with anybody right now. I mean there are wars but there isn’t the US Soviet struggle. But what there is, is we’re in an era of global competition and I think that's really what’s unfolding right now. So we’re in competition, the US, Europe, with the Chinese, in Africa, in Latin America, etc. etc. The Chinese companies are the largest - fastest growing companies.

    There is some very interesting new technology coming out of China in terms of solar cell and environmental in general and it’s partly because they’re really up against it. They’re facing the biggest environmental challenge of any of us and so they actually have the most incentive to fix it and become less reliant on fossil fuel resources. So it’s going to be very interesting to see whether China's growth becomes a huge problem for us all because they’re just capturing more resources, using more resources, or whether over time they're going to help us come up with breakthrough technologies, whether on batteries or on any other system as we come along.

    Maria Cattaui: Or whether these kinds of companies coming from these countries are going to enter into the long term sustainable model or go through the historic path that has taken many companies to arrive there but not at the start.

    Frederick Kempe: Yeah I mean it’s a mixed bag; a lot of these companies are most interested in just capturing resources, not necessarily in common shared value. But I like this term so much better than corporate social responsibility. Corporate social responsibility sounds, it’s do gooding; you have somebody on the board who takes care of it. But what I like about this is that it becomes an all of company process and it becomes part of your profit model. You know I have questions about whether it really does always work that way.

    Maria Cattaui: Well we’re going to look at that during the day.

    Frederick Kempe: But I certainly think that that's why this can be a breakthrough for people like me who are sometimes doubters on the corporate social responsibility front.

    Maria Cattaui: Yes indeed, you are always saying that this is beyond, the next step beyond.

    Peter Brabeck-Letmathe: Yeah I mean Frederick again you know where this started; it started in the World Economic Forum in Davos. And corporate social responsibility was the overruling subject this time. And to my biggest surprise at the fourth day there was not one single meeting where people wouldn’t put up and assure and say we have to give back to society. And in the final plenary I stood up and said look, I have listened now to 2,400 members here, they all have to give back to society, I am sorry I don’t have to give back to society because I have not been stealing anything from society. Why the hell I have to give something back if I have not - I have been creating value for society by doing what I am doing.

    And that was the beginning. And then we met Michael Porter and then we started to talk about this and say, this is not a good concept. This is like; you know we are doing something because we feel guilty yeah. I don’t feel guilty because I am running a company. I feel very proud about it because I create value also for society by doing what I am doing.

    So that was the beginning and therefore I fully agree with you. I don’t think corporate social responsibility which is a philanthropic concept, yeah, is something that a CEO of a public company has a right to embrace, not even the right; I am challenging them on that. Because then you do philanthropy with the money of your shareholders, this should not be allowed. Philanthropy can be done by those who have the money. If a Bill Gates makes with his money philanthropy that's fine, but not the CEO of a public company.

    So that's a big difference and that's why we worked out the concept of creating shared value which is whatever you’re doing you’re consciously creating value both for the shareholder and the society because at the end of the day, as I mentioned before, we get the money from the shareholders but the licence to operate from society. And therefore we have a double responsibility. We forget about the licence from society, we only are reminded when a Mr. Hicks (?) nationalise you tomorrow morning, and then afterwards you suddenly have no licence and then you’re out of the thing okay.

    So each time if we are allowed to work we receive from society a licence to work, and therefore we have also a responsibility to this society.

    Maria Cattaui: We can take one or two questions and I’ll ask you the following. I'm just standing up so I can see you all better. Please state your name and I am going to be equally discourteous to everyone, 30 seconds a question, not a long comment all right. So I ask you to state your name and then ask your question, the question right here.

    Rosemary Segero: Good morning honourables. I'm the President of Hope for Tomorrow. I come from Kenya but I am based here in Washington DC. Our organisation is for empowering women and young people through agriculture.

    Maria Cattaui: And your question?

    Rosemary Segero: My question is Mr. Chairman, the Chairman for Nestlé, 80% of African women grow still on the farm in Africa where the chocolate comes from, where the cocoa comes from. And when you talk about creating shared value these are the women for sure who need more created value because they do more work of what you are using as cocoa. What do you think about that and how do you work with the women in Africa on the land? Thank you.

    Maria Cattaui: Wonderful question. In fact we will have on our panel, looking at Africa, Ruth Oniang'o who I'm going to really question on that issue. Any other questions?

    Fred Smith,
    Competitive Enterprise Institute: The idea that's been done by the panel over the creative role between government and the business community is a critical one, but of course as you pointed out in the panel some are responding responsibility to each firm for essentially solving all social issues, all social responsibilities. To solve any problem business needs prerequisites, they’re designed to solve a specific set of issues. Mr. Brabeck is not responsible for energy challenges and so forth.

    And things like water which is the subject of this would be facilitated where we had a wider array of contracts, property rights and so forth, does business have a responsibility to ensure that the institutional prerequisites for business playing a more socially responsible role are promulgated throughout the world? Or should business be passive and wait for business to play that creative, entrepreneurial, institutional role?

    Maria Cattaui: Thank you very much. Very interesting question, I think both of you might be able to answer this. We’ll take one last one over here.

    Sanjay Bhatnagar,
    WaterHealth International: From WaterHealth International, one of the companies that are highlighted in Mr. Porter's article. I have a question for the panel. We just heard that you know there seems to be a growing dissonance between NGOs and private companies and my question is, to the extent that NGOs mostly view the communities as aid recipients and businesses view the same communities as customers how do you sort of bring about a coming togetherness of these ideas before we can hope for some degree of you know living in harmony?

    Maria Cattaui: Thank you very much. And one last one.

    Paul O'Sullivan,
    National Defense University,
    Georgetown: Mr Kempe you mentioned visionary leaders. Where do you think these creatively strategic leaders will be coming from?

    00:36:38
    Maria Cattaui: Short and difficult. Peter would you like to take on, the question on Africa I'll leave you if you wish to look at it in the Africa panel or now, and of course on water, the prerequisites and should business be involved in that part?

    Peter Brabeck-Letmathe: Yeah perhaps only short because really afterwards I think the Africa panel should go into details. But what I can tell you is very clearly our message in the recent forum in Africa was that one of the biggest issues for women in Africa is the legislation. Women in Africa and most African countries don’t have the right to be owners of land, and this especially for the smallholder farmers is a huge problem. They cannot inherit it; they cannot - so this is one of the points where you’re absolutely right which has to be pushed forward.

    The question about why should and how should business get into the water issue. You might know that I am also not only the Chairman of Nestlé, I'm the Chairman of the Water Resource Group which is a private public partnership composed of the World Economic Forum, the IFC, here from Washington, McKinsey, and we have about a handful of multinational companies working there. And we have been establishing an analysis of the 154 water basins of the world because what we realised when we looked into the water situation that we already today are overusing water substantially.

    And this over usage of water goes of course at the cost of the environment because that's where water also is necessary and this is the reason why five big rivers don’t bring water any more to the sea and the Aral Lake for example shrinking down in 25 years by almost two thirds. So this is the one who pays for the time being for our water over usage.

    But if you look into the future and if we take this challenge as Fred mentioned before, especially demographic growth and things like this, we know that we are going to run into a huge, huge water shortage. Now the answer to the question, if we know that this business, well - and we are realising that water is the most precious resource that we have on earth. When we know that we are running out of water long before we are going to run out of oil or energy, long before. We have energy reserves for the next 250 years; we have water reserves not even for the next 20 years.

    Well I think then it’s up to the business to stand up and speak about it, because if politicians don’t do it, if at this case NGOs only talk emotionally about the 1.5% of water we store which we need in order to hydrate and to have the minimum hygiene which I fully agree is a human right. But if at the same time we are misusing water at the 98.5% because we just don’t give any value to the water, to the most precious resource that we have. Well if nobody stands up I think business has to stand up, because without an assured water supply there will be no Nestlé in the future and that's the reason why we stand up and say we have to do something about it. And we created this private public partnership.


    Maria Cattaui: I think we will come back to that very interesting question on the different objectives and aims, the different tracks on which NGOs and companies could be seen and whether they can converge. And I'm going to ask in another panel Ann Veneman among others to really answer that one in depth because it raises a lot of questions that we need some time to see what convergence can be looked at.

    Could I turn to you for the really easy one? The great leaders of tomorrow.

    Frederick Kempe: Yeah and let me take maybe two sentences to the other issues. The great leaders for tomorrow, if you looked at the Marshall Plan it was unpopular, it was not something if you had a public vote that people would have supported. But leaders at that time were willing to say; you know the way we see the world going this is what we ought to do. And it takes - a visionary leader really is a leader who is willing once in a while to act not out of domestic political interest but out of global interest or out of the public good.

    So I don’t think it’s going to be that hard because it takes a courageous leader to do that. And then I think one will see it being reinforced but I do admit that the current political situation, it’s difficult. And so you have people like Steve Jobs and Bill Gates and you have your visionary leaders in other fields.

    Very quickly on business being passive or not passive in public private partnerships, I think active. I think business has to be in this town much more; this is why I'm so happy that Nestlé has come and done this in Washington because these are the voices that have to be in Washington. We’ve created an International Advisory Board of global chief executives for that purpose. And one of the things we’re looking at is maritime security where you have a real problem on the West Coast of Africa that can’t be solved by the countries that don’t have the resources. The oil companies have lots of resources and they’re losing billions of dollars from piracy and various things, so you need to get US, perhaps Brazil, perhaps African countries, working together with the oil companies and NATO and others, and then you could really do it.

    And then finally NGOs working with private companies. We've set up a Michael Ansari Africa centre and the whole point, it was a shock to us, that communities that should have a common interest in sustainable security and sustainable prosperity in Africa because that's what we talk about, we don’t talk about aid, we talk about sustainable security and sustainable prosperity, have got to be the NGOs, the private sector and yes also the military. They don’t talk to each other, they don’t talk to each other at all so part of what we’re going to try to do is bring together these three groups because you can’t really fix problems until these - and then if they start talking to each other on a more regular basis I just can’t imagine that it wouldn’t open people's eyes to common interests so we’ll look at that.

    Maria Cattaui: It would be good if that happened within governments too. In many countries, the Environment Minister and the Finance Minister never see each other.

    Frederick Kempe: That's also a problem.

    Maria Cattaui: Apocryphal but it’s also a problem. Ladies and gentlemen we’ve come to the end of this session but I received three very interesting questions from the webcast all of which are particularly relevant to our closing session, our last session on the way forward which Peter you will be in again. So I'm going to look at them now and leave you some time to answer them because they’re absolutely relevant to that.

    The first one is, these are from Sweden, they’re very active in Sweden, well of course it’s the right time here. The concept of creating shared value within Nestlé, did it come out of a conscious and intentional process or did it come out of an unintended consequence of sourcing, production and marketing that was carried out? And if was intentional what processes do you use to guide the company to prioritise the most efficient choices and to meet the expectations?

    The second one which I find equally interesting for that session will be is there any public material that shows the net social performance of the externalised costs and shared value created by Nestlé and are they checkable?

    And finally, this is I think useful also for our two upcoming panels, so the two on Latin America and on Africa if you could keep this one in mind. With the growing distance between agricultural food production and consumption, and with increased disposable income it is increasingly important to ensure that losses and waste in the food supply chain can be reduced as much as possible. What is the role of the different actors, particularly here the corporate sector is asked, to curb this waste that occurs after processing and especially among consumers? And with whom and how can such a responsibility be shared?

    I think these are excellent questions for our forthcoming panels to look at. And with that may I ask you to thank our two panellists of the opening session.

    Applause

    END


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  • Creating Shared Value Forum 2011 - Session Five Transcript

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    Atlantic Council – Nestlé 2011 Global Creating Shared Value Forum

    Washington D. C. May 19th 2011

    Transcript of  “General Conclusions and Lessons learned"

    Maria Cattaui: So, as everyone knows, Chuck Hagel is the Chairman of the Atlantic Council, one of our hosts today, and of course a former US Senator. And Paul Bulcke, who is the CEO of Nestlé.

    And what we thought we'd do is perhaps just have Paul bring us up to date on a few ideas of this conclusion which is really the moving forward towards our time horizon of 2030. But just some of the key ideas that might have come out, some of the ideas that you would like to leave us with, Paul, after this intensive day.

    Paul Bulcke: Thank you, Maria. I think you all agree this was quite an interesting, straightforward discussion we had today, and it's always hard to sum up after we touched quite a few points. But just a few key points.

    Actually Fred Kempe started to talk about the fact that we're living in very interesting times - times of inflection points. Actually he mentioned that we were living in times with inflection points as important as the Industrial Revolution or at least inflection points that are the most important times after World War 2.

    And these points create huge opportunities, where then the optimism comes in - opportunities to create value, and they will come with creating shared value, but create value for shareholders or to go about business - business opportunities, but also opportunities for society, opportunities for business to go about business, to mention what Michael Porter was saying.

    Also an opportunity for long term, as Peter was saying, long term sustainable, profitable growth. And I would say long term, sustainable, profitable, inclusive growth, which is then linked up with quite a lot of other discussions we have.

    Actually it is a huge opportunity for the concept of creating shared value, and if you think about the concept, it is linked with the society working more closely together.

    A good way of defining created shared value is the fact that it is intrinsically embedded in how we go about business, and it stands a little bit against sharing created value. Let me explain that. Creating shared value is intrinsically linked in what you do from 1st January to 31st December. And sometimes sharing created value may be at a certain point in time just before Christmas.

    And so that to a certain extent is quite a good, I would say - playing with words a little bit - but what there is - there is a convergence, I feel, a convergence of interests in society that was not so felt in the past. There is no conflict of interest. We are all partners, and all stakeholders in society at large.

    And we spoke about the role of engagement of women too. Ruth was quite vocal on that, and that's very important too. And if you see in the developing world how women are actually the stabilising factor in society and families, and how they are also a very dynamic factor in farming, and farming linked with rural development. And rural development linked with basically the development in so many parts of the world.

    We spoke about nutrition too, and women again - with nutrition, education - women are very important to us for Nestlé. The consumer base is quite female, but also we have a keen interest in our employees and so on.

    We spoke about differences in culture, and how actually value is created related to the different cultures in the world. And there is no one model. And we just heard it in the last panel again - it is not so that the western model is the model going to be that we export and implement in every part of the world. There's going to be what we call sometimes reverse innovation. And we see that's coming now with the developing world too, and how then again the created shared value is meaningful when we as companies or business really drive the business in the environment and with the dynamics of every country. We spoke quite explicitly about that when we spoke about Africa.

    We spoke about the need to measure this created shared value. And we spoke about the financial accounting and then also that social, and how we have to link one with another. And to a certain extent we should do that, but you measure the end - the best measurement is continuous business success over time. Because that's the best reflection that something is going well.

    And then also you can then measure also how society is developing, and there's quite a lot of measurement there too. And how these two then converge.

    I would like now also, in conclusion here, to remember when speaking about creating shared value that we have the Nestlé in Creating Shared Value for 2012, which is - as you may know, it is open to individual, governmental and non-governmental organisations or academia, small enterprises - going very creatively about the concept of creating shared value, with very new ideas of how actually the entrepreneurship, linked with society, can be a developing factor.

    And we spoke about the example of last time, the last prize which was a project in Cambodia. The prize, the winning entry will benefit of an investment of CHF 25,000 to further develop the concept and to make it work. The nominations are open until the end of June.

    I want to thank also, from the part of Nestlé for our partners today - Chuck Hagel, Fred Kempe, and everyone at the Atlantic Council who has been providing us with such great support, and also logistics.

    Maria Cattaui: We're going to have to make him work for his thanks.

    Paul Bulcke: But I want to thank you, also, and dare I say it - unparalleled moderator - Maria Cattaui, who is truly the best in the business.

    Applause

    Paul Bulcke: And, Maria, may I give you - hand you over a small token, as an expression for our appreciation of -

    Maria Cattaui: Oh my goodness!

    Paul Bulcke: All these discussions …

    Maria Cattaui: This is the sharing created value part, yes. This is the part that I like.

    Paul Bulcke: Share some created value, yes.

    Maria Cattaui: But I have to earn it first, because I've got to - oh my goodness! Oh that's absolutely magnificent. Look at this, will you. Will you look at this, Senator?

    Chuck Hagel: That is spectacular.

    Maria Cattaui: Isn't that absolutely spectacular? No, you're not going to see it.

    Laughter

    Maria Cattaui: It's kind of heavy. It's absolutely magnificent. And now I'm going to try and earn this by talking with you for a few minutes -

    Chuck Hagel: You do not have disclosure rules?

    Maria Cattaui: No, no, no.

    Laughter

    Maria Cattaui: Thank you very, very much, and look, one of the things that came out in our discussions today was the opportunities that arise for business in making a serious profit while also addressing societal issues. And that the two, rather than being in conflict, or rather than it being let's say a philanthropic effect, it is actually - as Paul has said - it is something that is embedded in the business plan and the operations and business in the profit making, if you wish, for both society and for the businesses.

    And we discussed at some length also extending this into companies around the world - stronger - it's the post, if you wish, CSR. It's the new approach that makes sense as we move towards a world with a lot more people and a lot less resources.

    I guess the question I would have is - why should it matter? Why should we be spending this amount of time and this amount of effort? Why should companies do it? Why should it matter? And particularly in the US - should this be something that makes a difference also in the United States?

    Chuck Hagel: Maria, thank you, and thank you for your service, and especially keeping this group of ne'er do wells on track today. I know it's not easy. Paul, thank you. And on behalf again - I know Fred expressed this this morning - the Atlantic Council - we very much appreciate partnering with Nestlé on this event and others in our past associations.

    As to the question; Paul used some terminology that he referenced has been used in good measure throughout the day. And it's a reference to confluence. Your question is about the confluence of interests. When a confluence of common interests comes together, then almost always there will be, at a minimum, some modicum of success that will be achieved. Profit, Paul talk about value added. Stability, security, making a better world.

    Because throughout history it is rather complete that it is the human condition that drives history. The Tunisian fruit vendor set himself on fire not because he was advocating a philosophical point of view or some kind of a governmental philosophy; he set himself on fire because he had been stripped of his dignity, he felt he had no hope, and he felt that his country and his people - and much of the region - were now locked into a cycle of despair.

    So if a company is to do well and prosper, and enhance society not just their shareholders - because their shareholders are part of society - then that must include - yes, growth; yes, productivity; yes, that goes with prosperity. But also stability and security and hope, and the possibility my children will have opportunities to do better and make a better world.

    It all does come together, and I think you noted Fred's comment this morning that we are at one of those great historical confluences. We can not be wise enough to maximise these possibilities, but we are in the middle of - all seven billion global citizens - of building a new world order. That's what's going on here.

    I was at this morning at the Bretton Woods Conference, and I opened the session with the President of the World Bank, Bob Zoellick. And we talked about some of these general themes. And we all understand, I think - we're getting to the sophisticated issue of this point that, without security, without stability, without hope, then the world is going to get pretty messy. Because the world that we live in is complicated; it's combustible, and it is completely integrated. And we need not to go much beyond the global financial crisis of the last three years. There wasn't a country, a population, a people, untouched by that.

    So, yes, it's important that all these factors come into play and that it is completely, totally, comprehensively in the interests of business to pay attention to all these social elements, because only through a resolution of many of these challenges - especially now in the 21st century - and some success in moving them to higher plains of achieving objectives and making a better world for more people - for all of society - the hope of that possibility. It clearly is in the interests of business, and business can't succeed without it.

    Maria Cattaui: No, very clearly. We don't want to keep you long, but we have you here. So we do want to see with you some of your thoughts right at the end of our afternoon. So we're a world moving towards 10 billion people very shortly - very, very shortly. And the last years, the last decade has seen this incredible growth. And as we do that, we were just wondering - your view; you talked just about a change in the way that the order, or the governance, will happen. Do you have any thoughts that you want to leave us with on that score?

    Chuck Hagel: Well, I wish I was wise enough to contribute something to that question. But I would make this observation. I think we are, all of us in the world, and as you know the demographers say it will certainly be 9 to 10 billion by 2050. We are, I think, working our way toward a more and more decentralised world, meaning that it will be the individual nations and people and communities that will take on more responsibility for their own actions versus, for example, the last 65 years, when a few nations really made all the decisions for everybody.

    The United States of America was uncontested completely since I was born, and I was born at the front end of the baby boom generation. My father came back from World War 2, married my mother six months later, and I was born nine months later. I did check that.

    Laughter

    In my business you don't leave anything to chance.

    Maria Cattaui: No, check your birth certificate; exactly.

    Chuck Hagel: So I'm not the smartest guy, but I did figure that out early. And so, as you follow through where we are, where we've been, where we may be going, taking nothing away from the fact that the integrated institutions - and I think alliances and institutions will play as big a role - or maybe larger - than they ever have. And we formed a new world order, we being the United States and our allies after World War 2. We built coalitions of common interests, coalitions of common interests.

    What does that mean? That means that we built the United Nations, Bretton Woods in 1944; prepared a monetary system for the world - the IMF, World Bank, General Agreement on Tariffs and Trade, now WTO; multilateral banks, institutions, development banks - all those played a huge role in the great progress we made.

    Now the trouble - the most troubled areas of the world, and if you really want to flag that up - it's the arc from North Africa all the way across the Middle East, Persian Gulf down in the central south Asia - those areas were left behind. They didn't benefit. And so the common interests of the organisations and institutions did tremendous things for mankind - let's not forget there was no World War 3. And every one of our great leaders after World War 2 went to their graves concerned about a World War 3 or a nuclear exchange.

    That's not happened. I think you could make a pretty strong case that in any endeavour, area of expertise, focus for humanity; we've made unprecedented historic strides. Food production, science, health, technology. Now it's complicated because we have to manage all that; but nonetheless that continues on a very important path - those institutions, those structures, those venues, those boundaries that give all of our nations and nation states and societies some boundaries to work within.

    However, it does not negate what I think the decentralisation component is going to be more and more. And I'll give you one more example of this. What's going on in the Middle East today? North Africa? The United States of America has very limited influence on the outcome. Switzerland, Great Britain, NATO - I mean, NATO is, for example, divided on Libya.

    And so it will be up to the people of those areas. We can help influence, we can help shape, we can help - the President of the United States' speech was today - I mean, that was his message today. But we can't impose. That has been one of the great lessons of the last 65 years. A nation cannot impose from the outside or dictate. You will be a democracy, you'll be damn happy about it, and that's the way it will be, and you'll all be little Americas.

    Well, it hasn't work that way, and it won't work that way. And that's my point about decentralisation. The people of Egypt, for example, are going to have more to do with the outcome of the Middle East than any one influence that I can think of. Now I may well be totally wrong - I've been wrong many times before. But I kind of see it happening that way.

    Maria Cattaui: One last question - when you talk about it - I don't want to call it fragmentation, but it's very localisation of things. There are many people who also think that, over time, as we move towards this highly urbanised world as well, that cities will become centres of gravity of governance. Just leave with you a final word on how you see the shape of our world as we will be governed over the next decades.

    Chuck Hagel: Well, I wouldn't necessarily equate where we are today with the Treaty of Westphalia, but I think there are some parallels. Now I'm quickly out of my depth here. If we had Henry Kissinger sitting here, he could talk about it; but my expertise is limited. But I use the Treaty of Westphalia because, as we know, that really established the nation state concept. And that was critically important to civilisation and to boundaries and to unifying societies. It wasn't that long ago there were many of these present countries, like Italy and Germany, that were really not formed until the late 19th century.

    And so we're not that far away from - a few hundred years from the Treaty of Westphalia - but not that far away from the last part of the 19th century. So where I think this will tend to go to your point about urbanisation, that's probably right - for a lot of reasons; if for no other reason than when Paul was talking about, when I walked in at the last panel, and I heard the last part of the conversation - is food production and resources.

    Your point about putting 9 to 10 billion people on the face of the earth by 2050; that means an astounding demand on resources. And the human condition, as I said earlier, always drives everything - it drives policy. Then you add to that budget restraints. Now right across the street, where I used to work, there's almost every - those are constraints that will have to be factored in that will project on policy and direction of a company, of a culture, of a society, of a nation.

    I'll end this way. I'm hopeful; I'm very hopeful. I see some tremendous historic opportunities. We could screw it up, and we might. But I tend not to believe that if for not other reason - it's just better, easier to get up in the morning and feel hopeful than the world's coming down on top of you.

    Maria Cattaui: Well in that case you join the business community which wouldn't exist if it weren't positive and hopeful. I would like, on behalf of all of the audience here and the people watching us on the webcast, to thank you, sir, to thank the Atlantic Council - Fred Kempe; and to thank Nestlé - Paul and Peter - for having hosted this. And I hope you have enjoyed and learnt as much as I have.

    Thank you all very much.

    Applause

    END


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  • Creating Shared Value Forum 2011 - Session Four Transcript

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    Atlantic Council – Nestlé 2011 Global Creating Shared Value Forum

    Washington D. C. May 19th 2011

    Transcript of “Looking to 2030: The Way Forward for Business, Government, and Development”

    Maria Cattaui: Our last panel is going to be looking at 2030, and it is on - exactly the question many of you have raised - how business, government and its agencies can work really best together with the international world in the development.

    I’m going to show a video. So we will begin with the video, as we did before, a very short one and I’ll ask you to roll it now.

    Video: Today’s problem of society cannot be solved by anybody alone, it cannot be solved by business alone, it cannot be solved by government alone, it cannot be solved by NGOs alone. It will only be possible to solve those problems if we find a way to work together. Our resources are not infinite, our resources are finite and therefore a model as we have it today where we are using resources as if they were eternal is not a sustainable model for the future.

    I don’t think corporate social responsibility, which is a philanthropic concept, is something that a CEO of a public company has the right to embrace. What we realised when we looked into the water situation is that we already today are overusing water substantially; and this over usage of water goes, of course, at the cost of environment.

    Business being passive or not passive in public/private partnerships, I think active, I think business has to be in this town much more and this is why I’m so happy that Nestlé has come and done this in Washington.

    In this interconnected world the way of thinking about that interconnection is shifting. The traditional paradigm was one when we saw problems flowing from south to north and solutions flowing from north to south. I think increasingly we’re understanding that actually a lot of problems do flow from north to south, for example the examination of unhealthy and unsustainable lifestyles, governments when they are elected democratically; their members are members of society, they come from society, they represent society. Businesses are not foreign objects; they are members of society. The glue that puts us together is a mutual accountability.

    As long as we are going and misusing water for other things but the production of food and for human beings and for the environment, we have a problem. And the fact that we are spending 4,600 litres of water to produce one litre of ethanol, or 9,100 litres of water to produce one litre of pure diesel, is just another sign of the misbehaviour we have with water. I mean if we just put water, give 0.5% of the value, we wouldn’t be doing those things.

    I definitely believe that the growth of Africa is going to come from within and that’s why we as a company have to understand that and have to really live the dynamics of the development from within. So yet there is an enormous potential; you just see also the macroeconomics of Africa. The last 10 years GDP went up 4% to 5% every year; the consumer spend is actually much bigger than India, the consumer spend in the whole continent.

    Maria Cattaui: I cut you off because I wanted you to go on the stage, so we wanted to finish up here. Look, that was amazing that we heard just what was said a few minutes ago up on there, so well done to the team that put that together.

    I’m going to call up now on the stage the people in the last session: Julie Howard, Deputy Co-ordinator for Development US AID and Director of Feed the Future, Michael Porter, Professor at Harvard Business School, Lars Thunell, CEO of the International Finance Corporation, Ann Veneman, former US Secretary of Agriculture and former Executive Director of UNICEF, and Peter Brabeck, Chairman of Nestlé.

    So I don’t know if you heard a little bit about the last session, but I'm very, very glad that the last part of the video, Paul, was you, the cry that we shouldn’t be pessimistic about it. The problems are vast, but the pessimism is unfounded.

    We’re going to go right into our session because we’ve heard, over the last while of today, a whole series of examples of how we can use, harness, mobilise the idea of creating our shared value in Latin America and in Africa and actually beyond.

    I'd like to start out this session with you, Lars, to look a little bit, you heard briefly here. In the next decades obviously we’re going to need absolutely huge, vast improvements in productivity in order to feed the world. What is holding up, in your opinion, the necessary investments, the necessary interest, if I could say? Why is agricultural productivity sort of the poor child, we are talking about it here, which you don’t really hear that much outside? Why?

    Lars Thunell: Well, I think there's a number of issues that are coming together and stopping it. I think on the video we saw that in solving this problem you have to have the government involved, you have to have the public sector, you have to have the civil society and we talk about the private sector as both the big companies and the small companies.

    And you have to change the way we actually have been working, and I’m sure you discussed earlier today the needs are huge. And one of the problems we have had is that the markets have not been working very well and I think that’s one thing that we have to start thinking about.

    Maria Cattaui: In which way the markets? You're talking about the trade?

    Lars Thunell: I'm talking about the trade; I’m talking about the subsidies. The fact is that I think Europe is giving a dollar for every cow in Europe.

    Maria Cattaui: Yes, giving a one-way air ticket right around the world.

    Lars Thunell: In contrast to what we give to foreign aid, to just take one example, and I don’t think that that means that the system is not working. What you need to do is change the regulation, let the market work. We need new regulation, as I said; we need to build capacity, especially among the smaller farmers.

    We need to bring financing for the small holders into the system, we need to establish. One of the big problems we have with infrastructure or with the supply chain and the agricultural chain is the whole question of infrastructure, roads and everything else.

    We know that 40% of the food produced in Africa, just to take one example, is destroyed on its way to the consumer. We need to change that and one way is to bring in good, efficient infrastructure and supply chain management.

    We have, for example, in India, we’ve worked with the cold chain so that you can actually bring in refrigerated products, milk, from the rural areas into the cities.

    I think these are just a few of the things that we should do and one underlying thing is land issues, land regulation, because as long as we don’t know who owns the land it’s very hard to actually get efficient structures in place.

    Maria Cattaui: We mentioned that earlier on also today, both in Latin America and in Africa. How can you change that? What would be needed and how can an organisation such as yours mobilise such a change?

    Lars Thunell: Well, we are working very closely with our friends at the World Bank who are really the ones. Of course, this is a government issue; the governments have had to resolve it and part of it is laws and regulations but then it’s also very practical things: how do you establish a land registry, how do you keep track of who actually owns the land?

    So you have to go through the whole chain of these things and this is being done in many countries. And you see, this was in Lima, on the outskirts of Lima, and it was actually in the slum, and there they had put in place so people knew who was owning the little lot, and immediately you started to see investments because people then could build their houses.

    You could see how the little shacks became one-storey houses and two-storey houses because people owned their houses suddenly, and I think it’s the same thing with farms. You can invest and put in irrigation and other things, if you know you own the land.

    Maria Cattaui: You're obviously knowledgeable, particularly about the difficulties of financing in certain areas. We talked in the last sessions, Lars, about let’s say the barriers towards the investment climate for agri business is really not the best. And Clive Tasker, who was sitting here from South Africa, was explaining how you can help investment in finance, in small farmers lending because it’s very, very risky and you need some sort of risk mitigation or help on these things.

    What would you suggest and what are you doing in this area?

    Lars Thunell: We are trying to do a lot. We work both with the banks in trying to help them to take more risk and it means teaching them actually to go down-market and help them develop some of their products.

    We work with some of the traders and buyers of these commodities. For example, we have a project in South America, Central America, with Nestlé and ECOM, a big trader of coffee. And we help them extend and take some of the risks in financing the small holders; we share some of that risk with the banks and with them.

    So these are things and we’re also working and trying to develop in Africa now what’s called weather insurance so you can actually insure whether you have drought or whether you have too much rain and people get paid for that.

    We’re trying to build that into loan products, so you have your life insurance and your mortgage product, so you can start to reduce some of the risks.

    Maria Cattaui: Are these things making a difference, in your opinion?

    Lars Thunell: I think they definitely will.

    Maria Cattaui: They’re not just small, separated, fragmented projects? You think that they’re building up a corpus of?

    Lars Thunell: I think what we’ve seen, and this goes both for small holders as well as for SMEs, and by the way one very important part, I think, we have to remember is that the small farmers are business people. I met with the largest union of farmers in Malawi and he told me, the first thing he said was, don’t look at us as a union, look at us as an association of business people.
    And I think that’s very important; that’s one of the required things as we move forward. And therefore I think the more examples, the more banks we can work with, the more small holders we can work with, we can never solve the problem for the world if you look at IFC and the World Bank.

    But we can be a catalyst for change; we can show and have the demonstration effect, we can work with companies, as we do with Nestlé, and help show the good examples. And then they can see that this is a good idea and they can find others like us to help fulfil that gap and work with others in their organisation.

    And we can work with other companies like Nestlé in other parts of the world, so I think this is how you get the wave spreading.

    Maria Cattaui: Lars, thank you very much. You’ve brought up something that I want to ask Ann Veneman about. We have been all day long talking about cooperation between the various actors, the business world, the intergovernmental world, the international world, if you wish, local governments, NGOs, as if, well, the examples that were given were obvious, it was easy to do, you just get everybody together and it happens.

    But Anna, you who have had experience both in the intergovernmental and in the private sector, how do you actually build all these pieces together in agriculture, particularly in the areas that we’re interested in? And is it quite as easy as those who have been here and shown us how it’s done? Is it quite that easy?

    Ann Veneman: I think that’s a loaded question. I think it’s first of all important to recognise the environment in which we’re operating today. We have been working for years and years in development in the developing world in a way that has been more about aid than economic empowerment.

    And I think that what we’re seeing today is a real recognition of the fact that we have to really work together to look at how to economically empower people, not just give them aid. We have seen way too many examples of people going into the developing world, starting a project, the funding runs out and it goes away because there's no plan for sustainability of that kind of work.

    And so, as we look at how do you create economic empowerment and true economic development to create sustainable change in communities, I think we then have to look at the structure of how we’ve operated in so many of these countries in trying to create economic development.

    We’ve had government working it its silo, we’ve had civil society working in a silo and we’ve had business working in its silo with very little co-operation and co-ordination among these actors.

    What I like about the concept of creating shared value is you begin to look at - how do you do good for society while you're creating value for the shareholders? How do you really create the kinds of societal change that will give you that educated workforce in your community over the long term, that will give you the kinds of cooperation that you have?

    Now, is it easy to bring the players together? No. There is a lot of engrained perception out there about civil society in particular working together with business.

    But I think there are opportunities to do so in ways that we can really address these issues. I think when you look at the issues of rural development, for example, you have to look at creating jobs, but also you have to look at that rural community where you're creating those jobs, if you're a company.

    How do you help to create an educated society to have those people to work in your plants over the long term? Because companies want to come in, create a plan and be there for the long term. How do you make sure you have a healthy workforce?

    Nutrition really comes into this, as was mentioned earlier, because if you don’t invest in the nutrition of the population at a very young age - particularly under two - beginning with that pregnant mother, you'll impact that child’s cognitive ability over the long-term which will then impact your ability to learn in school and earn as an adult and be a productive person who will work in the economic development of that community.

    So I think we have to look at this from a very holistic perspective. We have to look at - how do we move a co-creative kind of environment at a community level to change economic development for the long-term and in a sustainable way?

    Maria Cattaui: And how hard is it from your experience to get concrete projects actually off the ground when you’ve got several partners in it, we’re all advocating this kind of partnership and one needs another and no one is being silo’d and so forth? But how hard is it to get them actually engaged? We heard this morning from Latin America than one of the panellists was saying that government business seems to be managing some things together and some projects and some strategies and then suddenly we don’t have from the society the feedback and the input that we and the engagement, or the other way around, there’s always one that doesn’t seem to be, it’s difficult to get all three as they put it, converging on it.

    What’s your experience on this and what do you suggest could be done

    Ann Veneman: Well I think there’s many examples of civil society in government working together on the kinds of programs the government needs to adopt to advance their education, their healthcare, the systems that government often provides. I think where there has been more of a disconnect is how does civil society in particular and business engage? How do you create that synergy between - because it comes from an underlying distrust over many years of not feeling the government came into communities to do the right thing in the developing world? And that’s where I think that the concept of shared value really changes that paradigm. And so I think it’s a challenge.

    Now I do think there are promising signs, particularly with some of the smaller, younger organisations that are coming in and trying to do much more of a social business concept. I’m so impressed with some of the young people I’ve met in, I’ve just met a guy the other day, it’s on a small scale but he’s creating schools and communities, not just building them but going to the education ministers and making deals with them about providing the teachers, looking at the quality of the teachers, the community decides they want the school and they agree to build it and put up 20% of the financing.

    Now again, this is a small programme but I had a conversation with him and I said - do you know about the concept of shared value, do you know about businesses wanting to come in and do things and what about if you started to partner with businesses who were building a plant, for example, in a community and you would provide that service to them to get the education into the community to create that educated work force for the longer term? He was very open to it.

    Now if you talked to some of the people in some of the older organisations they would not be open to this kind of collaboration.

    I was in Ethiopia two or three years ago and I visited an operation that was producing flowers, roses for export. It was started and run by an Ethiopian who’d had experience in the US. He got a Dutch investor and of course they know a tremendous amount about the flower growing business so he was doing everything right and he had almost all women employees in this greenhouse operation.

    They had also invested in a hospital, they created the hospital and they created a primary school, a secondary school and a vocational school. I said - Why are you investing so much in the community? He said - Because we want to be here for the long term; we want an educated workforce and we want a health workforce; and we want to help take care of the families of these women who are working with us and for us.

    And he later asked me if I could help him get civil society to then help actually staff the hospital and get the right kinds of people in there. And it was very difficult to get traditional organisations to agree to come in and help with this, but for me, it would have been exactly something that some of these organisations that work in these communities should be doing.

    So I think it’s sometimes very difficult to bring together the partners, but I think it has to be done at a global level as we are having a global company talk with global partners. But unless you can get people in the countries, in the communities, in the countries where the work is being done, to come together through business organisations.

    I used to say to the people at Unicef - why don’t you all join the Rotary Club and learn how to work with the private sector and see where the investments are being made and how together you can work to create better development?

    Maria Cattaui: Thank you, Ann. Julie, you’ve had a long experience in food security and private sector involvement, what are the kinds of lessons you’ve learnt from that kind of partnership to supplement what Ann is saying or have they been very different in Africa, for instance?

    Julie: No, I mean I think my observations are very complementary to Ann’s. When I think back about what I’ve learnt over the past 15 – 20 years, it is something that I learnt again when I was looking at your biography earlier today.

    When do you need leadership, you need leadership when the task is too big for anyone to do alone and you need to learn how to work together. And the second sort of key observation is well where’s that leadership most important, it is most important at the global level but we’ve been focusing on that quite a bit, the leadership actually has to come from the country level. And I think we haven’t been so good in either the NGO world or the government world in sort of recognising what is it that we need to build those institutions, to build that leadership in government, be it in local private sector, be it in civil society to create the kind of ownership for and the kind of ownership of strategic priorities, the kind of stake in making things successful.

    So I think that is really the most important thing

    Maria Cattaui: It’s been sort of left to the side. Earlier on I don’t know if you were here Julie, everyone was talking about in Africa for instance, we’re not going to get anywhere without massive investment in infrastructure, that takes very big money to handle. So does building up individual capacity as they call it, or individual breeding if you wish and how do you say it, educating, more than educating, getting a deep knowledge of people and governance issues and on leadership issues.

    Where is the money actually going? What are the next steps? I mean, you’re in the USAID, you’re in this field, where are you making your priorities?

    Julie: Well, let me step back for a second and say I’m actually not in USAID and I would say that I’m deputy co-ordinator of the US government’s inner agency effort on food security. And so I think my sub title is silo breaker. And what does that mean, it means that in the US government President Obama, Administrator Shaw has recognised that we can’t do this alone, so US Aid cannot make progress alone, we need to work with our partners and the rest of the agencies as well as our external partners, our multi-lateral, our bi-lateral partners and most important with our leadership on the ground. So that’s one thing.

    Where are we going? I think actually we’ve made quite a lot of progress over the past 10 years, I mean I was going to take an opportunity to maybe disagree with your opening statement, that the world is not recognising the importance of agriculture and food security, because I think two years ago in L'Aquila, President Obama with other world leaders mobilised commitments of over 20 billion dollars from world leaders to bring up food security and also recognise the importance of nutrition security.

    So I think that has created a framework for us all to work together but even before that, back in 2003, I see my friend Ruth there who knows very well the Heads of State of Africa committed themselves in 2003 to raising their own investments in agriculture and food security, 10% of national budgets

    Maria Cattaui: And is it happening, do you see actual changes in this respect?

    Julie: We’re not all the way there, but there’s definite progress and definitely progress on the other goal, not just investing but also results, these same leaders committed to 6% agricultural GDP growth rate and many of them have already exceeded that.

    So what is needed? I think we and donors and our partners in Africa and elsewhere have really made progress over the last several years in creating - what’s the platform at the country level? What’s the platform at the regional level, where we can actually begin to operationalise these fine words, these fine statements of partnership? What does it actually mean?

    So we see in the comprehensive Africa Agricultural Development programme, and we’ve had this opportunity to bring country leaders together with donors, and we’ve had an opportunity to ask country leaders to say - you consult with your private sector, you consult with your civil society leaders, you consult especially with the evidence and tell us what your strategic priorities are, what will you put your political …. behind?

    Maria Cattaui: You know, Julie, just to finish up - this session and the Atlantic Council and Nestlé have looked at this forum with a sort of 2030 horizon, if you wish. We’ve been having 20 year horizons for a very, very long time, and I’m not so young - I remember them since the 50s we kept talking about 20 year horizons, that we’ll get this happening. What kind of horizon do you have in mind and I don’t mean that you are planning it but what kind of horizon do you think it will still take us until, we’re not going to achieve the millennium development goals so what kind of horizon are we looking at, particularly in the areas that interest us

    Julie: Well I think we have to look at a long term horizon, I mean we can’t afford to put ourselves in one year increments but that doesn’t mean that because our long term goal is 30 years off or 40 years off or 50 years off, that doesn’t mean that we can’t set shorter term objectives. And I think the previous panel also talked about the importance of accountability, I mean to me that is the big missing thing in all the discussions right now.

    We talk about accountability but in addition to these platforms for co-operation, how will we know whether we’ve succeeded, we need to be very transparent. What have the US put in, what have our partners on the ground put in, what have the private sector put in against the targets? Is the target reducing malnutrition to a certain percentage? What are we all doing against that goal and agree at country level, at global level to come together and say - well how are we doing? - not only in terms of resources we’ve put forward, but what are we actually achieving with that?

    Maria Cattaui: It’s a very interesting question, rig up and accountability and I don’t remember at this moment where I read it but somebody once brought up the real question about accountability when an inter-governmental organisation, not a business working in a country, an inter-governmental organisation, for instance, or a government, gives some aid, somebody in that country Ruth, a woman farmer, who is she going to call up and say - Lars, Julie, it didn’t get to where it was supposed to have gone.

    So the accountability disconnect between the very local and the kind of feeling we have about chucking aid at things doesn’t quite work out because we’re used to holding the nearest public office accountable, so to speak. Here it isn’t the nearest one because sometimes in Africa it doesn’t work, for instance, that accountability. How do you drive down that accountability?

    Julie Howard: Well I think in here, I mean we’re not usually relying on individuals to hold our governments accountable, although plenty of people will call in their congressmen or even me to ask questions.

    So yeah, we do need these organisations, we need civil society organisations, we need organisations that will help constituents hold their governments, hold private sector, hold the people accountable for what they’ve committed. So I think this is one aspect that we need to help invest in this a layer of civil society organisations that can do the functions that they do so well here in the US, here in Europe, in Asia, in holding accountable, in analysing. What happens when the budget comes out? Who’s getting what? What commitments have been made?

    Maria Cattaui: Thank you very much, and sorry for prodding you on this one but it’s always worried me when we talk about accountability that I’m never quite sure who’s accountable to who and how to get there. Yes, please.

    Q: Just one issue there, you said we need civil society in order to make accountable the government’s private sector. My question is - who makes civil society accountable too? Because this is perhaps one of these questions. So I think we still need an answer to this one about accountability

    Maria Cattaui: No, it’s very, very true and I’m glad you mention that, we talk about the term accountability but we’re never quite sure exactly of the strings and where they move.

    Maria Cattaui: Michael Porter, I guess everybody here has a copy of the recent article in the January/February 2011 Harvard Business Review, Creating Shared Value. And I wanted to ask you a few questions at the end of our day, as we’ve been talking about this, to put a bit of a structure around our discussions here.

    There are several questions, very direct questions that I have to ask you. The first is the exact difference between CSR initiatives that companies have been pursuing for some time now, as they’ve been beaten on the head very often both by civil society and by governments and intergovernmental organisations, you have to do CSR.

    What is the difference, exactly, with CSV creating shared value? And how are corporations, as you suggest in your article, they should be transitioning from the CSR concept to the shared value concept?

    Michael Porter: Thank you, Maria, and it’s a pleasure to be here and I’ve been listening intently all the time that I’ve been here and it’s been a very interesting discussion.

    Before I directly answer your question, Maria, let me reflect a little bit on what I’ve been hearing, just a little, not at length. So I actually just got my brochure out and I was looking at it and it says the title today is The Changing Role of Business.

    And I guess that what I would tell you is that we haven’t talked too much about business today. We’ve been talking a lot about government, about infrastructure, about all the constraints, about all the actors and all the complexity of development and all those things are true.

    But I think that at the core of that article is the idea that business is the most powerful vehicle for development. It’s where jobs are created, it’s where wealth is created, it’s where income is created, it’s where markets are created; it’s how needs are met. And our first order job right now is to get business to think differently about its role.

    Just let me give you one example: we’ve been talking about Africa and nutrition and small holders today, but yet when we talk about the problem we view these small farmers as sort of recipients who need help. They’re businesses.

    We've got to, I think, absolutely rivet our attention on how we can change the way business is approaching these issues and thinking about these issues and I deeply believe that we can make a transformational change in how businesses operate today without needing massive investments in infrastructure, without having earth-shattering changes in governance.

    There's a tremendous opportunity because business has missed some of its biggest opportunities. It’s missed some of its biggest markets; it’s missed some of the biggest opportunities to improve its productivity because it’s had a very narrow view of what are the relevant things that it should be thinking about as it does business.

    And I think Nestlé is a wonderful example of that, but we can perhaps come back to that later on.

    So to your question, I think business has been thinking that its role in society is to do CSR. CRS is fundamentally about philanthropy, it’s about giving back, it’s about compliance with rules and I think what I have concluded anyway is that CSR just hasn’t worked.

    It’s not getting us there. It’s well meaning, it’s well intentioned but ultimately it doesn’t have enough impact. It’s not focused on results, it’s not scalable, it’s not sustainable and therefore we actually have to see if we can move beyond that formulation of business’s role.

    In a sense that’s given business an easy role, it’s a cop out. This article says business has a much more fundamental role. It needs to understand that addressing issues of the community and dealing with questions of environment and dealing with questions of water and dealing with questions of small farmers if you're a food company is not philanthropy.

    That’s about fundamentally making the business more productive, securing supply, expanding markets and opening its business opportunities.

    Business has missed some of the most amazing opportunities that it faces today by having this narrow view, which I think unfortunately has been reinforced by CSR, because business said, well, if we do this we’re done, we can stop and then we can just go back to ordinary course of business.

    I think that the concept of CSV tries to open up business thinking first and foremost.

    And what I’ve come to believe, and I’ve been working on this now for a number of years, is that today with no other changes businesses can have a dramatically bigger impact on development, on Africa, on Latin America. And it’s in their own self-interest to do so as businesses change the way they operate.

    So, first and foremost, I think we have to put the onus and have the conversation about business. And let’s not just repeat the old conversations we’ve been having about all the flaws in government and NGOs and all that. I think we need to focus the attention here, for a moment anyway, for the next little - on business, and we’ve got to push very hard to help business learn how to think differently and how to behave differently.

    And the best way to do that is proof of concept. It’s with examples.

    Maria Cattaui: You have some examples in the article and you also have some areas of business interest. For instance, you say in there opportunities to create shared value arise because societal problems can create economic cost in the firm’s value chain.

    And you then also have the idea that the congruence between societal players and productivity in the value chain is far greater than traditionally believed, and I think I remember seeing some ideas on suppliers.

    And you're saying there's not just enough to drive down suppliers’ prices, which benefits of course consumers, but it’s something more.

    So how can CSV take that example? How does it work for a company in its value chain and its suppliers, what have you found?

    Michael Porter: Let’s just take the supplier point and it’s a perfect example. So does driving down suppliers’ prices really help the consumer? What if we made the suppliers more productive? That would help the consumer.

    And, you see, that’s the kind of disconnect that we see in many businesses. Again, the CSR solution is fair trade; let’s make sure the farmers get paid enough. And the CSV solution is transforming the productivity of the farmers and raising the quality so we can pay them a higher price because they have higher quality, and they can have higher incomes because they produce more. So that’s the distinction between CSR and CSV.

    In the drug industry, traditionally CSR is giving free drugs to poor people. Now we’re starting to understand that hasn’t gotten us very far; we can't afford to donate drugs to all the people that need them in the world so now some of the best companies - and I just use an example of Novartis, not to single them out, but Novartis has said, okay, let’s rethink how we distribute and package and market drugs to low income consumers.

    And by packaging them differently, by getting them to the marketplace differently, they actually created a business model. And now they can grow that and grow that and grow that, and it’s not a matter of how much they allocate of their profit to donating drugs, it’s how they rethink actually creating economic value at the same time as they’re addressing this important social need.

    So I think these examples are coming; they’re coming in the definition of the product and the company understanding its product better. They’re coming in how the value chain works and they’re also coming in how the company sees the cluster or supplier base or community institutions around it.

    So Ann just gave a wonderful example of a company interested in investing in a school. And the folks in the education business are shocked, that’s a public good, why would a company want to that.

    Well, the company understands that if the school doesn’t work, they’re going to have to pay the cost anyway because they’re going to have to deal with these employees who haven’t had the training and education.

    So it’s better and more efficient for them to work on that school collaboratively with other companies and with the community and with this entrepreneur than it is for them to just complain, government do your job better.

    So hopefully this is communicating this distinction, and I don’t want us to keep saying that this can't be done because government’s not doing its job and NGOs are … We can do this today with no other changes.

    Maria Cattaui: Well, you have something else in here that I'm going to look at but actually I'm going to ask it of Peter and not of you.

    Michael Porter: Good, because Peter was the guy this morning that was talking about business so let’s let Peter talk.

    Maria Cattaui: Absolutely, but something very amusing in here that you write. This is a quote from this article: real social entrepreneurship should be measured by its ability to create value, not just social benefit. I'm mixing up two or three lines: not all profit is equal. Profit involving a social purpose represents a higher form of capitalism.

    My question to you, Peter, was either social entrepreneurship should get renamed or Nestlé is a social entrepreneur.

    Peter Brabeck: Well, I have no problem with being a socially oriented entrepreneur. What’s wrong about that?

    Maria Cattaui: Nothing.

    Peter Brabeck: That’s exactly what we said very early on. We strongly believe that business will only create long-term value if it takes long term valuables for shareholders and for the society which gives the company the licence to operate.

    So in this respect I think there is nothing wrong and, just to underline what Michael was saying before, I just came back from this African summit and very interesting figures out there.

    First of all, out of the 10 fastest growing economies, seven were from Africa. Secondly, even more interesting, because it comes back to what Michael was saying, out of the 35 fast-growing economies of Africa, they donor part, the impact of the donor aids they received, diminished in the last years from 3.2% to 2.5%, whereas the 17 slow-growing economies of Africa at the same time increased donor participation of their GDP from 6% 9.3%, which I think is basically what you were saying before.

    The old model, the donor model, is just not working; it is very clear. And when you go into foreign direct investment, when you take private enterprises, when you motivate private enterprises, when you create a regulatory framework which allows private enterprise to become productive. And if private enterprise takes up its social role, then suddenly development can really flourish.

    I think that’s the interesting point which, by the way, allowed me to say that this world is really a little bit upside-down. Not only do the richest countries of the world now owe to the poorest, which is the first thing which is quite interesting to see. I mean, if you look at the indebtedness of the richest countries and you look at the indebtedness of the poorest ones, the indebtedness of the poorest ones went down and the richest one goes up and there is no limit to these things.

    So that’s already quite interesting. But the second interesting thing is that it’s proving again in the African countries that whereas in the developing countries, in many, not in all because there are some exceptions, but in many of the developing countries the private enterprise was the reason why they didn’t go through this big crisis that we had in the developing ones.

    And the developing ones we start to believe that it is state intervention, it’s state subsidies and state which have to bring us out of the crisis. It’s just absolutely upside-down what happens there.

    Now, let me say one thing and then I will stop here. But today we talked of course a lot about Latin America, about Africa. I just want to avoid that we believe that creating shared value has been invented or has been developed as a development tool.

    Creating shared value is as valid in the developed countries as it is in the developing countries.

    If I take the three priorities that we have established, and I explained why for Nestlé. Nutrition - well, we’ve spent yesterday evening, a special evening on child obesity in the United States. It’s not a privilege of underdeveloped and developing countries; the nutrition aspect is an aspect which is also valid here.

    If I talk about water, well, I would say that in Europe, in Spain, the water is already running out; we don’t have to wait that long about it. In the US it is running out. If you look at your big rivers and if you look at the nice dams, they’re all half empty and we’re using this water for gardening of Arizona and for golf courses, where at the same time your farmers start to have problems on the water issue. So it’s not a privilege to have this thing.

    If I go to rural development, let me also say a figure which has shocked me, but if I look where we have factories the highest percentage of analphabetic people, it’s not in Africa, it is in the United States, it is the rural environment of the United States.

    So creating shared value, I just want to point out is not the privilege of the developing countries; it is as valid in the developed countries as it is in the other ones.

    Maria Cattaui: That was my question earlier. As you remember that we are perhaps seeing the most, shall we say, iconic examples in the developing world, but the need for the concept is far, far broader.

    In that respect, and following on from this, are all the ideas and the activities and the programs of creating shared value, must they all be very local? Or are there any that have a larger context or the examples or the ways of doing things, can they embedded in operations that are more than local?

    Peter Brabeck: Frankly speaking, what we have learnt most from the work of Michael Porter and Michael Kramer was - they have helped us to understand and to analyse where we could really be the most efficient in creating shared value.

    That was something we didn’t see. They went through this value chain, they picked up and said, look, Nestlé, in your case it is in these three areas; in the next case it will be somewhere else.

    And once you have this, you have a global, you have to put some priorities. But it only becomes reality at the local level.

    We can give the framework. In this respect we are like a government. We can establish the framework but then afterwards the real work, the real implementation, has to be on the local level, and the local level has to adapt to what is the local environment.

    Maria Cattaui: I think that we had some questions earlier; I don’t know if everyone here, and certainly some of you on the panel did not hear them, but there were some questions from the webcast that I kept for this last panel, and I'd like to put it to them, to all of you.

    One of them is measurement. Is there any public material that can show how the net social performance of the externalised costs and shared values created by Nestlé, is there any way in which you can check, you can measure, we can develop metrics, in other words? Which leads me to ask all of you as well, we have the example of Nestlé.

    In your paper, Michael, you have examples of a few other companies, but just a few. So if this is going to be something as you have indicated, Peter, which is larger than four or five companies, larger than just - not just but larger than the crying needs of the developing world, how is that going to get done?

    Who do you need to bring - ? What is the propaganda machine that got CSR so quickly a necessity? And how do you make this happen for creating shared value if truly you feel that that is the next step? Lars?

    Lars Thunell: Well, first of all, if I look at the experience of IFC, we have a group that is independently evaluating our results. I think one thing that is very important to support the discussion here about shared values is that what they find is that there's a very strong positive correlation between the financial performance of the companies that we invest in and the development impact on the local societies.

    So there are some people trying to construct that there is a conflict of interest here and objectives, but it’s not.

    And we then spend a lot of time trying to figure out what actually do these companies generate and who do we actually reach? And just to give you, we know that our portfolio today, if I look at the customers we’re involved in, they’re in the utilities, water, power, and so on; we have 212 million customers.

    I know that our private equity funds have generated that we invested in 171 of the around the world, 2.2 million jobs. We know how much they are paying in taxes; we know that we’re serving about 7.6 million patients in the healthcare that we’re involved in.

    I think these are the type of numbers - they may not be perfect and so on, but it’s important to start measuring. We’re also trying to measure if we invest in a port - how much does that contribute to the growth of the society and the country itself?

    And I think all the IFIs now are moving in that direction and the interesting thing is that we are now also supplying that data to some of our partners. I just gave to Peter Sands, the CEO of Standard Chartered, I showed him an evaluation of what we had done together and what that meant, that he’s now using in his work.

    And I think this is the type of dialogue that we should have, which I think is very, very exciting.

    Maria Cattaui: Anyone else on the panel on the metrics or on getting it done? Yes, Michael?

    Michael Porter: You’ll have to shut me up so I’ll try not to. I know you will and that’s the nice thing about knowing you and liking you so much, you can shut me up and I’ll be happy.

    On measurement, I think there's an interesting cycle that we’re on so I think every company publishes its financial results. That’s there.

    Then more and more companies now are starting to put out and measure various measures of social performance; so you’ll see typically water use and power use and stuff like that.

    But ironically there's been no effort to connect the two, so people will say we save 10 trillions of water, but they won’t say and that saved $X million. And I think the next step in measurement is - I think these social metrics that we care about, water use and environmental impact and increases in wages and things like that, we kind of know what those dimensions are.

    But, in a sense, business has been shy about connecting the social indicators to the financial indicators. This is another one of the pernicious effects of CSR: you almost are embarrassed if you're making money, if it’s actually profitable, if it’s actually good for the company. You're afraid to say that.

    I’ve heard this 100 times from companies; they don’t want to talk about this stuff, because we frame the issue in a way that that’s somehow less pure and worthy than being generous and giving back and donating this and providing volunteer time and all this stuff.

    So I think on the measurement side the key to make this really happen is to start to have leading companies connect the dots and show the economic impact of the social improvement and the more stuff like that gets out there, I think it will start a bandwagon effect.

    The other thing is that right now the socially responsible investing movement is I think sputtering and I don’t think mainstream investors take it at all seriously.

    But I think the more we can start to connect the financial scorecard and the social scorecard, which we can, that will be a very powerful force for going forward.

    On the point of how they get the propaganda machine working, you will be pleased to know, Maria, I hope, that there are lots of companies now that are pursuing thinking like this. I talk to a lot of them. There are many more examples that we can cite.

    But I think we in the business community, we in the business school community, we need to create more forms and more vehicles actually just to share best practices among companies, because there's a lot of hesitancy about, okay, how do we go about doing this and where do we start and how do we measure this stuff and how do we organise it?

    And there's lots of learning now. So, for me anyhow, the critical path for me is that business-to-business knowledge sharing here.

    And FSG is putting on a very interesting meeting in early June, for example, bringing together I think 35 or 40 companies, all of whom are doing things in this area, to really sit together and see if we can work out the tools, the techniques, the metrics, the measures.

    Maria Cattaui: It’s the old thing, if you can't measure it you need to. Lars, something short and then I’ll turn to Peter and then Julie.

    Lars Thunell: We are very proud as a development institution that we actually make money; we made $2 million last year and that allows us to reinvest and do more investments in a company like the Water Health that is in the article. So that’s what we’re all about. And that’s by doing it where other people don’t dare to go; that’s development.

    Maria Cattaui: Michael, just from the webcast, somebody writes, given that Michael Porter feels that CSR is only about philanthropy and that it is passé, does he also feel that the Harvard Kennedy School should abandon and rename their highly productive CSR initiative? Don’t answer that now; that’ll be for later because that’s not his school.

    Peter, and then Julie.

    Peter Brabeck: No, I remember this morning we talked about it, so I’ve brought you the report that we do on Creating Shared Value, which is quite detailed, as you can see, key performance indicators, quite a lot of them, but exactly the way you were saying.

    I just looked at them and I see that exactly we are saying how much less water we are using and things like this, but we have not validated it. And I think you have a valid point here, which we certainly will pick up.

    Now, in the case of water it’s very simple. You can save a trillion litres of water as water doesn’t have any value in our society; it’s always zero because you multiply it by zero. That’s one of the other problems so we should give water a value that would be easier to put than a value on what we have saved.

    But underlying what you are saying, Michael, is absolutely right. You see, we get two criticisms of the Creating Shared Value. I was just on television at lunch time and it was coming straight away, depending on which channel you are.

    The first channel is how much has it cost you and you say, well, as a matter of fact we consider this to be a win-win situation. It doesn’t cost you; you can even make money.

    But when you say that, you have lost out with the NGOs because for the NGOs, in order to be really valid, it has to hurt you, it has to cost. It’s the mentality of something like if it doesn’t hurt you it’s not … and then it is just good for you and it proves, because it doesn’t cost you, it proves that this is all green washing. Okay, that’s exactly the word they were using.

    Now then you go to the next channel and then you are being asked how much it cost you, and then you say, well, it doesn’t cost me anything; it doesn’t really believe. I want to see how much it costs you because I want to make you responsible for the costs that you have in order to do this, and this is a financial word.

    And what they cannot understand, both sides, they cannot understand that if you implement that in a ….. manner, it can be a win-win situation. It doesn’t have to cost you. It can be good, both for the shareholders and for society. But you have to be a little bit creative, you have to a little bit think about it.

    But I think this is one of the subjects which we have to get the message across.

    Maria Cattaui: We do need to get it across. And, by the way, while we’re talking here, I don’t think anyone on this panel, or to answer some of the comments that I’ve received from the webcast, wants to denigrate philanthropy.

    Philanthropy is an enormously noble effort and cause; no one wishes to denigrate it in any way. And many people who have invested a great deal in creating CSR initiatives, not to denigrate what they do, it is perhaps to say that all the creativity that has gone into CSR is now moving one step beyond as CSR has somehow rather fallen between the stools of philanthropy and of embedded and corporate and company operations.

    So to those people on the webcast, I don’t think that anyone here is either saying that philanthropy is a useless activity; quite on the contrary. It’s just a separate activity. And I also think that none of you feel that corporate social responsibility is completely … it may be a little bit in the sense that we have gone beyond it.

    But it has led us sometimes to this point and many creative ideas have come out of it that now need to be embedded more in this concept so that their real value can be seen.

    I just wanted to make that clear because we did have some comments - are we mocking it? No, we just admit that there are limitations to these things and we see less limitations and more potential in this new approach.

    I’ll come back to you, Michael, but I know Julie wanted to say something.

    Julie Howard: Yes, a couple of points. I was amazed to hear the CEO of Procter & Gamble say about a year and a half ago how much, he didn’t say creating shared values per se, but this whole idea of the company’s responsibility on the environmental front, the responsibility of the company to reach small holders, is something that his shareholders now expected and which was surprising to me.

    And he felt it was an expectation, but it was a very important marketing tool for them, so perhaps we’re a little further advanced on this, which I think is a very good thing.

    On the metrics front, I just want to say how very focusing the concept of metrics is all around. We in the US Government see the future initiative - we have four top-line numbers that we’re focused on, 80 million people in our programmes saved from hunger and poverty, lifted from hunger and poverty.

    7 million children saved from malnourishment, and we hope to leverage $70 million in private investment, and gain $2.8 billion in agricultural GDP through our strategic investments in research and technology. That is very focusing, and at the same time it also links us in a very real way to partners. We can't get to these targets without co-operating with the private sector. We can't get to the nutrition targets without reaching out to civil society.

    So I think we should not underestimate - the trick is - how do we get to joint metrics that we can all align around at global levels, but also at country and regional levels?

    Maria Cattaui: I think before I come back to others - I know everyone has tings to say - let me see if there are any questions for the panel. We'll start over this side this time. There's three questions here.

    Martin Smith, Just Means: The first comment is on the integration of non-financial and financial performance metrics. I absolutely disagree with what was said. Thomson Reuters just brought very standardised non-financial performance metrics, normalised to financial performance, into DataStream, which is one of their products. They're going to bring it on to Icon, and so any analyst or trader that wants to have non-financial performance metrics normalised to financial performance will have these metrics.

    Bloomberg's using the same metrics, marketing facts that are also bringing some more products on line over the next six months. So most of this work has already been done.

    My comment is for the whole panel, and - my question is for the whole panel, which is around - what is the viewpoint towards mandatory non-financial reporting on normalised metrics, probably around GRI performance indicators for large cap companies? And would that push forward this field, or would it be a detriment?

    Maria Cattaui: Excellent.

    Ellen Kennedy, Calvert Investments: This is a socially responsible investment firm, sp I want to clear our good name and say that I don't think that our industry is sputtering; it's more that we have much greater competition now because the mainstream investment houses are now co-opting our methodology. I would also disagree with the statement that was made about the integration of financial and ESG - or environment, social and governance data. I've had many conversations with companies in which I've asked for the return on investment for their CSV, if you will, programmes. Or, for instance, on saving water - whatever the metric is.

    And I meet great resistance. It's very concerning to me, because we need this information if we're going to create integrated models.

    Maria Cattaui: You receive resistance from companies? Okay. Thank you.

    Alison Johnson: I will preface this by of course congratulating Nestlé and The Atlantic Council. This has been a brilliant conference. I would just like to pose two questions; firstly, as a former student of Professor Porter, I want to first push a little bit on being able to implement this beyond the CSR community and the CSR concept.

    Could you just elaborate on how these additional companies are embracing this beyond the article, because you mentioned that there are more companies that are contacting you. And in particular - what attracts them to taking this on over CSR? Ands what is happening to their corporate social responsibility efforts? Because I've spent the last five years in a Fortune 100 company, and as you said, it's not serious. The CSR is very much of a gloss-over; it's something they feel obligated to do. It's not really a part of their metrics. So if they were going to adopt this concept, what happens?

    And then the other question that's been outstanding for me today is really the implications for the environment. All day long I have been struggling with the issue that we started with in the morning as we move from 7 billion in 2011. And one panellist said - we can move to 10 billion; the planet can support it. But really our planet will really suffer. If we really are able to increase nutrition, water and rural development by 2030, how will the planet sustain our lifestyles? That is something of great concern. Thank you.

    Maria Cattaui: Thank you very much. It's a mouthful of questions. We have still about 25 minutes to go, so I'm going to take last questions and then we'll come back to try and answer them on this side.

    Werner Kiener: I'm not from a CSO civil society, NGO group, but I find it a bit disconcerting that after a long talk of co-operation and partnership, this frustration with what I think is an important part of a civil society. And there my question to Professor Porter and to you, Peter, is - have those who have created that concept done enough to educate this broad group of people which is summed up often as civil society? I think there might be something missing, and if - that's the metrics question - it works so well, I think one also needs to propagate it in those types of groups.

    Maria Cattaui: Thank you very much.

    Q: I wanted to reflect on what Ann said earlier about perception, because I think perception and silos were probably two of the really key words of the session. And Michael constantly said - but with no other changes. Twice that came out of your mouth.

    I think that the misperception on your part is that with a lot of changes, but not with necessarily structural changes, it would seem that - in order to get these marriages and the breaking down of the silos underway, the perceptions among - as we divide them into the three communities - civil society, business and government - need a lot of work.

    And what I've heard in this particular is some of the areas where they need work, and sort of begin to understand that they need that work, that they need the dialogue to be taken. So I think we need to understand that there are fissures and fractures within the segments, and I'd like to see food companies collaborating and even colluding with other food companies, bringing things together on this creating shared value; and getting different kinds of companies within the same community as a consortia, to work together on creating shared value, so that they …

    So these would be my comments on what we've heard in this last going forward to 2030.

    Maria Cattaui: Thank you very much. So that will give us some things to look at and answer in this last round here of the panel. Let's start then with the metrics. Is it true that the metrics you're talking about - it could be that we're talking about different kinds of metrics here - or any of us on this panel go along?

    Peter Brabeck-Letmathe: I think that first of all is already TRE. So we have youth already. And this report which is outside, so everybody can access it. It is here already. But we don't have yet, frankly speaking, the valuation of this thing which we were discussing before, and which afterwards I think would give perhaps a different picture. And the question was whether - what I believe, whether it should be compulsory or not. I personally think it would be good for the case if there was a compulsory reporting, frankly speaking, like it is on the financial side.

    The only thing I would ask for is that there is one, and not that every country has its own regimentation, and then there are 15 or 20 different ones, like we heard today, still in the financial sector.

    Because then at the end of the day finally the more systems you have, the less relevant they become. So as we have an opportunity, whoever is responsible for establishing the metrics, let's establish one, and then we implement it globally. I think we can live to that one.

    Maria Cattaui: Michael, do you - on metrics, do you think that there is a movement towards establishing some kind of unified mandatory eventually? And would you answer also the question about - how do you make moving into creating shared value attractive to companies? And what happens to their CSR efforts?

    Michael Porter: Well, many, many interesting points. And let me start out on the CSR point. I think CSR - we've learnt a lot from it; we need to build on it. There's going to be a lot of - let's call it compliance activities and just good corporate practices that have been developed through CSR programmers, that we need to retain and institutionalise,

    CSR is more than just philanthropy; it's a variety of things. It encompasses sustainability in many companies. It encompasses a broader set of activities. Many of those are definitely a step in the right direction, but I think the notion of CSV is - okay, let's take It much more into the core of the company and into the core of the operating businesses. And let's understand that we've missed opportunities to be more productive, to be more efficient, to create more academic value, to grow our revenue.

    And this is a problem of business. You know, it's not society's problem; it's business's problems - have been looking too narrowly, not seeing these opportunities. So I would like ….. to rename their centre for CSR to CSV, but that isn't because the CSR part is bad, and it's dangerous or anything; I just think it's been a bit of a barrier to business understanding the deeper opportunity. And that's what I'm concerned about.

    On metrics, I believe that - it's interesting. Business probably reports revenue growth from new products. Business probably reports cost cuts and cost savings. They report that kind of stuff all the time, so it's not sensitive - I mean, people are proud that they've grown revenue or reduced costs. So I just think it's an attitudinal thing that they're shy about this because of the points that have come up - that if it actually saves money for them to improve the environment, then people won't think they're good guys, you know. And it's not worthy. And therefore if there's not pain, then they're not doing their job. So I think we're caught up in that trap.

    In terms of the role of NGOs in civil society, there are NGOs that are terrific and jumping on this - I don't want to single out - I mean, I don't know all the NGOs, and there's probably many more, but I would just put TechnoServe - this is a good opportunity. TechnoServe is about helping businesses create shared value. That's what they do, and they do it through taking on services and roles that businesses can't take on in developing countries because they don't have the expertise, they don't want to create the staff to do things. TechnoServe works very collaboratively with companies.

    So there's probably many other good ones, but some NGOs have sort of gotten it; they've kind of figured out that they can have much more impact on water if they get Nestlé to work with them than if they just try to work on it on their own, and in a kind of little programme that doesn't have a sustainable economic model behind it.

    So I think that - I have no structural - I think we're going to need all the resources and all the talent we have in the NGO community, but I think the NGO community would benefit from recognising that they have a tremendous resource base to draw on.

    Maria Cattaui: And let me ask Lars. We talked about - then I'll come back. Ann can talk about civil society as well as Julie. But what about the intergovernmental? Is there a pick up in the international field on this concept, or is the international field very still fixated on previous models?

    Lars Thunell: I think what's happening now in the ….. that's been up here today, in the whole aid community - is people are looking for jobs; they're looking for the private sector. So you see all the aid agencies around the world saying - okay, how do we support the private sector? How do we help companies develop? So that's one trend you've got.

    And at the same time you have less and less money in the public sector, at least in the industrialised world. So the question then becomes - how do we leverage that public money we have to the maximum benefit, and the leverage with the private sector?

    And if I combine that with another thing, which is the business opportunity. If you look at the base of the pyramid, the 4 billion people living on less than $3 a day - that's a $5 trillion market out there. And people now with new technologies and new ideas, new distribution systems, are actually being able to access that. And you see big companies and small entrepreneurs getting into that space, very often with new technology.

    Just give you one example. Gillette: they looked at that market and said - how much would a person there pay for a razor? And they designed a razor that could be paid for - I think it was 39 cents or something like that. You have one usage of shampoo for only one time is another example. We have about 100 different examples that we can share with people ho are interested.

    And if you can do these types of things, that will automatically ….. If you then combine that - just to illustrate the point - we'd bring in public money and private money together. We worked with the Manila water company and there we helped - actually gave grants or output based aid, as it's called, for putting in the piping and the meters out into the slums of Manila. And then they could pay for the water itself, but they couldn't pay for all the connections and everything else.

    Well, that's a perfect example of how you can leverage things, and I think these are the type of things that we should encourage. And that means coming together with the public sector, with philanthropy who can participate in this social impact type of investing; civil society, who can have a great role in certification - we use them to get many companies in certification of commodities - logging and things like that.

    And I think those are the type of new things that are happening out there, and we should all lift those. And that’s why I'm very happy to be at this conference, because you're lifting some of these examples which are very, very important.

    Maria Cattaui: And it was brought up that had we done enough to educate the different partners, particularly civil society in this, well we’re doing that now, aren’t we?

    Ann Veneman: Well yeah, clearly there needs to be a lot more dialogue so that people have a better understanding of what works and how it can work and I think there are a lot of good examples of how do you go forward with this idea of the win/win.

    I think when we talk about how to really illustrate this win/win, I think the concept of agriculture extension which some companies are hiring the expertise, some companies can use somebody like a TechnoServe, so you have the example of doing it yourself or the example of doing it with an NGO but what do you get out of this ag extension. I mean one of the things you notice when you travel in Africa is how much the entire ag extension system that had been built there has been completely broken down.

    And so now, companies are seeing the opportunity then to help to provide some of these services because it is such a win/win and so you see, not only the benefit of higher quality product, you see an environmental benefit because you can teach people to use less pesticides, you can see a benefit to children because as farmers are taught how to produce the product, they’re also told that they can’t use their children, and then they send their children to school, so you cut down on child labour.

    There are additional benefits that you can build into these kinds of programmes that we may not think about. So I think one of the things is to really look at how do we build the ideas of the win/win to cover the breadth of issues that really are being impacted by things like agriculture extension which is one of the main areas that we’ve been talking about as key to rural development.

    I think the other thing where we’ve seen some good partnerships is in the areas and I think one of the areas that really needs to be discussed is technology and how technology is moving along so many of the issues. We’ve talked about cell phones and having access to market information which has been tremendous for farmers in the developing world.

    One of the best initiatives I’ve seen in terms of giving farmers access to information is Africa was one of the only places in the world that didn’t have weather stations and so there’s a partnership that’s been developed with the companies that do, that are putting cell towers all over Africa to put weather stations on top of them so that you now get some of that weather information.

    Another civil society private sector partnership that is creating a broader benefit. There’s tremendous amounts going on now in what they call M-Health, M-Banking through organiNestléations like …, all of these are helping to bring together both civil society and the private sector in very innovative that is having a tremendous impact. M-Banking, for example, is affecting violence against women because they don’t actually have to go somewhere to take their earnings to get them to their families and so they aren’t subjecting themselves to thievery and violence. So again, other aspects.

    The idea of cook stones as technology to help the environment. I met a great little organisation the other day that’s not only producing them in Africa, they’re providing the jobs. They’re then selling them to people at a subsidised price, thereby creating a market, not just a give away and the way they’re making up the difference, this is not a charity this is a social business, they’re making up the difference by doing strong auditing of whether or not these are being used and then using that to sell the carbon credits to Europe. That’s a social business.

    Maria Cattaui: It’s very interesting Ann. Julie, do you have anything on this and on the educating of civil society in this way.

    Julie Howard: Yes, educating civil society but also the power partnerships and the catalytic impact of public investment and private investment working together. I don’t know if you already talked about it earlier today but sort of the example of world food programme and local regional purchase. World food programme traditionally the importer of bagged food aid, much of it from the US and distributing it takes a big strategic leap and says we actually need to encourage the production and procurement of food at the local level, both to save our transport cost and also to make a market, to make a bigger market.

    So that’s actually been quite successful I think, so you’re seeing the emergence of small holders who are beginning to access technology, have a reason to use new technology because they suddenly have a market, and beyond that, you’re also having other kinds of investments and pile onto that.

    So warehouse investments, warehouse receipts, demand for commodity, market information systems, we are also working with World Food Programme and a major US company to see if we can get some processing investment in Ethiopia to work with local products, create more nutritious processed foods, both for the local feeding programmes but also for sale to the local public.

    Maria Cattaui: The last round of our session, to close this session before our concluding session when we’re expecting Chuck Hagel to join us, I’m going to do something that’s a little bit unfair but one of the last questions that you raised, you said we’re moving towards 10 billion people. I’m sure all of you have seen those graphs of the increase of population, it is not just the increase, it is the speed at which it has happened and you see a graph which is the timeline here and this is the population here and it sort of goes along very slowly along this timeline and then suddenly it zooms up like this in this century and between now and 2050 it’s absolutely extraordinary, it goes absolutely straight vertically up that line. If, of course we’re extrapolating on the same basis as many people feel will be happening, that is absolutely extraordinary because of the compression in time that this has happened.

    So I take your question. The implications for a world of 10 billion people or approaching it, in 2030 which will be two decades, that’s nothing, it’s a blink, before we reach this peak. And our horizon in this meeting is until 2030. Tell me each of you, in light of that and in light of the issues that we’ve been discussing on creating shared value, just one idea from each of you to conclude of how we should be approaching that, what is it foremost in your mind, maybe it’s just a worry that you have but what is it foremost in your mind that you would like to see as we move towards that, if I could say, enormous concept of 10 billion people in just a few years. Lars, do you want to take a stab at this one?

    Lars Thunell: I’ll say two things, first of all, not only will we have 10 billion people but probably around 70% of them or so will live in cities which is up from about 50% today and 35% 20 years ago. I was actually in a conference yesterday where we talked about the problems of security in those cities and how to organiNestlée those cities and I think that’s something we need to start thinking about. But to be more positive, we have together with Nestlé and what’s called the Water Resource Group, a study on the water supply in the world and I don’t know if that was mentioned earlier today but I think that’s very hopeful and gave an example that we can solve these gap problems if we go at them not only from the supply side but also on the man side and work with the efficiency and the water pricing and all that. And I think that’s a very good example

    Maria Cattaui: So you would say a lot of these problems, take the example of water

    Lars Thunell: Can be, if you address them

    Maria Cattaui: Well you’re not difficult and pessimistic about that

    Lars Thunell: If you let the market work and have the right pricing and trade the right incentives

    Maria Cattaui: Ann?

    Ann Veneman: Firstly, I want to make sure we’re clear on the statistics here because the projection is by 2100 it’s 10 billion people, not 2030.

    Maria Cattaui: No, I’m saying, our horizon is 2030 which is just a blink away from the 2050 projection and that’s 9 billion so in light of our meeting here, what do you

    Ann Veneman: Well I think the answer lies primarily in research and technology, that whether it’s feeding the world, it’s managing water resources, it’s managing other scarce resources, it’s going to take more research and more technology and of course, all of this is happening at a tremendously fast pace in terms of how technology is changing the way we live, how are we going to have enough, basically food, water and energy and if everyone isn’t focused together on the scarcity of resources and the increasing population, I think we won’t be able to actually create the kind of world that we want to continue to have and should have as we approach the next century.

    Maria Cattaui: Michael?

    Michael Porter: Well that is somewhat an ….. question isn’t it, Maria. I guess I would say that we need to make a step function increase in the kind of productivity and efficiency and effectiveness with which we use all the resources and we need to learn how to serve the needs of billions and billions of people whose needs are not being met now.

    I think that’s fundamentally going to require a transformation in the private sector in order to get this done. I think, somebody mentioned earlier - I kept stressing with no other changes, why did I say that? I think it’s a cop out that business can’t do a lot right now, I don’t think we need to wait for perfection on NGOs or government or anything else. I think businesses today, if we look at the difference between best practice companies in water use and poor practice companies in water use, it’s astronomical.

    If we look at the best practice on resource utiliNestléation within the production system and worse, it’s astronomical, I just don’t want us to give business a cop out that ‘oh we can’t do it because there’s all these imperfections and governance and this and that’, we can do this now

    Maria Cattaui: What you’re saying though Mike, I do want to ask you on this, is that when you’re looking towards, I just said it’s an unfair question when you have to look at the kind of world we’re going to have in 2050 which all of our children and grandchildren are going to be boom, dealing with, do you really think seriously that the part that is played by business in looking and solving those problems has got to increase as exponentially as the population

    Michael Porter: Of course, and the way that’s going to happen is business is going to have to see all of these challenges as an opportunity

    Maria Cattaui: But also businesses from the developing world themselves, as they are becoming more and more international, multi-national, global

    Michael: Of course and some of the developing companies from India and China and so on, they’re getting this faster in many cases than our western companies because they kind of see more clearly the opportunities, the needs, the impacts.

    Maria Cattaui: We hope.

    Michael: Many of them do. So I guess, Maria, I think that, again, you’ve got to understand, at least in the US, the last time I looked at 85% of all the investment in the United States of America in a given year comes from business. Okay. so if we can get this elephant of thinking differently and acting and understanding that this is core, and it’s an opportunity, and there’s money and profit associated and growing markets and more consumers.

    Lars said some very important points there, I hope everybody was listening; that I believe gives me optimism that we can address these issues. But if we’re still wrangling over foundations, NGO, can we get government to be effective and efficient, can we solve all the political problems, if we’re still wrangling over that I’m afraid we’re going to have deep, deep problems as we confront these challenges.

    Maria Cattaui: And you, Julie.

    Julie Howard: Yes, adding onto Ann’s, I think it is technology. We have faced this before with …. I mean this is the question that haunted Norman Borlaug. What are we going to do? How are we going to make this Green Revolution? It’s a different kind of revolution that’s needed now.

    It’s technology, it’s partnerships, I would suggest that we need to define what are the major research questions that we need to get around and it’s not just for public research systems, this is very much a partnership effort. We have already started defining these questions. So for example, we have a quite interesting partnership right now going on to develop drought tolerant maize. A partnership that involves companies, that involves local, national agriculture research systems, that involves the associated group of agricultural research systems, that involves local seed companies, I think this is the model for the future.

    We really need to figure out what are the questions that need to be answered in this new environment, basically how do we use less water, how do we get away from oil based fertilizer products, how do we make labour more productive, how do we reduce the impact, improve the resilience of communities, reduce the impact of the climatic shifts that we know are going to happen. A lot of this is also risk mechanisms, you know, another kind of research, how do we protect people where risk is all of a sudden much more unpredictable than it was before

    Maria Cattaui: And so when you look forward 2030 our horizon, 2050 the population horizon, if you wish, is there any, where would you put your priorities, your money, your time, your effort?

    Julie Howard: Well I also want to say that population densification is not always a bad thing. In Africa I think it’s particularly important that we have denser populations because we’re already beginning to see that this is what’s driving the development of local and regional markets, so it’s not all bad.

    I will put my money on technology and partnerships. Research, technology and partnerships.

    Maria Cattaui: And Peter, to you.

    Peter Brabeck-Letmathe: I think the important thing is first of all to realiNestlée where this …. Is coming from and it’s interesting, for example, Africa is going according to the latest figure, Africa is going to have a population which is the same that the world population was in 1950

    Maria Cattaui: The entire world …..

    Peter Brabeck-Letmathe: …. so that’s the part where you are going to have the biggest population growth in the world, Asia of course and something like this. We will have a completely different challenge if you are talking about Europe. In Europe we are going to have a hidden liability which today is basically hidden away by any government which is absolutely stunning and nobody knows how we are going to handle this one but this is a financial liability which has to do with our pension costs and health costs.

    If I look at the real GDP and deficit we have in Europe, I mean they are around 300%, 400%, up to 700% of GDP, if we are really open and honest. Today we are getting worried because one country has 150%, so that’s a different challenge.

    Now, I will take up what Michael said. I think we as a business, we have to realise first of all that the model we have been using up until now, which is extremely resource intensive is not going to take us into the future, but I also agree with him. We should not have to wait until we get everything in a perfect world, we have to assume ourselves a different model and for this we have to make research and research and development. And we committed for example, last week in Africa that we will do this increasingly, not adapting the Western model to the developing world but to concentrate and develop models which are really starting in the developing world. Because what Africa needs is different to what Asia needs and certainly it’s not what we did in the United States in the past.

    So I think this is a very important commitment that we as a business have to do. The only thing I would like is that governments at least don’t throw us …. if they don’t, this would be already good enough and I will tell you, frankly speaking, we have technologies in order to improve the productivity of agricultural land. GMO is a good one, how many governments are putting us and saying you are not allowed to use it, not only you are not allowed to use it, they are …. African countries to use it, saying if you use GMO, you will not be allowed to export to Europe. Well if this is a free, efficient market - certainly not. So I don’t think we need those artificial barriers.

    I will also say it and I will say it once more, I think an absolutely artificial barrier is the bio fuel of policy and I will spell out very clearly what I think. I think with the Doha Round, most governments who have been subsidising the agricultural environment realised that in order to be able to sign the Doha Round, it would be difficult to have the food subsidies as they were in the past. What nice way afterwards to do it for the bio-fuels because they were never part of the Doha Round discussion, okay.

    And then you have back again, the subsidiary payments to the farmer …. But the fact is that we cannot afford today to have 35% of food products being diverted into fuel, 35% of maize in the US, 47% of rapeseed in Europe, 14.7% of sugar cane today when at the same time, we don’t have sufficient food to feed the people.

    And there is one thing that politicians completely do not understand, between the food market and the energy market there is a nexus which are calories, the food market produces the calories which we need in order to get people moving. And the energy market is the calories that we need in order to get the machines moving. The only difference is that the energy market is 20 times as big in caloric terms than the food market. So when politicians tell us that we have to substitute 20% of energy through the food market, they are giving to those who can a little bit calculate, a clear indication - because to achieve that we would have to triple the food production and this was the reason why food prices exploded and by speculation, came in.

    Because it’s very easy to say ‘how the hell can we triplicate today’ food production, if we are really seriously thinking about how we are going to feed the 10 billion you are talking about

    Maria Cattaui: Well that’s not perhaps the path that we want to go down.

    Ladies and gentleman, we have come to the end of this session and I see that Senator Hagel is here, and we’re going to go right into the conclusion with him.

    So I’ll ask you to stay in your places and in the meantime, to give a round of applause to this panel.

    Applause

    END


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  • Transboundary Waters in South Asia: 5/11/11 - Transcript

    Return to the Transboundary Waters in South Asia event page

    THE ATLANTIC COUNCIL OF THE UNITED STATES

    TRANSBOUNDARY WATERS IN SOUTH ASIA: CONFLICT OR COOPERATION?

    WELCOME AND MODERATOR:
    SHUJA NAWAZ,
    DIRECTOR,
    ATLANTIC COUNCIL SOUTH ASIA CENTER

    SPEAKERS:
    JOHN BRISCOE,
    GORDON MCKAY PROFESSOR OF ENVIRONMENTAL ENGINEERING AND ENVIRONMENTAL HEALTH,
    HARVARD UNIVERSITY

    WEDNESDAY, MAY 11, 2011
    10:00 – 11:30 AM
    WASHINGTON, D.C.

    Transcript by
    Federal News Service
    Washington, D.C.

    SHUJA NAWAZ: Good morning, ladies and gentlemen. I am Shuja Nawaz, the director of the South Asia Center, and I’m delighted to have all of you here for, clearly, what is a very important topic. I am delighted also because this is – it marks the beginning of a new project that the South Asia Center at the Atlantic Council is launching, which is to look at water issues in South Asia. And we are going to start initially looking at India and Pakistan but then broaden it to Bangladesh and Nepal, Bhutan, and Afghanistan and Pakistan, among other things.

    We are extremely excited about this, and we are also very delighted and excited by the fact that the Ploughshares Fund has seen it fit and has supported this initiative, and we hope that we will be able to not only satisfy them, but satisfy our audience, and perhaps expand this as we go along.

    As you know, water is a very critical issue around the globe. Some of the more recent reports that have emerged, including the one from the Senate Foreign Relations Committee, from the majority, on water conflicts in our part of the world, have focused on it. We were also lucky to have, at an early stage in the thinking about this project, the very sage advice of Dafik Sadhiki (sp), who had done some work a few years ago with Shiren Tarheli (ph) on water conflicts in South Asia. And his advice is extremely welcome, and we look forward to benefiting from that.

    We’ve also talked to people in the region and have started putting together a regional group that we will expand as we go along with this project. But I am delighted that, on my last trip to Pakistan and India in March, former foreign minister Jaswant Singh of India agreed to coach the effort with his contemporary Sartaj Aziz, who was former foreign minister for Pakistan. And we also had former foreign secretary of India Salman Haidar agreeing to help, and we will have equivalent participants from the Pakistan side in this initial phase.

    But as I said, we hope to expand the dialogue to bring in other regions within South Asia, and then to perhaps pull back and take a much larger global and regional view. I must say that what we are trying to do is not to replace or to do any redundant work in terms of some of the recent reports that have come out from Washington. I mentioned the Senate Foreign Relations Committee report. There is a Wilson Center report. There have been occasional papers that the USIP has commissioned.

    But what we hope is that we can create a forum through the Atlantic Council South Asia Center for the countries of the region to focus on this issue, and to try and find some ways of improving the dialogue and maybe resolving some of the conflicts. For those of you that have been here before, you’ve heard us talk about one of our mandates at the South Asia Center, which is to wage peace in the subcontinent.

    And so my colleagues and I are extremely committed to that; so enough about the project and our ambitions. But I am really delighted to welcome John Briscoe today, who has come down from Harvard. Of course, John has years of experience at the World Bank, where his last position was as director for Brazil. He has worked in Bangladesh. He has lived and worked in India. He has worked extensively on Pakistan. And most relevant for what he is going to be saying today is the fact that he co-authored the World Bank’s water sector strategy.

    And he also has two books from Oxford University Press. The first one is “India’s Water Economy: Bracing for a Turbulent Future” and the second is “Pakistan’s Water Economy: Running Dry.” So here is, obviously, someone who is now at Harvard, thinking – still thinking about these issues, and we thought to get an overview of the issues – not just for water, but also power and related issues, as well as maybe hinting at the internal water use and the hydropolitics within India and Pakistan and the other countries in the region – it would be really valuable to have somebody with his background.

    As you can see, John is neither an Indian nor a Pakistani. He’s a South African. And so I am sure that what we will get is going to be a really valuable introduction to the topic. John will speak for about 25 minutes. This session is on the record, and so when he finishes, he and I will begin the conversation, and we’ll bring you into it. We would like to – love to have you participate. Please wait to be recognized. Wait for the microphone to reach you. Please identify yourself so that we can capture it for our audience that couldn’t make it here today.

    And so with those words, John, if I could request you to please present your case. Thank you.

    JOHN BRISCOE: Thanks, Shuja, very much.

    Thank you very much, and good morning, everybody. I am sorry I have sort of a bad sound. My voice never sounds very good, but I’ve got a cold to boot. So you’ll probably hear some coughing in the middle of this.

    Yes, so what I will try and do in 25 minutes or so is give a quite broad and quite quick overview of some of the issues on transboundary waters in South Asia: Are they a source of conflict, cooperation, or both?

    A few caveats in starting this: these, obviously, as everybody here knows, very sensitive political issues. As Shuja mentioned, I worked in the World Bank for many years, left two and a half years ago. The three years before that, I didn’t work on South Asia, so it’s been six or seven years since I worked on South Asia, but very important that it be very clear that the opinions that I will give here are absolutely not the sort of revealed internal views of the World Bank. They’re not that at all; they’re entirely my own views.

    And secondly, because the World Bank is a player in this, what I say about the position of the World Bank on these issues is based on public information, no insider information.

    OK. What I’d like to do is to address three things; firstly, to go over some of the basic facts that will drive cooperation or conflict over water in South Asia; secondly, to look at good and bad experiences in the region on sharing water; third, to look at good and bad experiences on sharing benefits that are generated by water.

    So, firstly, some of the basic facts in understanding South Asia and water. Firstly, conflict over water is a very – this is nothing new in this. If we look in our own language, the origin of the word “rival” are those who use a stream in common with another. So rivalry over water is actually built into our language. It’s nothing particularly new.

    In South Asia, the Lord Buddha, one of his first public acts was to arbitrate a dispute over water in the subcontinent. So these are things that have been with us for a very long time.

    Secondly, it’s very clear that we can’t think about water, as Shuja mentioned, in isolation from a variety of broader contextual issues. The issue of water security can only be understood in the context of energy security, food security, wealth generation, and income security, and a much larger set of relationships which govern the parties who are engaged in water.

    The transboundary water issues, again as Shuja mentioned, come on top of very large internal challenges in water management in the countries of the region. These are the covers for the two books, which Shuja mentioned, and India’s water economy, the future – even the present is very turbulent. Pakistan’s water economy – we thought it was a clever title when we had it running dry, and then of course there was the huge flood. But probably Facing Extremes would have been a better title for the book.

    These are available on PDFs. Anybody who wants them, happy to share them with you.

    In the region of course, there are several major international river basins. In the northwest, the Indus with Pakistan and India as the major protagonists, but China and Afghanistan, also part of the Indus basin. Nepal and India, Bhutan and India, Bangladesh and India, and of course in the northeast, China and India. And we’ll touch on all of these a little today.

    These are not only water disputes, of course, but they are often very important territorial disputes. In particular, if we look in the northwest, at the whole Kashmir issue, the waters of the Indus is intimately tied up with the issue of territorial issues in Kashmir. And similarly, the Brahmaputra issues are tied up to the border conflict between India and China in the northwest.

    It’s also very important to recognize that all of the international rivers in South Asia come out of the Himalayas. They rise at great level and great height in the Himalayas. And therefore, there is enormous hydro potential in this mountain range and what’s coming off of it.

    Now here, if we look at the hydro potential of a few of the countries, of India, Pakistan, Nepal, and indeed, China, you will see Nepal has probably two thirds of the hydro potential that Europe has. But Nepal has developed about three percent of that potential, Pakistan around 10 percent, India going on 25 percent.

    So this is very important because there’s actually massive capacity for generation of relatively cheap, greenhouse-gas friendly electricity. And this is very much shaping the discussions, as we will see, around water. And then, of course, there’s climate change, with –I’m sure this will not be the last projection on climate change, but it’s the IPCC one. And there, I guess, you know, this – the glass is always half full or half empty.

    If you put a circle around South Asia, the sort of good news is South Asia looks blue, which means that current projections are that there will actually be more precipitation in South Asia, which is – if you don’t live in the Kosi and Bihar and you haven’t experienced floods, sounds like a good thing. But this does raise the prospects of actually much more extremes, both of shortages and of excesses.

    So we see, for example, the tremendous flooding. This is the NASA photograph of the middle part of the Indus, around Sukor (ph), August 2009, and August 2010. Not to say that that event is inextricably linked to climate change, but we are clearly going to see a lot more flooding and a lot more extremes in the region.

    The first thing that most societies do in dealing with extremes on water is to build a capacity to store excess water and release it in dry periods. So we see in the United States, for example, for every one of us who lives in this country, somewhere there is a reservoir that has 6000 cubic meters of water for every person in the United States. If you go to India and Pakistan, those numbers are not 6000 but 150.

    So there is a massive task of building infrastructure. I am quite well aware that building large dams is not the favorite topic for Americans, but this is a reality that this has to be done in the South Asia. And again, this opens both opportunities for cooperation and conflict in the region.

    In climate change, of course, huge questions about what’s happening to the glaciers in the Himalayas. And you’re all familiar with the IPCC controversy about that. But what is very clear here is that when we look at the contribution of snow and glacial melt to the rivers of South Asia, for the Ganges and the Brahmaputra, this is around 10 percent of flow into these rivers, which doesn’t seem like much, but this is actually dry season flow so it’s actually very valuable water and important.

    But this pales into insignificance when you put it next to the Indus, in which about 45% of the flow of the Indus comes off glacier and snowmelt. So what’s happening in the Himalayas is of tremendous importance for the rivers of South Asia.

    Beyond water, of course, the other reality of South Asia – it’s the least integrated economic region in the world. If we compare intraregional trade of South Asia on the bottom with East Asia on the top, you see East Asia – something like 20 percent of trade is intraregional. In South Asia, this is 2 percent. It’s basically – very little crosses the borders in South Asia.

    As Montesquieu reminded us, if two nations who traffic with each other become reciprocally dependent, and their union is founded on mutual necessities, this is very much absent in South Asia. And these lack of mutual ties that bind aggravate otherwise resolvable conflicts because there’s not a fabric knitting these societies together. So what the Foreign Affairs has called the new geography of conflict is particularly acute in South Asia.

    Now, all of this has meant that the issue of water across the region has become an issue not only for people concerned with economic development, but also for security. And last year, I was invited to Delhi to something that I never knew existed called the Regional Metric of Strategic Study Centers, which covers, as you’ll see in the map at the top, basically South Asia all the way across to Morocco. And what was striking there was that the standard fare for these meetings are discussion of terrorism and nuclear proliferation. But now water has been put onto that agenda as well.

    So this is just a few of the facts that I think need to be taken into account when we think about water in South Asia.

    So the second issue on sharing waters in South Asia: Some of the good and bad experiences. And let’s start here with I will call a good framework, well-implemented so far, which is the sort of mother of them all, which is the Indus Waters Treaty of 1960.

    The familiar – this map is probably familiar to many but perhaps not all, which was one when Sir Cyril Radcliffe drew the line between Hindus and Muslims after – what was it? – a month in the subcontinent, he got his pencil out and he said, this shall the border be. He paid no attention to hydrology.

    And so what you have here, the green here are the irrigated areas in 1947. And what you will see, it turns out that about 85 percent of the irrigated areas were then in what is now called Pakistan. But the headwaters were suddenly all in India. And this was a tremendous challenge.

    The 10 years of very difficult negotiation about the sharing of the waters – there are conflicting principles for sharing international waters. One principle says equitable utilization is a principle. The other says no appreciable harm. And there’s always a taker for each of these principles that conflict with each other. So the initial point on India was that they hadn’t yet developed. They needed more water to develop in Punjab, in Haryana, in Rajastan. And so they should have about a quarter of the water.

    The Pakistanis, taking the no appreciable harm, said it should stay more or less as it is. And that would mean India got 13 percent. In the 10 years of negotiation, the endpoint was, I think, almost exactly the median of those two. About 20 percent of the water going to India, and 80 percent to Pakistan. This is a treaty which I read every in the press, Indians saying it was a bad deal for India, Pakistanis saying it was a bad deal for Pakistan. I think President Ayub Khan’s words were very appropriate about this.

    He said that very often the best is the enemy of the good. And the basis of this agreement is realism and pragmatism. And it did indeed lay down a framework for engagement.

    So in 1960, the treaty signed by Ayub Khan and Prime Minister Nehru in Karachi, with – if you look at the small print at the bottom here, the World Bank also as signatory – it says, for the purposes specified in Articles 5 and 10 and Annexes F, G and H. The Bank has a very specific – very small, but very specific role in the treaty.

    The solution was basically that the three eastern rivers, the Ravi, Bé, and the Satluj, they said all of that water is for India, and the three western rivers, the Chenab, the Jhelum, and the Indus, all the water for Pakistan. But there arose a very major question because the three western rivers – the Pakistani rivers, and in particular the Chenab and the Jhelum – come out of Indian-held Kashmir with a very large amount of hydro potential.

    And this was a treaty negotiated by engineers from both sides. And for the engineers, it was unthinkable that you would say, since it’s Pakistan’s river, India can’t touch it, and you will lose all of that hydro potential. So really, the most difficult part of the treaty was to say, how could India use, in a nonconsumptive way, the waters – especially from the Chenab and the Jhelum – without interfering with Pakistan’s right to those waters.

    And what is embodied in the treaty is that the energy can be used in Indian-held Kashmir as long as it does not affect quantity or timing of flows to Pakistan. And if you then go and read the treaty, you will see, there, very detailed, site-by-site specifications of what India can do, respecting two broad principles.

    Firstly, that these should not interfere with the hydrographs. That is to say, not only does Pakistan have to get its water but it has to get it in the same sequence as it has historically been delivered. And this is because the agriculture in Pakistan is very dependent on water at particular times. And this was, in a sense, hardwired into the treaty by limiting the amount of live storage in the specific Indian hydroelectric plants.

    What we mean by live storage – if you look at a cross-section of a – of one type of a dam here, the live storage is essentially the water that can be manipulated by somebody opening and closing gates. And here, this said essentially that India could only take water from relatively high levels in the reservoir, leaving most of the reservoir as dead storage which can’t be manipulated.

    So the treaty was signed in 1960. And India, as was entirely its right, then built the Bhakra scheme in northwest India, moved water out of the Indus basin to the Yamuna basin and down into Rajasthan. And this left to Pakistan the enormous task of bringing water from the Indus in particular, but from the western rivers, across to the eastern areas of Punjab in particular, where the irrigation was most intense. This meant building Tarbela Dam, Bhakra Dam on India’s side, and these massive link canals. I have a picture here of the Jhelum-Ravi link – this extraordinary piece of plumbing – taking water across riverbeds from one side of a country to the other.

    For our discussion today, what’s very important in terms of the financing of what is called these replacement works in Pakistan: This was in 1960 dollars, around a billion dollars for this, of which India actually provided around 20 percent to Pakistan for the building of these replacement works.

    The Indus Water Treaty is widely regarded as a great success as the one area where India and Pakistan have worked constructively together even when they were at war. But after 60 years, for the first time, India and Pakistan have, over the last 7 or 8 years, been unable to resolve a series of issues that have arisen.

    The first – the basic issue that’s happened is that, in those 50 years before that, India essentially did nothing in Kashmir. There was very little building of hydropower plants, so there wasn’t much – there were a few issues, but not big issues. As you will see, India is now embarked on a massive program of hydro construction – in my view, entirely appropriate – all across the Himalayas including in Kashmir. So the Baglihar Dam, which you see in this picture on the Chenab became the first issue which the Indus water commissioners from either side could not resolve, and the reason are as follows: In India’s – India had built on the Chenab the Salal Dam a decade earlier. These are – the Himalayas are young mountains pouring very large amounts of sediment, and Salal was completely silted up within a year.

    In the 50 years since the Indus treaty was signed, there has been a great deal of improvement in knowledge of how to deal with design of reservoirs in very silty areas, with – I don’t why these are always Chinese principles, but this – that’s the way it goes. And the Chinese principle for managing silt is to store the clear water and discharge the muddy water. So when you get these high rains, you’ve got to be able to flush the sediments out of reservoirs. And this means, as you can imagine, in a reservoir, you got to flush low to get the sediments out. You can’t just take it through the top.

    Of course, what this raised was Pakistan’s fears that if there are low gates which can be used for flushing sediments, they can also be used for other purposes. They can be used to manipulate, to transfer a lot of what was once dead storage into live storage, and so makes Pakistan very vulnerable.

    So in 2004, Pakistan petitioned the World Bank to appoint a neutral expert, which is the part of the treaty that was the World Bank’s responsibility, and the Bank did this in 2004. In 2007, there was a report from Mr. Lafitte from Switzerland, the neutral expert, in which he gave his finding – which, under the treaty, is a binding finding, non-appealable. And there were six issues that Pakistan had brought – had questioned. And at some level, this appeared to be a Solomonic verdict: There were three findings for Pakistan, three for India, and it all appeared good, that’s great; this is a successful win-win.

    But underlying that was, I think, a very, very serious change in the way the Indus treaty is actually interpreted. Legitimately, it took into account new knowledge, especially on sedimentation management for these rivers, which come down heavily laden with silt. But the Baglihar reinterpreted this very essential issue of live storage and dead storage. As you’ll remember from the earlier picture, we had, at the – in the original, in the treaty itself, a very stringent limitation on live storage.

    Basically, what Mr. Lafitte did was, he said: No, you can now – in fact, you have to, for reasons of technical reasons, allow outlets further down. And it was actually entirely a sort of a semantic issue, because he said this additional storage is not going to generate any more power, therefore there’s no objection. But of course, Pakistan’s objection was never to generating more power; it was the capability that whoever operated that dam could now manipulate flows much more than previously.

    This becomes particularly important because there’s a whole set of projects that India is building, especially on the Chenab but the Jhelum as well, and we then come to the result of the Baglihar neutral expert’s decision. There were the – the two principles in the treaty was that you should be able to make use of the hydro potential, but without giving a capacity to manipulate flows. And essentially, he focused only on the former of these, which is that you must be able to make use of resources, and essentially, in my view, at least, didn’t give any attention to this very important issue of the capacity to manipulate flows.

    Back-of-the-envelope calculation suggests that once India has done its currently planned hydros on the Chenab, it will have a live storage capacity of about 40 days, so it can store and release 40 days of storage. This is a huge issue for Punjab downstream. The Chenab has no storage sites downstream; it has no reservoirs downstream, so whatever comes out, that will be what goes into the systems of Punjab. And Pakistan is, in my view, left largely without protection if India decided to temporarily withhold water from Pakistan.

    This is – as Shuja mentioned in the congressional report that came out recently on avoiding water wars, this is, in a sense, highlighted there where they say the cumulate effect of these projects could give India the ability to store enough water to limit the supply to Pakistan at crucial moments in the growing season. So this puts Pakistan in a very vulnerable position.

    I want to very briefly touch on – because that, the Baglihar was done – there’s now a project under contention, which is the so-called Kishanganga or Neelum-Jhelum project. And just, very briefly, what this is, is: Here we are dealing with this part of Kashmir, on the Jhelum River, which is the bottom river here – comes through Kashmir, and then into Pakistan. It has a higher tributary called the Neelum, which, basically – the Jhelum is down here, the Neelum is up here. And essentially, by diverting water from the Neelum tributary into the Jhelum, you have a difference in head, and you can generate hydroelectricity; all of that water subsequently coming down into the Neelum near Muzaffarabad in Pakistan.

    And basically, the two red lines here is: One is an Indian project, a 300-odd megawatt project called Kishanganga, which would do it relatively high up the Neelum, and the second is the Neelum-Jhelum project in Pakistan. As it crosses the border, Pakistan can do the same thing. And as you can imagine, if the Kishanganga project takes most of the water out of the Neelum, this is going to very substantially reduce the yield on the Neelum-Jhelum project in Pakistan.

    Now the treaty, this remarkable document, has an annex which actually addresses explicitly this case. And it says: Where a plant is located on a tributary of the Jhelum, this can be – the water released below the plant may be delivered into another tributary from the Neelum into the Jhelum only to the extent that then-existing agricultural use or hydroelectric use by Pakistan would not be adversely affected. So there’s now a question that sounds a bit like, you know, Monica Lewinski-time – is what’s the meaning of exists– because the Pakistanis are building, the Indians are building – when does the clock start? And that’s essentially the central question before an international tribunal, which is now hearing this case, and we’ll wait to see how that rules. That, I must say, is actually a rather unusual – I don’t think there’s any other case. This is a very particular case, that project. The others are more of the Baglihar type.

    So the choice for Pakistan and India is – with these very large increases, the stresses, in my view, are going to become overwhelming on the treaty. They’re going to come fast and furious. It can continue as is, which is basically an impasse, and it’s heading for a train wreck. Basically, India builds, and then asks for permission later.

    For Pakistan, very major concerns – the physical protection of limiting live storage has been greatly reduced by the Baglihar finding. For India, this poses major uncertainties for investors. You are going to build, and you never know: It may be declared that your project is, in fact, illegal. And in this, of course, lies the possibility for collaboration.

    For India as well, the – obviously this is up in Kashmir; this is tied into much broader issues. And water has become in Pakistan a very major issue for the sort of jihadi forces to start going off to India for water, which, in my view, is the worst possible thing that can happen in India on water – to India with Pakistan – is that water, which is a visceral issue for every Pakistani, becomes captured by that. So you see a lot in the newspapers about Baglihar and about this and the jihadi claims arising over this. For this reason, the Senate Foreign Relations Committee talks about this as a national security issue, not only for the countries but for the United States as well.

    What might be done to save the IWT? In my view, the division of property rights is sound and should be maintained. That should not renegotiated. But the dispute resolution mechanism could very well be modernized. This is away from – it’s basically engineers scoring points against other engineers. It could be the engagement of neutral dispute resolution expertise – not trying to be parochial, but there is the Harvard Negotiations Project, which has done this in many places, a neutral people trying to understand how to resolve these – and investments in win-win projects. What we mean by investments in win-win projects: Why not do jointly-planned, jointly-financed and jointly-operated hydro projects?

    I was in Brazil, so – Itaipu, the biggest – actually generates more power than Three Gorges – is a joint project between India and – between Brazil and Paraguay, with the – one massive country, one very small country, in which it has been a tremendous source of wealth generation for Paraguay, and which Brazil has dealt with in an incredibly mature fashion.

    A year ago, I saw there was a – in an election, a presidential election, when President Lugo was elected in Paraguay, one of the major issues was that Paraguay had got a bad deal on Itaipu from Brazil. And this was a deal signed by willing parties, and the general attitude in Brazil was: They signed it; they’re going have to live with it. But we had Lula as president, and what Lula basically said was, he said, guys, we’re not going to live this, we’re going to triple what we pay to Paraguay, because this is no skin off our backs. We’re a big place; we can handle this. This is going to, as in the Times piece here, is going to calm tensions with our neighbors, assert our leadership, and see this leadership as one which is benign on regional integration rather than domination of one country.

    Is such big-heartedness likely on the Indus? I regret to say that in the 30, 35 years that I’ve been working on this, I think the last 10 years have seen, in my view, a very substantial change in the way in which this is perceived. In the past, many times I heard in India, we would never use water as a weapon. This is unthinkable that we would do it. Now, the prevailing sentiment is: This is legitimate payback for Mumbai. If they don’t do something on that, why shouldn’t use this as a method?

    India has simultaneously – it, I think, quite accurately says that some of the Pakistani complaints about the Indus treaty is a deflection from Pakistan’s own inadequacies in dealing with its internal water challenges, and they are right, I think, in that. So they advise Pakistan: Why don’t you go and build the storage you need? And then, with their left hand, they pressure the World Bank, which has apparently caved in to such pressure to not invest in exactly the things they say Pakistan should be investing in. So it’s a very – I think it’s a very uncooperative environment that we have now.

    I want to go through on sharing waters – very quickly, just a couple of other cases. There’s a good framework badly implemented, which is within Pakistan on the Indus. The Indus, basically, has a – there’s 1991 water accord, which apportions the waters of the Indus to Punjab, Sindh, Baluchistan, and frontier. This is well-structured for environmental flows as well. There have been tremendous problems in implementation due to a lack of transparency and mistrust between Punjab and Sindh in particular, but other provinces in general. The IRSA – the Indus River System Authority – if you go to try and see what to do, you get from Google – this link appears to be broken. And in fact, the link always broken; it doesn’t function.

    So we have a system with a good treaty in place and really terrible implementation. So this is something entirely in Pakistan’s hands. I think there’s some promise of moving forward on this. Perhaps the most interesting part of that is that, going back seven years, Punjab, with a lot of disputes over water, decided that they were going to put all water entitlements and all delivery on water online. And you can go to Punjab Irrigation Department and see for two – updated every two weeks – exactly who has got what water that is allowed to them. So I think that’s going to be something where Pakistan needs to get its act together and can relatively fast.

    India is actually a much worse situation. There’s a bad framework, or rather a nonexisting framework badly implemented. The union government on interstate issues in India basically say that, under the constitution, water is a state issue. This is, in fact, not what the constitution says; it says water is on the concurrent list. But the union government is very reluctant to get into any of these, and these interstate issues are left to what are called tribunals, which have no standard operating procedure, which take decades to come to unpredictable decisions, and which stimulates an incredible amount of destructive gaming on behalf of the states. And in the discussion, if anyone’s interested, I can tell you of some of these cases.

    This means, when we launched the report that Shuja mentioned, Mr. Chidambaram at that time was the finance minister, and we had the privilege of having both the finance minister and the water minister come to the launching of that. And Chidambaram, I think, made a very astute statement. He said, India is facing a growing set of small civil wars over water rights, between states, between farmers, between farmers and the city, and there is essentially no way to manage these.

    The minister of water resources was also there. You know, there’s a very long distance between the Ministry of Finance and the Ministry of Water Resources. And he sat there, looking very sad for himself, and then he said, Sir – which is how he calls the finance minister – Sir, I was told I am the minister of water resources, but I learned I’m really the minister of water conflicts, without any rules for resolving these.

    So that here in the – I think, a nice cartoon in the Hindu - this is the Kaveri, which is one of the longest-running disputes in India – this was chief minister Krishna at the time and Jayalalitha, the chief minister of Tamil Nadu. Every year, there’s a war over the Kaveri, and the only solution is, as they put here: Let’s wait for the Kaveri cloud to rain, and then it will go away until it comes back next year again. And this is what’s happening on India’s rivers.

    The last that I want to do on sharing waters is the Ganges treaty between India and Pakistan – between India and Bangladesh. This is, again, the end of very many decades of disputes over the Ganges.

    The issue is: Basically, the diversion of Ganga water at Farakka has had a negative impact on Bangladesh – unclear quite how important that is versus that sort of naturally easterly drift of the main channels of the delta. But what has happened is that there’s been basically one of the major distributaries, the Gorai, which comes down through the Sundarbans in southwest Bangladesh; water has not entered into the Gorai for about 10 years now. So you’ve had massive intrusion of salinity. It has had major environmental impacts. Just as an aside, you know, the world is a curious place because that major environmental damage has also given rise to an absolutely perfect environment for shrimp cultivation. So the southwest Bangladesh has become an absolute boom economy of shrimp on the basis of this degradation.

    But in 1996, the Ganges treaty was signed between India and Bangladesh, and this is – basically tells you in low flow, medium flow and high flow who gets what. I think a basically – a pretty good treaty. There’s a very interesting paper done by Tariq Karim who was the Bangladeshi diplomat who managed this process, who’s now the high commissioner for Bangladesh in India. And this is highly relevant to our discussion of the Indus, because what they eventually did was, he said, instead of letting these engineers go head to head, they brought the technical experts under the supervision of these foreign ministers, and the discussions were moderated to lend flexibility and give preeminence to a political agenda over what he calls the obfuscation of the engineering technicalities. This is obviously something which, I think, would help a great deal on the Indus. Tariq is now the high commission in Delhi, and I don’t think it’s coincidental that they have managed on another very important river, the Teesta, to have an agreement between India and Bangladesh on the Teesta.

    So, last part I want to do is touch a little bit on something which is highly related, but rather different. And that’s instead of sharing waters, which says, this water for you – you know, there’s 100 in the river, you get 50 and you get 50, is to rather say, what benefits can be generated by these, and how can we – how can we profit – mutually profit from this?

    The great success here is between Bhutan and India. Bhutan’s main resource, of course, is gravity and water. It doesn’t have much else. And the king of Bhutan was smart enough to see this. This is – I love this picture. This is one of these pictures of gross national happiness, and if you look in South – actually, all of Asia looks a very unhappy place. But there’s one little – you probably can’t see it there, but there’s one little spot of green, which is the happiest place in the world, which is Bhutan.

    And what is not generally understood is that Bhutan’s happiness – yes, it is by the beneficence of the king, but it’s also because about 80 percent of the budget of Bhutan comes from hydropower revenues from the hydropower development.

    And here you see a situation – of course, a completely different geopolitical situation from India and Bangladesh, in which Bhutan has basically acknowledged that it’s a small country; it lives with a big neighbor; it’s got to learn to deal with that. It’s taken what looks like a very bad deal – these are hydro projects planned, financed, built by India, with the power bought by India – but they have no alternative, and this is a lot better than the alternative of nothing happening.

    So you can see when you see the descriptions of this from the Bhutanese side: close and friendly ties with India, win-win situations, India being generous in 60-percent grant – 40-percent grant/60-percent loans – and we now have around 1800 megawatts of power underlying the Bhutanese economy.

    Right next to it, we have a situation which is geographically very similar, historically quite different, between India and Nepal, and we have a failure. And Nepal has developed about 600 megawatts of its 80,000-megawatts potential. The great case of this was the case of Arun III, which is a medium-size, 400-megawatt hydropower plant that 10 years ago, the Nepalese were going to do. They did not want to be in the Indian hands, so they turned to their good friends in the international community. And there was a 400-megawatt plant, which was going to be financed by the World Bank.

    When Mr. Wolfensohn came in as president, all he had on 1818 H Street was NGOs who didn’t like dams, and he basically said, find me a way – find me a fig leaf to get out of this; I don’t want to deal with this. The fig leaf was that this project was too big for Nepal; very interestingly Bhutan’s Tala project is almost three times the size of Arun. The economy of Bhutan is one-eighth the size of Nepal’s, and Tala’s turned out to be perfectly absorbable. So this was nothing like that. Of course what it was, was to do with Narmada, anti-dam protests, et cetera. Sebastian Mallaby’s book on the back describes this very well indeed.

    But this is very important because basically what Nepal had done was rely on donors to do so that it didn’t, in its mind, fall into Indian hands, and it turned out that was a very bad decision. It looks as though Nepal is finally learning from Bhutan and is acknowledging that India can be a good partner – maybe you don’t get first-best, but you can get second- or third-best – and so some of these projects – they always seem to look bright and then fade – but there seems to be some light on that.

    Last one I wanted to touch on, which is the great ribbed button issue in India at least now, is the issue of China and India on the Brahmaputra. If you look at the Tsangpo which comes around the bottom edge of – from Mount Kailash, across the bottom edge of Tibet, it gets to what’s called the Big Bend that I hope you can see there, and then it turns down and goes through Arunachal Pradesh into Assam, and eventually into Bangladesh.

    Now the Big Bend is a very rapidly descending river. There is about 40,000 megawatts of hydro potential at the Big Bend – twice the size of Three Gorges – and so China is going to develop this hydro potential with great concerns about what this actually means.

    The biggest concern is that this is going to be basically a barrage which diverts water to the Yangtze and then from the Yangtze up to the northern China plain, as they are doing already. I think this is extremely unlikely this is will happen. While we have all of this area in white here, the elevation at the Big Bend is around 10,000 feet. It would have to get over mountains of 18(000) or 20,000 feet, and pumping water out over 20 – over 10,000 feet is not generally a very good proposition, and then it has to cross the Irrawaddy and the – I think it’s basically impossible; that will never happen.

    The impact of this on India and Bangladesh – in any case, even if the Chinese were able to do that, it turns out that about 70 percent of the flow of the Brahmaputra comes in below, after it crosses into Arunachal. And, indeed, as is the case on the Mekong, these high-level hydropower plants actually smooth out dry-season flows a bit so there could be a positive impact on India. But this is in the great China-phobia world we live in; this is like, oh my god, they’re going to turn the Brahmaputra and take it up to Beijing.

    So lastly, just to close, overall conclusions: Tensions over transboundary waters in South Asia are growing both between countries and within countries. The internal challenges are offices – often as serious as international ones except that the provinces do not usually have armies.

    To move from conflict to cooperation: In some cases sharing water can be the solution; in other cases, sharing benefits, I think, is the way to go to do this. The solutions are almost always going to involve both soft – as we saw in the Indus treaty case, the treaty is what everybody talks about – but there’s also men building Bakra (ph), Mangla, Tarbela, and all the link canals. So it can only be done if there’s both soft- and hardware on these. External full-service partners, such as the World Bank was for the Indus Water Treaty – a role, I regret, that I don’t think the World Bank can play anymore – can play a key facilitating role, but who knows? Maybe China can – maybe China can help on that.

    Cooperation is obviously heavily dependent, as we’ve seen in these cases, on the broader set of relationships between country. Bhutan and India is not Pakistan and India. And, if we can do this – cooperation on these, rather than cooperation being cricket cooperation, which lasts until the end of the cricket match – they could indeed provide the set of ties that bind, and we could have these relationships – in the words of my colleague at the World Bank, David Gray – being things that generate benefits that are well beyond the river and into the societies more broadly.

    So thank you very much and happy to discuss anything and all of it.

    (Applause.)

    MR. NAWAZ: Thank you, John. Would you like to sit there? I can move.

    MR. BRISCOE: (Off mic.) Yeah, yeah, great, thanks –

    MR. NAWAZ: Thank you, John. As expected this is a spectacular tour de raison. I think you’ve covered almost all the issues and in a very clear and succinct manner, and we are very grateful for that. I’m sure that there are many, many questions that will arise from the audience.

    I just did want to pick up on one thing that you said. Clearly the water issue is very emotive –

    MR. BRISCOE: Absolutely.

    MR. NAWAZ: – in all the countries of South Asia and particularly India and Pakistan. Clearly there are huge security implications. Very interestingly, one of the comments that is – that was made in one of the papers on the hydro politics of Pakistan talked about the fact that both Pakistan and India, in implementing the Indus Water Treaty, also saw the canals as defense objects –

    MR. BRISCOE: Right.

    MR. NAWAZ: – meaning they were a mechanism parallel to the border in such a way that if ever there was a war, they would be a huge obstacle. But being a military historian, I can say that, in every conflict between India and Pakistan, both sides are very careful at avoiding any attacks on the head works of the water installations.

    So clearly both sides realize the importance of this. With that in mind, I’m wondering if you can shed a little more light on this issue of jointness. And jointness not just for water, but is it possible to conceive of a joint water and power commission that would own, within quotes, the “resources” on both sides of the border and be able to regulate the flow of water and power so that there wouldn’t be this suspicion that one side is somehow doing it to the disadvantage of the other? Are there any examples of this elsewhere that apply to South Asia?

    MR. BRISCO: Yeah. Shuja, just a couple of things, and let me come to the – on the points you’ve raised. Firstly the issue of water as a visceral issue. This is actually very important.

    At Harvard, we have a famous biologist, E.O. Wilson, who I’m sure many of you know. It was – he was giving a talk recently, and this was actually about biotechnology, but I thought this is equally true about water. Wilson said, today we live with god-like technologies, medieval institutions, and Paleolithic emotions. And this is very much as it is in water.

    So, yes, we have technologies that can do a lot. We have institutions which are quite antiquated, and then we have emotions beneath that that are extremely volatile and, as in this case, in particular.

    A second comment I would just make on the administration of the relationship between India and Pakistan on the Indus. One of the pervasive problems is about reporting and even when Baglihar was filled, everything is contested. The Pakistanis say that the releases from Baglihar were not compliant with the treaty; the Indians say they were. The Pakistanis have the data available; the Indians say, no, it’s a secret. And it’s very interesting – I wrote a piece maybe a year or so ago about this issue, that was supposed to come out in The Times of India and in Jang. It was part of this summer – (unintelligible) – thing. And Times of India decided not to publish it; it was published and – oh my goodness, my email I got thousands of emails saying that I wasn’t really a Harvard professor, I was a jihadi, or a worked for the ISI – this whole sort of thing.

    And I only got one positive one from India, which was very interesting; was one of the prominent leaders of the anti-dam – of Marapaka’s group in India, with whom I’ve had many clashes over the years. He wrote and he said, the problem is this is that the Pakistanis think India is treating them badly on this; this is just how the Ministry of Water Resources treats everybody in India – with a lack of transparency, no data – and this is very, very true. This is a characteristic that this is very un-transparent, so there’s an enormous need for modernization. Pakistan’s side is not much better: It’s a bit better, but not much better.

    Now coming to joint projects, I mean, it’s extremely easy to – if this were the United States and Canada, or if this were Brazil and Paraguay, you would not be building two projects which on the Neelum and Jhelum like this; you’d be building one project which maximizes power. I think it’s probably two – the first step in that, in my view, would be a project that is a project jointly financed, jointly owned, power lines going in both directions, and then learn to live with that one and manage that one.

    The ones that are being built in Kashmir? You know, Pakistan is now importing power from Tajikistan, for goodness sake, when right there is a huge potential that Pakistan could be working with India on facilitating these, getting these projects done quicker, faster, bringing power into Pakistan.

    So, you know, this is easy to say; the question of course is, as Mr. Manmohan Singh knows, this takes place in a sea of contradictory – of many other things, which are very important, that make these difficult, but it’s very easy to see this. I mean, there are many – I’m South African; we have a project with Lesotho Highlands – it’s not actually a hydro project – but the water from Lesotho comes to Johannesburg; it’s 5 percent of GDP in perpetuity to Lesotho for no investment.

    So there are many projects of this sort that are binational projects – very easy to conceive. In my view, that’s exactly the sort of thing which should be stimulated; don’t make a big new treaty, but do something that you start building a fabric of tying people together around it – so.

    MR. NAWAZ: With that in mind, is it possible, knowing that there’s this tremendous upsurge of private investment in India and Pakistan.

    MR. BRISCO: Yeah, yeah.

    MR. NAWAZ: You have business houses, individuals who are multibillionaires; is it possible to take this matter – because it’s far too important – take it out of the hands of government and bring in a consortium of private groups, with India perhaps following the India-Bhutan model, investing a larger share in a project which you’re suggesting as a model. Is that a reasonable possibility?

    MR. BRISCOE: I don’t think it’s reasonable, Shuja. I mean –

    MR. NAWAZ: Yeah, yeah, yeah.

    MR. BRISCOE: – I don’t think you think it’s reasonable either. I think there is no – the arbiter of the relations between India and Pakistan are the states; that is never going to be a private – so you would have to have some framework in which – now, could whoever – Mr. Tata or someone – say, as my legacy, I want to do so this, and he goes in the back door in Delhi to say, let’s make this work. But there’s no way in which it can work without – obviously without the state being a partner in this.

    But could the private sector on both sides, if there’s a willing dialogue, come to both of their governments and say, guys, we’ve got a project – there’s a good project; don’t try and solve all the issues, but solve it around this; and let’s get this working. I think for sure, and I think that’s exactly the sort of – you know, as we talked earlier – there’s – a lot of the track 2 stuff has been going on for decades there, and I don’t think much comes from that. You need to do something which changes facts on the ground.

    And I think the private sector, you know, Pakistan is potentially a great market for India, Pakistan is starved of power. This is the sort of practical proposition which a farsighted private sector on both sides could – I happen – I actually worked quite – although I worked many years in India more than Pakistan, the last few years I’ve worked more in Pakistan, and I have very little doubt that WAPDA in Pakistan would be very keen on doing that. They have enlightened leadership; they would love to see something of that sort happen. So, yeah, I think that’s a sort of thing which should be pushed.

    MR. NAWAZ: So with the government facilitating something like this – yes –

    MR. BRISCO: Correct. They have to agree because otherwise you’re investing billions without any assurance that it will come to –

    MR. NAWAZ: Clearly I could spend the whole morning talking to you, but I have a number of people that want to ask questions. I’m going to go first with Ambassador Schaeffer (sp); let me get the other names down and then –

    Q: Thank you, Shuja. I wanted to pursue, just a little bit, this issue of jointness. The reason that the Indus Waters Treaty was structured the way it was, was precisely to minimize the amount of jointness that was necessary. I’ve described it as a divorce rather than a joint custody arrangement.

    MR. BRISCOE: Correct.

    Q: And interestingly enough, one of the people who helped negotiate it – who is one of the patron saints of Harvard’s negotiating project, Roger Fisher – told me once that he was terribly disappointed, that it was a technically suboptimal solution.

    MR. BRISCOE: Yeah.

    Q: I think this is a good illustration of why technically isn’t the only thing. But that suggests that if you’re going to think of anything joint in water or in anything else, you have to get – immerse yourself in mechanics of how it is possible to avoid having this be a subject of daily interaction, that will daily push all those hot buttons that we’re all so familiar with.

    MR. BRISCOE: Yeah, I –

    MR. NAWAZ: Please go ahead.

    MR. BRISCOE: Yes, I mean the history, which you obviously know well is – David Lilienthal who was the – whatever he was, the chairman of the TVA – was the one who got the World Bank started down this route. And you know he went there in 1950 and said, oh, this looks just like the TVA, all we need to do is put up a TVA and everything will be hunky-dory from then on.

    I – perhaps it’s a – it’s the future always looks brighter than the past. In my view it’s impossible to imagine that – the situation you had in 1950 – you could have actually had joint development around that – I mean – well, it didn’t happen anyway. But could you have – I actually think that sharing is actually a pretty good treaty because it’s physically so clear, their property rights are so clearly defined. Whether it’s suboptimal is not, for me, the big issue.

    But are there opportunities within that to now construct projects which are done jointly? I think there’s enormous possibility. Again, I mean, the ties – I happen to have – actually when I was a graduate student, my roommate was a Thai who ended up as the minister of – for the prime minister in Thailand. I was there a few years ago, there’s all the talk about the Chinese on the upper reaches of the Mekong, as I’m sure you’re aware. And he said, well I just came back from Beijing; because how are we dealing with this?

    We are basically saying to the Chinese, we’re not going to stop you doing your project, we can’t do that, but what we’d like to be is partners in this; so we would like – we will buy the electricity from you; we will get some of the construction jobs for it – and in that way, we are brought into discussing operating rules and making sure that the system (doesn’t ?) work. And I think it’s that sort of – and for me, it’s not a treaty issue but a project issue – that you’ve got to sort of take the treaty – take that out and make something that starts seeing the benefits of people working together.

    MR. NAWAZ: Thank you. We have a question here and then – if I just need to remind everyone – please identify yourself when the microphone gets to you, before you ask your question.

    Q: I’m Barbara Slavin; I’m here at the council. Two questions: One is whether anything could have been done to alleviate the terrible flooding that occurred in Pakistan last year. Why was the flooding as bad as it was?

    MR. BRISCOE: Yeah, yeah.

    Q: And then, if I may, a question about Afghanistan. Could you talk a little bit about the hydroelectric potential of Afghanistan and whether there is any possibility it will be developed. Thanks.

    MR. BRISCOE: Very briefly on the Pakistan flooding. Living – as you very well aware, if you look at the Mississippi right now – living in big river basins is a fantastic place to live. There’s all this lovely soil, water; life is great most of the time. But every now and then it’s going to wallop you, and it wallops you sooner or later. So this is the reality; it’s a sort of Faustian bargain that we make and, you know, those who say we shouldn’t live in the flood plains – this has never happened and never will happen.

    I think there’s a very interesting and complex issue in Pakistan or in any poor country of how people will deal with risk. Just – if I can – just take a moment for this. If you look – I lived in Brazil the last three years – and there’s a permanent issue in Brazil, if any – those of you who’ve been to Rio. The poor are living on the sides of the mountains; whenever it rains heavily, part of those come down; and there’s always a they-shouldn’t-be-living-there. Well, yeah, they shouldn’t be living there, but then they should be living in the Baixada Fluminense taking three hours a day to get to work, taking a third of their salaries to get to work, and poor people make tradeoffs in which they have very, very high discount rates. I’ll take my chance, and I’ll live in a place in which I can live.

    And Pakistan is in that situation now. Pakistan – if you compare the Indus with, for example, the Colorado – the Colorado has around 1,100 days of – it can store around 1,100 days of water in the river. The Indus, you can store 30 days of water. Now, what happens is because Pakistan is chronic – every year – right now for example, right after the flood, the problem is shortage of water; the problem is shortage of electricity.

    They have only one reservoir which is Tarbela. So the way they operate that is completely logical. That is, as soon as the water comes, keep it as full as you can because you never know how much is coming, generate as much energy as you can and guarantee as much of the irrigation. Well, then, you know, this event happened and it comes and Tarbela’s almost full when it comes. It did actually somewhat reduce the peak a little bit.

    But it’s a very interesting tale if you look – at the same time as there was a flood in the Indus this year; there was a very large flood in the Yangtze. And this was actually the big test for Three Gorges. And Three Gorges was built as – Three Gorges is a flood control project that, by the way, generates 20,000 megawatts.

    But China has sufficient resilience and redundancy in its energy system that it can take down – it doesn’t take it down completely; but at the beginning of the flood season they take from 175 meters down to 145 meters and they create a cushion for the floods. And they lose about a billion-and-a-half dollars of revenue a year – Three Gorges Corporation hates this operating rule. And the government says, that’s the rule; that’s what it was done for.

    This year they had 70,000 cumex coming into Three Gorges, the highest flow out was 40,000 cumex, there was none of the tens of hundreds of thousands of people killed in the lower Yangtze as a result. And that – coming back to Pakistan – the single thing you have to do is build more storage. You’ve got to build more storage. If you had instead of 30 days, if you had 90 days, or if you had Bhasha built, if you had Kalabagh built, Pakistan could start operating multipurpose reservoirs.

    But, you know, that’s the reality. And this is something which I feel ashamed of, the institution I worked with at the World Bank. Pakistan – when Tarbela was built in 1970, the plan was that every 10 years you had to build a new storage because Tarbela’s silting up. I mean, slowly, but it’s silting up. And it was very well understood that there were enormous returns to more storage on the Indus. None of that’s ever been done.

    Primary responsibility rests with the government of Pakistan. The whole business of Sindhi feeling that every dam is somehow going to syphon water off into Punjab, this is completely resolvable. The Pakistan government has not dealt with it well. And then its international partners have basically all walked away from this.

    So this is, now, very well understood. I think there’s now a consensus in Pakistan, not on Kalabagh but on Bhasha and, you know, the government of Pakistan has funding, some from the ADB, some from the Chinese. Even the U.S. government is going to put a bit of money into it. It’s not going to solve all of their problems, but it is an absolutely essential piece for that.

    MR. NAWAZ: Afghanistan.

    MR. BRISCOE: Afghanistan, sorry. I actually don’t know much about Afghanistan, so I will – the one part that I do know about is the link into Pakistan. And this is actually – there’s a start of negotiations as Kabul River is very important for Pakistan around 16 percent of the flow of the Indus comes from the Kabul. There is great concern from Pakistan about – you know, and this is the way the world works there; everything is a conspiracy theory, right? So any development in Afghanistan is India doing it to try to put another – tie another knot in the noose around Pakistan’s neck.

    Now, there is a possibility, I think, of a very good agreement on – and their joint infrastructure because what Pakistan – what Afghanistan’s comparative advantage is in growing high-value crops. Fruits, vegetables, this is what they’ve always done. And there they should be trading with Pakistan for grains; you could have a joint project developing hydro ultimately for Afghanistan, but while they don’t have capacity for Pakistan. So I think that’s, you know, again, it’s not a simple situation but one where you could envisage a treaty and investments which start making collaboration happening effectively.

    MR. NAWAZ: John, one of the things that emerged after the flood last year was a finding from the meteorological experts that, perhaps, the monsoon – we are seeing a secular shift in the place where the monsoon ends in Pakistan, which means it’s moved north and therefore, the Indus becomes the main catchment area, rather than the Jhelum and the Chenab and the Ravi. And the Indus being a narrower waterway creates such tremendous force that the dams that you are talking about not just to stop the water, but to regulate its flow – maybe just one dam may not be enough, if that’s the case.

    MR. BRISCOE: Everyone will help. I would be – I mean, I’m not a meteorologist but I’d cautious about the extrapolation of that. My understanding was that what you had was, you had this – you know the gulf – you have the global gulf – the jet stream.

    What you had last year was – every, I mean, as it comes round like this you get these waves that are called Rossby waves that sometimes circulate back. And we, in fact, had a drought from – they sometimes will cause the jet stream to stall, and that’s what happened in Russia last summer and that’s what happened in the United States. And it so happened right at the time when the atmospheric moisture was so incredibly high.

    So, yes, it moved. But the problem was, it just kept raining; it just didn’t stop. So whether – but I think the point is that actually this flood was not such an unusual event; this is flood with probably a 40 or 50-year recurrence; it’s going to happen again; they’ve happened before. So the adaptation to that, whether it be climate change or just dealing with the current climate, you have to do that. These have to be done, and they have to be – yes, I mean, start with one, but there’s, as you know, there’s a plan for doing more. But, you know, Pakistan’s got to get its act together to do that.

    MR. NAWAZ: Thank you. The gentlemen in the grey suit.

    Q: Thank you, and thank you very much for that presentation. I’m David Michel with the Stimson Center. First, two quick observations, and then to my question. The observations go to the idea of joint projects and benefit sharing. Not only are there political tensions hindering joint projects and benefit sharing between India and Pakistan but there are also capacity issues, particularly as concerns electricity.

    Having spent some time with the Independent Power Producers Association of India and listening to governors of the Central Electricity Board talk about India’s own electric grid, one of the issues in joint hydropower projects would be connecting the grid to Pakistan’s grid. And there, there’re of course suspicions about potentials for Pakistan to nefariously sabotage India’s power production.

    But also just questions about India’s own – or Pakistan’s own capacities of its own grid system, that a failure in Pakistan could lead to cascading failures in India. And so one of the questions that arises, not on the water side but on the electricity side, is we don’t want to be connected to Pakistan’s grid, for that reason. So there’d be need to build up electric power institutions, as you possibly mentioned, and capacity in Pakistan. As well, there’s just the political tensions.

    Second observation about benefit sharing on the Mekong – and I think this is transferrable to other regions as well – is that there’s the issue of who is gaining the benefits that are being shared. So between Thailand and China, yeah, China can finance some projects; Thailand can buy the electricity; but many in Thailand see those projects as exporting Thailand’s environmental concerns onto Chinese actors.

    So that by having the dam’s hydropower projects being built in China, in Laos, you avoid Thailand’s environmental regulations and damage the environment in this other country in order to buy the electricity, impacting other sectors in Thailand and other countries, like Cambodia, fisheries production and the environment. So there’s a tradeoff to be done in the sharing of benefits.

    Now to my question, you mentioned the impacts – potential impacts of climate change on the hydrograph of the Indus. And if we’re postulating building joint projects to derive joint benefits between India and Pakistan on the Indus, how do we – how do you envisage taking into consideration the volatility of risk that might come with shifting snowmelt, glacial melt and how that would impact these projects that are being, you know, built on these shared rivers?

    MR. BRISCOE: Yeah the – three things. The grids, I don’t understand why the grids would be connected. I mean, if you look at Itaipu, there’s a line that goes to Paraguay; there’s a line that goes to Brazil. So it’s a detail in a way, but I would be very surprised if India and Pakistan were to integrate their grids. I mean, I see two big lines, one line coming to India’s grid and one to Pakistan’s grid, and there’s no interconnection between them. But I think that’s a detail.

    On the Mekong that’s sort of another discussion, I actually don’t agree with you. The dams in the – there’s a very big difference in the dams in the lower Mekong and the upper Mekong. The dams in China on the upper Mekong have essentially no environmental impact except for a positive increase in low flows. I know this is not conventional wisdom, but there’s been a big review recently of those and they, for the most part, are going to augment flows into the lower flow.

    It’s when you get down into the lower part of the Mekong – and there’s the lowest of the Chinese dam, this is arguable, that the – otherwise they are actually good for the environment, good for lower flows in the lower Mekong. So this whole thing that these are all destroying it, I at least – but that’s perhaps we can talk about that.

    Yeah, I mean, on hydrographs that’s what you build dams for is to moderate hydrographs. So obviously operating rules if all of these – if Kashmir in India were Pakistan’s they would be quite appropriately building these hydropower plants, but into the operating rules, as the case of Three Gorges, you have multiple objectives. So you don’t operate them purely as power projects; there’s a tradeoff between getting the hydrograph you want, in order to get the flows that you want predictably down steam for your irrigation, and the power generated.

    For the most part, creating some storage gives you the low flow augmentation capability that’s generally a win-win. But, yeah, that’s built into the operating rules under which you operate the reservoirs.

    MR. NAWAZ: Thank you, John. I have a question here. Then I’ll be going to the young lady there at the back, and then coming to you, sir.

    Q: Thank you very much, Shuja. Ziad Alahdad is the name, former director of operations at the World Bank, so one of your colleagues. John, let me join Shuja is in complimenting you on, I think, what is a very, very lucid presentation of the situation, and the prospects perhaps. My question stems from your comment about the impediments being both internal and external. The internal ones on the Pakistan’s side clearly are the provincial ones; and here we are dealing with, what did you call them, the medieval institutions, and –

    MR. BRISCOE: Paleolithic emotions.

    Q: Paleolithic emotions. And in what goes by the board are excellent schemes, which due to a lack of trust are just forgotten or sunk. What can, you know, international brokers like the World Bank, which have some success in this water treaty despite the few rifts which are developing over the years. Can the World Bank play a part? Who can play a part?

    Can these provinces be brought together because this is costing not only the water management of the country but also of course, as you know, electric power generation of which, on the hydropower side, we’ve only harnessed less than, what, 16 percent of the known economic potential. So John, your thoughts on that.

    MR. NAWAZ: Let me just add to that that the most surprising thing in Pakistan, for me, is that we’ve had 10-year military rule for three times in the life of the country. So you had dictators with autocratic powers who had appointed military men as governors of the respective provinces. But the moment they put on the provincial hat, those military men would end up fighting each other over exactly the same issues. So how does one resolve this?

    MR. BRISCOE: Yeah, it’s just I – it’s probably a phrase that all of you know very well, it only came to my attention – I was reading Anatol Lieven’s book on – he had a very nice – I like the description. He said Pakistan’s curse has been that its democrats have all tried to operate as dictators and its dictators have all tried to operate as democrats; they’ve had the worst of both worlds. (Laughter.)

    But the – and Ziad’s point is very good one. I mean, if you look at Kalabagh, for example, I mean this is obviously the project that should be built. As an outsider you go to Pakistan; you know this very well. For the Sindhis this is another big pipeline into Punjab. If you talk to, you know, WAPDAs in Lahore – and I mean this goes back to the military-agricultural water complex, in way, so it’s tied up in many, many other things.

    I think outsiders can play a role as being what I would call tough-love friends. And I describe the experience we had there with the Bank – I mean, when I worked on this in Pakistan. We said to them, guys, you know, you have this and then you speak to the Punjabis who manage most of this – no, no, no it’s the Sindhis; you know how the Sindhis are, there all, you know, it’s all – there’s nothing to it, right?

    So I said, well, show me the numbers. No, trust us, the numbers – I said, I’m not mistrusting you, but can I see the numbers? Well, we can get the numbers for you. I said it’s not the point whether you can get the numbers for me. Why if the numbers – if there is nothing, why aren’t they publically available? That’s the way in which you get rid of this.

    And this little slide I showed, which was on – you know, there was very – we worked a lot with both, actually, with all of the provinces but we worked a lot in Punjab. Said, guys, this makes no sense whatsoever. Here you are in the modern day in age; put this stuff on the Internet. And everybody laughed. They said you’ve got to kidding. This will never happen, all the rents will go out by this being public.

    And then, you know, this was – I mean, they had excellent bureaucrats in the Punjab, and this was with Pervaiz Elahi was the minister. They were progressive feudals who pushed for – Jahangir Tareen, for example is very active in this – pushing for modernization of their system. And they did it. It was the biggest surprise I ever had that they actually did this.

    And, to my mind, I’m incredibly pleased because I go back and – you know, I keep thinking is it really true that they’ve done this? And I go back and look and it’s now seven or eight years in which now what they say to the Sindhis is, guys, all our stuff is there. It’s all on the web. Put yours on the web too.

    So I think some of this is starting – I think outsiders can make, because – and you all know this much better than I – the mistrust is so pervasive, right? There’re also things on making rules. The issue of who gets royalties from hydropower projects, that it’s where the powerhouse is located, so Tarbela, you know, most of the resettlement is in frontier. They pay the big price and the powerhouse is in Punjab so they get the royalties. This is insane, right? This is insane.

    So simple to do that if you really want to move forward on those things. So I don’t see any of these as – I mean, I know the mistrust is – but the way to deal with mistrust is not to tell people to trust but to make things so that there’s a most trusting – and I think outsiders can play, you know, a marginal role. Ultimately the decision’s for Pakistanis to make on that.

    The great problem with institutions like the Bank, now, is all they want to deal with is give lectures on governance, so there’s never any building of anything. And you can’t deal with these by lectures on governance; you’ve got to build. You’ve got to invest. And that’s what made the Bank effective in the Indus Treaty and it’s – you know, I actually despair of the Bank having that role again.

    I mean, I guess privately we can talk a bit about what’s happening in Pakistan right now, it’s a complete abrogation of the Bank’s responsibility, the way they’re behaving. But –

    MR. NAWAZ: Your pension is still secure, John, don’t worry about it.

    MR. BRISCOE: Temporarily, yes. (Chuckles.)

    MR. NAWAZ: Young lady at the back.

    Q: Hello, my name’s Crystal Call (ph) and I’m a Ph.D. candidate at Brown University. My question is in regards to current energy initiative and collaboration –

    MR. BRISCOE: Current what? I’m sorry I’ve got a cold; you’ll have to speak louder, I can’t –

    Q: Sorry, my question is in regards to current energy collaboration between Central Asia and South Asia. Looking at, for example, the trans-Afghanistan, TAPI, pipeline both – all four countries, Turkmenistan, Afghanistan, Pakistan and India have all signed onto this agreement and it’s, you know, obviously there’s a lot of security concerns now – but be funded by the Asia Foundation.

    So I’m curious of if, you know, looking at issues of water security between India-Pakistan if – obviously, you know, there’s political tensions, but if they can follow this type of model and have, you know, an outside international organization be at the World Bank, the Asia Foundation to come in and to, sort of, design a project and have – it’s in both countries’ interest to, you know, collaborate and work together to benefit from hydroelectric power, the water resources in the area. So I’m curious about your thoughts, of sort of, using this type of model.

    MR. BRISCOE: I think outside organizations have a role to play. But fundamentally these are decisions of the two governments whether they want them in. And this you hear you have a great asymmetry. I mean, this is an asymmetry between upstream and downstream, right, and between big and small. And so Pakistan would love to have every and all outsiders involved in the issue; India doesn’t want anybody involved in the issue.

    And there is no – between India and Pakistan, there’s no way of doing this unless the Indians want to do it. So if the Indians wanted to do it, I’m sure the United States would be happy to help them. Many countries that would be happy to help. But it’s fundamentally a political decision for the countries as to whether they want to invoke such assistance.

    There’s no, at least in my view, there’s nothing – the World Bank can’t come in and decree that we can do that does this as these are – and, you know, the World Bank; you have to understand, a country like India is a superpower. It’s a big country with lots of resources. They will call their own shots.

    So the thing, I think, is – I think the role of outsiders frankly, is not such much in – maybe doing projects at the end of the day, that’s a part of it. But the main thing is good-faith discussions, good-faith bringing of partners together to try to see or to provide a third perspective on why that cooperation may be something in their interest.

    But, you know, if one party doesn’t want to tango at the end of the day, there ain’t no world body that can force you to do that.

    MR. NAWAZ: Thank you.

    Q: Atul Singh, founder and editor-in-chief of Fair Observer, which is a new journal which is covering global issues. My question has to deal with Paleolithic emotions, and you showed a slide of Tamil Nadu and Karnataka, and the emotions. And you said, the states don’t have armies. But you do know that there are riots, anti-Tamil riots –

    MR. BRISCOE: Most likely.

    Q: – and anti-Karna riots. And talking of Paleolithic emotions post-Mumbai, there is this emotion in India that we do nothing. So how can, given the rising population’s rising demand for water, groundwater depletion, how can in practical terms both these governments counter the Paleolithic emotion which you’ve just mentioned?

    MR. BRISCOE: Yeah. Well, let me – I mean, you’ve got several levels of that. Let’s just start within India. And the two issues that you’ve put – the groundwater issue is probably the biggest, most serious issue that India faces in water, as you – especially in the northwest, right. So Punjab, Haryana, et cetera – Gujarat. And this is a tremendously difficult problem to solve. This is of millions of farmers, each with their own tube wells, each pumping down the groundwater, which you know better than I – you know, the politics of it is, now they’re so deep that if they have to pay for electricity, they can’t farm anymore, so provide it free so they can go deeper. And it’s a irreversible, tremendous challenge.

    I think there’s an interesting case where I think there’s a start of something – it’s a light at the end of the tunnel, but at least somebody’s starting on it, and that’s in Gujarat with Mr. Modi. And it’s an incredibly interesting, sophisticated approach he’s taken to this.

    My understanding of it is basically as follows: There’s firstly a great unsaid, and the unsaid is that you cannot have high agricultural productivity if you have 70 percent of people depending on farming. You cannot have rural – you’re going to have rural poverty if you have that number of people working one hectare each in agriculture. That’s why – there is no country that’s ever gotten out of poverty with that proportion.

    So there’s a natural process of urbanization. I think what Mr. Modi has done without saying it explicitly, he said, the future of Gujarat is in services, in manufacturing, and maybe in some high-value agriculture. And you have to move people to urban areas.

    So what he did was, you may know this Jyotigram scheme that he’s done, which is basically – was driven primarily by an electricity problem. And it was the – as if all the state electricity boards is basically bleeding red ink. And so – and this is a lot due to all of the heavy starters, these capacitors that they put on the pumps. And everybody knows that the power – wildly fluctuating; everybody has to have backups, et cetera.

    So what he basically said was, to industry, to commerce, to every family, you’re going to get 24-hour-a-day supply, high-quality, and you’re going to pay for it. Well, they’re paying an arm and a leg already, so everybody is very happy.

    So you have one distribution system completely for those, and then a second distribution to the farmers, saying, no longer you’re going to have to have your pumps on so that when occasionally the power comes on, they pump water anyway. You’re going to go on to what’s essentially a warabandi for groundwater; it’s very interesting. And that says it’s going to be an eight-hour rotation; you’re going to know exactly when you’re going to get your eight hours. It’s going to be high-quality.

    But you are not going to get 24 hours; you’re going to get eight hours. And this means you can plan, you can manage that effectively, and you can start moving towards higher-value products as a result of that.

    The early indications, combined with – from – (inaudible) – there’s a lot of recharge into the northern aquifers in Gujarat. It’s a bit early to tell, but at least there’s somebody trying to come to grips with this by essentially rationing electricity. So it’s a tremendous problem.

    Between the – like the cavalry, you know, this is, to my mind, an absolute abrogation of its responsibility from the union government. And the costs are enormous in terms of missed opportunities. There was a very interesting, Maharashtra building a whole bunch of nonproductive dams simply to lay a claim for the next round, which no one knows when it will be on the Krishna tribunal.

    So it’s a complete mess. And I at least haven’t seen any indication – and as you know, like the Haryana-Punjab case, just defy the supreme court, defy the government, and life goes on like that. So I don’t know what the recipe for India in dealing with that.

    What I do know is, when you talk to people like Montek Ahuwalia at the ministry of planning, Montek will tell you the energy issue is a big issue for India, and it’s not an easy issue. But we have an idea of how to solve the energy issue; we have no idea how to solve the water issue. So I think it’s a really, really huge problem for India.

    MR. NAWAZ: So it’s becoming a trans-boundary issue within countries now, as much as it is – yes.

    MR. BRISCOE: And the city and the country between irrigation districts – as you said, I mean, there are riots everywhere; there are people being killed everywhere over it.

    Q: My name is Iqbal Hasnain; I’m from the Stimson Center. John, my question is about the regular challenges – that is, the climate change. And it’s not that the greenhouse gases, but the black carbon is impacting this region very hugely. And we have seen – there’s all scientific evidence that all the glaciers are melting pretty fast.

    And particularly now that Pakistan is getting lot of water from Ladakh region, and even from Tibetan plateau. But by 2050, as the Chinese have a very robust glaciological program, they have predicted that 40 percent of the glaciers would reduce. Even in India, where I have worked on the Ladakh region, the glaciers will reduce certainly. So what is your take on this World Bank-brokered treaty? Why don’t they revisit and bring the climate change into the discussion here?

    MR. BRISCOE: I think that’s a recipe for disaster. The treaty is difficult enough under the current circumstances. The uncertainty around climate change is gigantic. The beauty of the treaty in a way is that it actually doesn’t give flows to one or flows to the other; it gives rivers to one and rivers to the other. And I would let that – I don’t know if it’s the right metaphor – sleeping dog lie. Whatever comes down the Indus, the Chenab and the Jhelum is Pakistan’s; whatever come down the Ravi, Bé, and the Satluj is India’s. And in a way, that actually keeps things much simpler.

    So I don’t think – for me, that’s not an Indus Treaty issue. That’s an issue for India and for Pakistan and for everybody else around in, can you develop systems which are able to adapt to a future that is obviously very, very uncertain?

    And there, I actually – one of the other countries – I know it’s a long way away and very different – but there’s, again, a light at the end of the tunnel. I work in Australia a lot, and there’s a really extraordinary situation happened in Australia. They had in their irrigated agricultural heartland – the Murray-Darling basin, which is basically an irrigated economy; there are no big cities – they had between 2000 and 2007 a 70-percent reduction in water availability in an irrigated agricultural economy.

    And the outcome of that was virtually no economic impact on agricultural production. So 70-percent reduction in water availability; no impact on the value of agriculture; enormous impact on what sorts of crops were grown, depending on whether it rains or it doesn’t rain. But because you have a – you have a lot of infrastructure and you have a very sophisticated institutional system, if you can walk on those two legs and put those two together, there’s incredible adaptive capability.

    And I would focus my efforts – I think that climate change – I mean, you know, obviously, you’ve got to look at that. But just look how badly they’re doing; look how badly Pakistan has done, even if the climate – I mean, the climate – sorry – the climate always changes; it’s never stationary.

    And they’re doing a terrible job under it. The best thing you can do for whatever is coming in the future is to be much better at dealing with the substantial variability, which you have already. And there throughout the subcontinent, everybody is doing a lousy job. So I consider it something of a distraction, not that it’s not important.

    But that – you know, and there I think the international community serves everybody – with all due respect, that sort of suggestion is really a red herring because you’ve got these real issues to deal with. Now, deal with those and deal with that one as and when it comes. That’s at least my view of the issue.

    MR. NAWAZ: Thank you. I have three questioners left; I know we’re over the time, but we’re willing to go on, with John’s permission. So I have Maldood (ph) and Dr. Lynch, and then Mr. Marti (ph).

    Q: Thank you. I have a –

    MR. NAWAZ: Identify yourself for our –

    Q: Maldood Trene (ph), Elliott School and NASA Earth Science Office at Marshall Space Flight Center. You’re talking about the flooding in Pakistan – you know, the climate projection models over the 10 to 30 latitudinal band indicate increases and decrease in precipitation, but one thing is the intensity of these events would increase.

    So the resiliency of these structures that are built, you know, 40 years ago is in question. And so, you know, just –

    MR. NAWAZ: Like what structures?

    Q: That the – (inaudible) – they would be able to withstand twice the size of – you know, an event that is the twice that just saw, or the new structures for that matter.

    The other question that I have is that, you know, for planning commission of Pakistan, you have this portfolio of investments that you need to make in urbanization and transportation, in water resources. How do you identify which is more important and when it is important? And how does water fall in those categories? Because you know, if you see right now that energy shortages – and if you think of investing in wind power or nuclear power because of your security posture, it becomes a real difficult issue on, should we be building dams – ecologically sensitive areas, northern areas that are more susceptible to adverse weather, which is going to be more volatile?

    So just your thoughts on some of that.

    MR. BRISCOE: Yeah. I’m going to try not to – not to be rude, but what happens in Washington and what happens in places like the World Bank is, there’s an incredible, sort of fine look at exactly what should come where, and what – guys, you can’t live in a country if your whole country – Pakistan is built around water use. And you have no storage in your system, and you have no water infrastructure. It is simply inconceivable to me that you can ever have a stable society without that.

    Now, you know, whether it should come before a ring road round Karachi or not seems to me to sort of a false – you have to do that; there is no country in the world that can survive its – it’s linked to the energy system; it’s linked to the agriculture system; it’s linked to the flood protection. And you know, this is what countries – I mean, and I’ve looked at this, for example, again, in Brazil. Right?

    You know, all these questions – World Bank, agriculture – no, you should be in, out – invest, dis-invest – countries don’t function like that. Countries that are successful basically say, guys, this is common sense. We’ve got to do something like that. And then you got to do it for 30 years.

    So this constant isn’t – I don’t think is a useful way to think about it. I think there are some things which have to be made at that decision, but they’re underpinnings of a society which for me, this falls into that category.

    And you know, a detailed cost-benefit analysis of this, I don’t think is particularly unlikely. I mean, these are things you – very interesting – Tarbela, for example: If you look at the World Bank, the World Bank never did an economic analysis at Tarbela. Why didn’t it do it? Because it was irrelevant; Pakistan couldn’t survive without Tarbela. So it was built. That was a day in which the World Bank was much more pragmatic than it is now. Now, we would have 20 years of studies of, you know, everything under the sun before you could do anything like that.

    MR. NAWAZ: Thank you.

    Q: Hi, thanks, Shuja. I’m Tom Lynch from National Defense University – Institute of Strategic Studies. I want to follow up on one point you made: You referred to the growing propensity of India to be less inclined towards largesse towards Pakistan on water issues; you also referred to the Senate Foreign Relations Committee report in February which implied, but didn’t go into great detail about, the potential risk for conflict and clash based upon water issues.

    And so I’m wondering if you might give us the best case you could make that we are at growing risk for clash and conflict over water, and then perhaps hearkening to Shuja’s point about the assiduous manner in which previous conflicts between Pakistan and India have not attacked or not been focused upon headwaters, the case one could make to say, well, maybe this isn’t something that’s necessarily precipitous of armed clash or conflict risk growing. Thank you.

    MR. BRISCOE: Yeah, were you here for the talk?

    Q: (Inaudible, off mic.)

    MR. BRISCOE: Yeah, OK, because I thought the first part, at least – that’s my best shot at how I see this. I think the issue of conflict on these – that’s an important – I don’t see the conflict as, you know, India coming in and bombing Tarbela. I don’t think that’s the issue.

    The issue is much more, sort of, low-level, and these are incredibly important: If the – when you have on the Chenab, when you have 40 days of storage, for the guys who are planting down – who are planting down in Pakistan, it’s a world of difference if the water comes now or if it comes in two weeks’ time. And that’s going to be in the sort of nickeling-and-diming part which has tremendous impact. And that’s the area where I see the conflict being much more conducted, in a sense, in a sort of fog of data – no, it’s not really this; it’s that; it’s this; it’s that – rather than a dramatic blowing up –

    I mean, it’s not – I, at least, don’t see that happening. But I see it as – you know, this, again, the Baglihar case is a – when they filled Baglihar, was – is a tremendous contestation. The Pakistanis claim there was a large amount of damage inflicted because the water is not supposed to come; there are rules under the Indus Treaty on what flow is supposed to come. They say it didn’t come, then India says, OK. And I think it’s much more that level.

    But these are very large – these affect very large numbers of people downstream in Pakistan. It’s a very – this is a country that’s absolutely rife with conspiracy theories on everything, and you just need a little bit of fuel onto that, and it all blows up into something much larger than it was.

    But this is – so you know, transparency, clarity, rules being followed – that’s more where I see it, rather than, you know, marching along with bombs to blow up each other’s power stations. I don’t – maybe that will happen, but I don’t see that as much.

    MR. NAWAZ: Mr. Marti?

    Q: Mansood Marti (ph) from South Asia Journal. I have one observation, two questions. The observation is that you mentioned about, you know, Pakistan going to the court of arbitration on Baglihar. I think the reason at that time was that India had changed the original design, and therefore Pakistan contested the design. And Mr. Lafitte did agree to, you know, to Pakistan – (inaudible) – to some degree. And he did sort of, you know, ask India to change the design and bring it – I think he said, build down the head of the water by 1.5 meters, I think – things like that. So there’s just – I just wanted to put that on record here.

    The question about joint ownership – I think if in a neutral ground like Afghanistan, not really neutral but still – you know, I mean, maybe that is a possibility where India and Pakistan and Afghanistan could work together using the private sector because there is- (inaudible) – government control on both sides. And you know, with United States playing a role there for a long time, you know, I think that could be one example where something can happen.

    Now, about the scarcity of water in Pakistan, I believe that it is not just a trans-boundary issue, or India is trapping water, or doing things. It is also the mismanagement of water within Pakistan –

    MR. BRISCOE: Absolutely.

    Q: For example, you know, the loss of water through unlined canals, or, you know, the extensive use of water where it can be reduced, or the crop rotations. So my question is there, what is the international community doing to make sure that at least this part of the loss, which is controllable within Pakistan and has no political implications – I mean, what are they doing to help Pakistan, you know, reduce the loss I just mentioned?

    MR. NAWAZ: Have you looked at some of the projects under the Kerry-Lugar-Berman legislation in Pakistan?

    MR. BRISCOE: Yeah, I haven’t looked in detail. I’ve seen some of that. But if I could answer – on the first, it’s true. I mean, there were some things that India had to change. But the fundamental was that this issue of the protection-of-life storage was done away with, and that to my mind completely overwhelms all of these relatively other small ones. I think it’s a great idea: Afghanistan, India, Pakistan – that’s probably much easier, and is, indeed, a very good place to do that.

    On the domestic things, this is a – if I start the question at a slightly different level, I think within Pakistan, I’m actually – for all my sins, I serve on a council for Shahbaz Sharif, for the chief minister of Punjab. And that is actually very interesting because basically, he has – you know, the issue of water is looming over everybody, right? And he has formulated in a very interesting process a discussion with political people, with the private sector, domestic private sector in Pakistan, international private sector –

    Two big issues for Punjab: The first comes to your first point – is, here you have, if you look at the productivity of agriculture in Punjab in comparison to international, even moderate – it should be producing three times as much agricultural output per unit of land than per unit of water. So to say water is a constraint, this is not the case.

    But you have – so he has formulated this sort of vision of how can we make Punjab into a regional agricultural superpower? Now, part of that is, you have an infrastructure that was built in the 1860s when the only thing you had was a clock, so everybody got so many minutes of water. It’s a supply-driven system; you’re going to get the water – you know, mitigated to some degree by groundwater, which has acted as a demand-driven system.

    But the huge questions – and I think it’s actually – he’s taken a lot of leadership on this. He’s got very good secretaries – is saying, with this community, for the private sector which has to produce a lot of this value-added, what sort of system do we need to modernize it?

    Now, the lining of the canals is – you know, this is a technical – this is a technical issue. In a way, the unlined canals have been the salvation in the Sweetwater areas of Pakistan because it’s actually – they have been what have – and in India – they’ve been what have recharged the groundwater. And so that’s actually a pretty good system; I mean, you get it in, and then the farmers can pump it, and you know – back it comes.

    Now, it’s a catastrophe in the saline areas because it makes that issue much – so you have to – I think there’s been too much discussion in my view in Pakistan of – I think actually it’s a problem that the water people have, of which I am – we’re always looking at saving water. I don’t want to save water; I want to produce more, right? So how do I translate that from saving water, which nobody is going to get elected on, into how can I triple production, reduce poverty, et cetera? And so he’s formulated this.

    The second issue that he’s formulated is around the sustainable water future for Lahore because Lahore gets a lot of good water from groundwater; a lot of that’s turning saline. The major questions for industry, for everybody in Lahore – how that’s going to survive.

    So I think, you know, once you have leadership in the political domain on these, basically the – you know, I mean, there’s some problems with the international – but for the most part, if there’s well-formulated, well-thought-through, they’ll come along. And for me, that’s really the place to act, is to act as good-faith partners to political leaders who are willing to take these on, and find ways of working with them, with the private sector, with the international organizations to make this transformation.

    MR. NAWAZ: Thank you; thank you very much, John, and thanks to the audience. And I also want to thank Ploughshares Fund again for supporting this effort. As you can see from this very rich exchange that we’ve only just begun to scratch the surface of this issue.

    We will be having more frequent such exchanges here, but also in the region because part of our role is to act as a forum inside the countries and between the countries in South Asia. And we will most certainly be picking up some of the multinational, Afghanistan-Pakistan-India-type relationships, and the Bangladesh relationships with India, as we go along.

    But if you can join me in thanking John Briscoe. (Applause.)

    MR. BRISCOE: Thank you.

    MR. NAWAZ: Cheers.

    MR. BRISCOE: Thank you all.

    (END)


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  • How Should the Transatlantic Community Respond to the Arab Spring?: 5/3/11 - Transcript

    Return to the Arab Spring event page

    THE ATLANTIC COUNCIL OF THE UNITED STATES 

    HOW SHOULD THE TRANSATLANTIC COMMUNITY RESPOND TO THE ARAB SPRING?

    WELCOME AND MODERATOR:
    FREDERICK KEMPE,
    PRESIDENT AND CEO,
    THE ATLANTIC COUNCIL

    SPEAKERS:
    SHAUKAT AZIZ,
    FORMER PRIME MINISTER,
    PAKISTAN

    BAHAA HARIRI,
    PRESIDENT AND CEO,
    EXCEED SA

    GENERAL JAMES L. JONES (RET.).
    FORMER NATIONAL SECURITY ADVISOR

    LIEUTENANT GENERAL BRENT SCOWCROFT (RET.)
    FORMER NATIONAL SECURITY ADVISOR

    TUESDAY, MAY 3, 2011
    WASHINGTON, D.C.

    Transcript by
    Federal News Service
    Washington, D.C.

    BAHAA HARIRI: I mean, I think the – like General Scowcroft said, that the army is – the Alawi – when the decision to dissolve the Iraqi army was done, I was sitting with my father. And he put his hand, and he said – (laughter) – he did like this. You know? What decision is this? It’s a disaster. All what they have to do – and by his words – is the leadership should change, but the army should stay intact.

    So here you have virtually the same example as you had in Iraq. So you don’t dissolve the army; there is just a certain leadership because at the end of the day, Syria is ruled by what? By a Sunni – by Alawi minority ruling a super Sunni majority. So the army is – and it’s majority-Sunni. So yeah, if you play your cards well on the military issue, it’s the same issue as Iraq.

    FREDERICK KEMPE: Thank you very much, please –

    Q: I’m Harlan Ullman. Thank you very much for a very, very useful and interesting discussion. I have two very brief questions, which probably sound more like editorial comments. First, nobody refreshingly mentioned East Asia, China or India in a different context. And I wonder how you would balance out what’s happening in the Arab Spring writ large with our interests in that part of the Pacific.

    And for Shaukat Aziz, if you were in government or advising government, how would you get an investigation done that was credible, and indeed, really got to the bottom of the issue about who knew what and when they knew it?

    MR. KEMPLE: So General Jones, do you want to handle the first question? And then Shaukat Aziz –

    GENERAL JAMES L. JONES: Well, Harlan, I think that – you know, the answer to that is obviously that people are watching this extremely closely. I just got back from Korea, and we talked about, you know, China a great deal in terms of how they might be thinking about these things.

    In watching the phenomenon of the so-called Arab Spring, it’s clear, I think, at least from my standpoint, that any regime that is autocratic and, you know, very controlling in this new age is going to have to think twice about when this act could be coming in a neighborhood – a theater near them. And China would not be any exception; I think there’s huge contradictions for the Chinese to deal with in terms of their own future, and other countries that have this autocratic, kind of controlling aspect of the society.

    It’s clear to me that the 21st century presents itself as one in which that is going to be a very difficult way to govern. And so they’re going to have to – it’s going to have some ripple effects I think that go out far and wide.

    MR. KEMPE: You’re back in charge, Mr. Prime Minister.

    SHAUKAT AZIZ: Thank you.

    MR. KEMPE: I want you to – yep.

    MR. AZIZ: I think what we would need is obviously a combination of civil and military leadership, along with parliamentary involvement, to find out what really happened, and where things worked and where things didn’t work.

    It cannot be just one aspect of – Pakistan has a complex governance structure. So the parliament is active; the parliamentary committees are very active. That, along with military personnel, can get to the bottom of this particular situation quite quickly.

    I think the facts are probably available; I don’t have them because I’m not in government anymore. But I think a small group of such people, knowing that the whole world is watching, and there are many ways of checking and double-checking what went on, you could get some interesting results very quickly as to exactly where things were dropped and where they were not dropped, and there were other reasons for what happened.

    MR. KEMPE: Please.

    GEN. JONES: Just a follow-on comment. You know, I completely agree with what General Scowcroft said. I would just add another point to this, is that I participated in two major humanitarian operations in Pakistan in a – from a command-and-control standpoint. First one was the earthquake that NATO responded to, and the second one, of course, was the very serious floods that the U.S. and many other countries responded to.

    You know, one of the things that really is going to affect the bilateral relationship, I think, is some honest dialogue in Pakistan about what they – what Pakistanis want this relationship to be. On the one hand, the mood of the electorate here in our country and in terms of at a time of economic distress is going to – it’s difficult to accept the fact that we can provide all of these things and do all of these things that everybody accepts, at the same time not benefit from any kind of internal campaign in Pakistan that gives us any credit for it.

    And so I think the leadership of Pakistan, military especially, has to decide whether they think we’re good guys or bad guys. And if they think we’re good guys, then give us some – give us some recognition and start helping us with the popular opinion in Pakistan, which is terrible right now, I mean, in terms of the U.S.

    I mean, I’ve been to Pakistan; I’ve traveled beyond Islamabad; I’ve been out to the Swat Valley, and you can feel in the popular rank and file the animus towards the United States. And that’s got to change because otherwise you don’t – you can’t have – no matter how important strategically it is, you’re never going to get the Congress to vote for the largesse and the resources that are necessary at a critical moment in time.

    So I think this dialogue to the extent that Pakistani authorities – don’t fool yourselves about how serious this moment is. I think the prime minister is exactly right, but it’s going to take honesty and really clear thinking to be able to move past this point. And that’s something that, with all due respect, that the leadership has somehow been unable to come to grips with.

    MR. AZIZ: One thing –

    MR. KEMPE: Yep.

    MR. AZIZ: I think as I said earlier, I’ll just re-emphasize again, this is a window of opportunity. The Pakistani leadership, civil and military – that’s why I said everybody has to be on one page – has the capacity to do what General Jones just mentioned. But the time has come to do it.

    MR. KEMPE: That’s right. Yeah, if you – there are inflection points where something like this breaks cement. And so suddenly, you can get things done that perhaps you couldn’t get – got done. So I think the bin Laden killing offers that opportunity. But then the (summata ?) comes back together again. And so I think you’re absolutely right.

    I see two questions. I see Paula and – we’ll take the two right next to each other there, please.

    Q: Thank you. Paula Stern, member of the executive council of the Atlantic Council. I would like to follow on the conversation that General Jones in his last response to Harlan was on, and that was this reference to China and how trends may or may not be the same as those that we’ve been discussing here in North Africa, the Middle East and in Pakistan, Afghanistan.

    And I want to talk about economics, and ask you to talk about the economics because I think the role of jobs, unemployment and demography, the youth, all have that in common except in China where they’re aging and – (chuckles) – where there are jobs.

    So I do believe that if we are talking what these new opportunities with these two centers of coordination, and the issues of economic rights and the right to have a job, I’d like to hear what your thinking is about how we pull in those trends – the demographic and the economic trends – in these new centers that we’re standing up.

    MR. KEMPE: And to whom would you like to pose that question? And then –

    Q: I’d be happy to hear it from any of the leadership on the podium.

    MR. KEMPE: OK, great. Please. And – yes, yeah. Thank you.

    Q: I’m Major David Buffalo (sp). You can probably guess I’m with the U.S. Army. General Jones painted a picture of where we should be in 10 years, from what I saw, with democratic institutions with generation-skipping technologies across the Arab world.

    In relation to the Arab Spring, though, he also mentioned strategic patience, which seems to be the route that we are all taking across the trans-Atlantic community. My fear is that the young people who created this uprising do not have strategic patience; they want change now.

    And building off of Paula’s question, you know, what can we do from a national security standpoint, from a trans-Atlantic standpoint to assist this, whether it’s economic – political in countries like Egypt, Tunisia, whether it’s military where atrocities are taking place in Libya, Syria, and understanding also that there’s a trust deficit between the trans-Atlantic community and the Arab world that that somehow needs to be eliminated among both sides? Thank you.

    MR. KEMPE: Let me call – General Scowcroft first, and the – yep. Please.

    LIEUTENANT GENERAL BRENT SCOWCROFT: To deal with Paula’s question, to me, the best answer to what’s going on in China is the way the Chinese regime is responding. And they are scared; they are worried. There is a major crackdown going on. And this is not just youth; it’s not just economics; it’s not just employment.

    To me, the fundamental thing – and I’m not sure it’s democracy; I think it’s dignity. I think people see that they have been treated like cattle for so long that there’s been a small group around the leadership enriching itself at the expense of the people. And I think it’s that sort of cry for dignity that the Chinese are worried about.

    I think – internally, I think the Iranians have to be. And that is what is spurring it, much less than economic poverty. There was some of that in the Egyptian case; there’s no question about that. But it’s accelerated – and then, the Tunisian case. But in most of these, it is not economics. It is dignity.

    MR. KEMPE: Do you want to deal with the youth issue? And also, I would add to the question – Radek Sikorski, the foreign minister of Poland, and John McCain were actually here in the Ritz with an Atlantic Council event. And one of the things Radek argued was that while in Poland, the youth and the people of that time knew what they didn’t want, they also knew what they did want. They knew what they didn’t want, and they knew what they did want. And they would then went after it.

    Is it as clear in the Middle East – what these revolutions are about, what they do want beyond dignity?

    MR. HARIRI: Yes. It’s absolutely clear because, again, like General Scowcroft said, that we are living in an interconnected world. People know what is going on in the United States, whether it’s a TV show or a movie or watching the news or traveling or reading the Internet; people are so well-connected.

    And then, what happened is, this youth that has been – I call it the “Internet youth,” you know, they see the – they see the change, and they see in the region – it’s like a frozen, not going anywhere, going – staying into a certain circle, even in Pakistan.

    So they are seeing the change outside. And where they are living all over the Arab world, it’s not going anywhere. Before that generation, the generation before wasn’t connected the way this new generation is – like General Scowcroft said, family, get the children up, educate them, have a normal life, that’s it. Today, the world is interconnected. Connection doesn’t cost anything. So they will not accept to live a normal life; they want to express their opinion; they want to have a right to say in leadership; they want transparency; they want economic benefit. And they want a change in the system.

    And this is what – I think the Arab leadership in Tunisia, let’s say, didn’t see this change. They did not. And they paid the price for it. So I truly think that their demands are legitimate. And there’s nothing to fear about such demands.

    MR. KEMPE: But let me take – and there are so many questions. Let me take these two right here. Please, you may – why don’t you go first, Jill?

    Q: Thank you. Jill Shooker. There was a report in The Wall Street Journal, Fred’s former home, this last week that the prime minister of Pakistan had gone to see Karzai, and specifically said that the U.S. was not to be trusted – I’m clearly bringing this to just highlights – not to be trusted, and that Pakistan as well as Afghanistan should turn to China.

    I’d be very interested in your reflections on both the accuracy as well as the validity of that point of view.

    MR. KEMPE: Can I – because we’re getting down to our last 10 minutes, I wonder if I can pick up a few questions, and then come back to you since there’s so many questions, please.

    Q: Oda Aberdeen (ph). Fred, can you tell us about the relationship between the Scowcroft Center and the Hariri Center? To General Scowcroft and General Jones, Saudi Arabia is one of the critical countries in the region; we haven’t talked about it. How do you see the U.S.-Saudi relationship in view of what’s happening in Iran, in view of what’s happening in Egypt and Bahrain? Thank you.

    MR. KEMPE: OK, so we’ll store that up. Georgette, and then I have two questions here. And I’m really sorry; there’s just been so many questions. Yeah.

    Q: Just to take on from the point he made, to avoid further military involvement in the region, shouldn’t we be encouraging regional allies such as Saudi Arabia, and I would add Turkey to that, to help – to take a hand in guiding the turbulence? And what would that do to the geopolitical look of the region if they did?

    MR. KEMPE: And I think we can talk a little bit about the Turkey role in Syria that’s being talked about a little bit right now. And then, the two questions right here. And very quickly so we can get – yeah.

    Q: I’ve only heard two mentions of Saudi Arabia. I’d like to hear some more consideration of Saudi Arabia for at least four reasons: the first is, that it’s the guardian of the holy places; the second is, that the bin Laden family came from Saudi Arabia and Yemen; the third is that the Saudis have not exactly reacted delicately when it came to responding to Shia threats in places like Bahrain; and the fourth is oil. What should the United States policy towards Saudi Arabia be now?

    MR. KEMPE: Please.

    Q: Thank you. Terry Murphy, CSIS. Not even a question – I can’t put one to these statesmen. A couple of quick points, comments on Mr. Aziz’s early comments –

    MR. KEMPE: If you could make them questions, because –

    Q: Yes, very, very quickly – your question about freedom – your comments about freedom: We just had a major in uniform asking very tough questions to two senior generals and a prime minister. Just very quickly – (laughter) – that’s the kind of freedom that we have, and there are many others – you were challenged by your media; I’m sure it was uncomfortable. It’s freedom.

    Just any comments that you would like to make on that summary point would be welcome.

    MR. KEMPE: Thank you. And then one last question. And I do apologize to those I didn’t get to.

    Q: Atul Singh. I’m the founder and editor-in-chief of Fair Observer. And my question is to General Scowcroft. You said, the U.S.-Pakistan relationship has been difficult and will need long-term engagement. My question to you is, in the light of the past, can the U.S. – or again, Pakistan – in the light of domestic policy constraints and considerations, given the notoriously short attention span of democracies, promise any long-term engagement?

    Now, I say that because the Congress may pass an act; there might be another press contact in Pakistan. You have many, many power centers. And things might change; things are fluid. So is that even possible? Thank you.

    MR. KEMPE: OK, we’ll work through these, and I’ll try to remember what I’ve remembered. And you can all remember – (laughter) – and what I’ll do – what I’ll do is I’ll actually go down the line for last comments, and then pick up these questions where you want to. And I’ll try to prod where I don’t see them answered.

    My answer is on how the centers will work together. We have functional centers at the Atlantic Council, and we have regional centers. The Brent Scowcroft Center is sort of the mother-father, whatever, of all functional centers. It’s the core – it’s the core of the Atlantic Council’s work. And then we have a Transatlantic Relations center; we have an Energy and Environment program; we have a Global Business and Economics program; and we have a successor generation program. These are the functional.

    Then, we have regional. And regional, now, we have Africa, and the Middle East, South Asia, Eurasia. And so they work together. And as the Scowcroft Center works international security issues, it will work with the Hariri Center on international security issues to do with the greater Middle East – the Middle East and North Africa.

    So we’ve really done a good job of breaking down silos at the Atlantic Council. And these programs and centers work ever better together; it’s not perfect yet, but we’re getting there. So that’s my answer on that question.

    And maybe we’ll start with Prime Minister Aziz and work our way down. Yep.

    MR. AZIZ: There have been a few – ma’am, your question was about the meeting as reported in The Wall Street Journal. My information is that that government has denied this – the Pakistani government and the prime minister have denied. And knowing the players, the prime minister and President Karzai, I think their denial – to me, without talking to anybody – carries some weight.

    I doubt they would get into a discussion like that even if they wanted to because Afghanistan and Pakistan are pretty close, but the trust deficit is still there. So you would never open a discussion like this where you have other issues on the table.

    On the Middle East economic issue, let me just quickly respond that in any economy, and most of the Middle Eastern economies are developing economies, the one thing which we haven’t talked about is the need for structural reform to improve and develop the economy. Now, this is a long subject that I will not get into, except to say that that program has to be well-crafted for each country with the clear objective in the current situation for growth – because that you need to create jobs – and then equitable distribution of wealth, meaning of income.

    So if these are the two pillars, and I don’t mean to imply these are all inclusive, then you’ll get some dividends which will affect the potential demographic challenges which you face. Every country in the region requires that – rich, or less rich or even poor – and the quality of that program will determine how quickly you bridge this gap.

    If you don’t bridge this gap, then you will see some of the situations which are in front of us today. That’s not the only reason they are there today, but this is one contributing factor.

    GEN. JONES: When I was commandant of the Marine Corps, I gave a lecture at the Marine Corps Command and Staff College. And a major stood up and asked a very difficult question, and I didn’t really want to answer it, so I gave him a wave-off answer, took another question. And I could see out of the corner of my eye that he was not happy with my answer, and he stood up again and re-posed the question politely, and I again waved him off and took another couple of – and he stood up a third time – (laughter) – and finally, after he posed the question a third time, I said, you know, Major, you’re really asking difficult questions.

    And he said, well, sir, with all due respect, you didn’t get to be commandant by asking easy questions along the way. I said, no, but it helped me make lieutenant colonel. (Laughter.)

    MR. : Good one; good one.

    GEN. JONES: But I particularly appreciate that question because I think it’s very important, and it’s – it really is a long answer, so I won’t try to – and I’d be happy to stay behind and talk to you. But I really believe that the fundamental answer to your question is, the central concept of constitutes national security has changed. And it is much more inclusive; it’s much more of a whole-of-government concept. In the 21st century, national security was the Defense Department, a little bit of the State Department and maybe a little bit of the National Security Council, and everybody else was on the outside looking in.

    Now, if you look – if you look at what we talk about with national security, all of the asymmetric threats that you know better than I – energy, you know, is a big portion of our national and international security. And American leadership in the 21st century is going to be, in my view, determined by our ability not only to harness our own system and change our own institutions so that we move it – we move – we turn the ship or state into the correct winds of the 21st century, but also to recognize that it is going to be more of a holistic leadership, not a top-down thing. People have got to participate in their future, and we have got to find the ways to let them do that.

    And so from my standpoint, it comes to basically the proper application of three essential pillars of national security: engagement in the world; security, very important – that’s not gone away – but in conjunction with governance and rule of law, helping people achieve the transparency that we talked about; and third, the promise of a better future – dignity and all of these things are very, very important. It is certainly about that.

    But at the end of the day, I think the autocratic – the good news is that the dictators of the 20th century are going to have a very tough time surrounding – I mean, of surviving – in this century. And it’s only a matter of time till the Arab Spring comes to a theater near them.

    MR. KEMPE: Thank you very much, General Jones. Please.

    MR. HARIRI: I truly believe that the change is inevitable and irreversible. And this is why the Atlantic should be very active in it because engaging is the best way. Isolation will not lead you to anywhere. And I truly believe that convergence between the blocs in the region is also a must because these values are well-enshrined in the United States and Europe, and also Russia to a certain extent. You know, the new Russian generation is very critical of supporting democracy and transparency and human rights. So I truly believe this is something that we cannot avoid, we have to face, we have to embrace and to comprehend, and say – and protect to make sure that this transition is a successful transition.

    I, from the region – we are from the moderate camp; we suffered. But we have to keep on going. We hope that any regime in the region would comprehend and understand the needs of its people. In Syria, we hope that they understand that this is something – these are rights that has to be considered and taken into consideration. Nobody wants anarchy; nobody wants a mess. The United States doesn’t want a mess in Egypt or Syria or Palestine. Through dialogue, things can happen properly.

    So for me, my wish, not to have a violent transition but a smooth transition. The Atlantic Council should play a very pivotal role in this – on this issue.

    MR. KEMPE: General Scowcroft, Saudi Arabia has not been answered yet – a role of Turkey. And then, there was the question of domestic politics and whether we have lasting power. And maybe we’ll end with those questions, and anyone else who wants to jump in on them can. And then we’ll close.

    Of course, we did have patience with Europe after World War II, and the outcome was a good one. Why can’t we summon that kind of thing –

    LT. GEN. SCOWCROFT: I think we did have patience in Europe. I think we make a mistake, though, when we look at what happened at the end of the Cold War and the liberation of Eastern Europe with what’s going on now. That was liberation from communist regimes imposed by the Soviet Union. There was a strong nationalist impact to that.

    As a matter of fact, in Hungary, the revolt took place within the communist party. So that’s a – it’s a very different motivation than this. And the United States, after the collapse of colonialism in the Middle East, I think, adopted in general a policy of stability – you know, just, things are going well; we need access to oil, and so on; just let them run. We recognized the difficulties that were brewing with generational changes, but that’s over now.

    But what I urge we do, there is no simple blanket for all these. Each one of these countries has its own unique aspects to it. And what works in one place will not necessarily work in another place. They all have different internal problems, whether they’re religious, ethnic, whatever. I think we need to put our long-range glasses on now – this is just chapter one – and start to analyze what the situation is, where we go.

    We have, for example, in our reaction so far, deeply alienated the Saudi government because from their perspective, they say, is this the way the United States treats its friends when they get in trouble, looking at Mubarak?

    Now, those are the kinds of things we have to deal with. And the Saudis are a particular problem, but they have their own particular issues. And we have to be more far-sighted and look down the road: Where do we think we can end up by encouraging change, by resisting certain kinds of change? And I think we need a very individualistic approach to this region, not a regional approach because I think we’ll do at least as much harm as we do good if we apply a single nostrum to deal with the issue.

    MR. KEMPE: Anyone want to make a last disagreement?

    GEN. JONES: I mean, I think I completely agree with that. And we fall into a trap when we try to apply a certain doctrine. You know, everybody wants to put a name associated with a doctrine as though you’re going to be able to take this cookie-cutter approach, put it down on top of a situation, and somehow it’s all going to work out. That’s not the case; as a matter of fact, the Soviet Union made a bad mistake thinking that we adhere to our own military doctrine – because we don’t – (laughter). They studied it for a long time, and it took them a long time to figure out that we don’t – we have a flexible doctrine militarily.

    But you need flexibility in how you impose your solutions. And I think General Scowcroft is absolutely correct: What works in one place is not going to be a solution in another, but it’ll be some element of that. It’s just a different configuration.

    MR. KEMPE: Thank you, General Jones. I am tempted, however, by Bahaa Hariri’s convergence doctrine, which is a nice way of thinking about how to – at least rather than the strategic doctrine, it’s a tactical “how do we actually deal with each other.” So I’m happy about that.

    Let me close this now; I just want to say thank you to these gentlemen. It’s such an honor to work with all four of you. And on behalf of everyone at the Atlantic Council, I want to thank you for this panel which was fascinating. But General Scohoff (ph) – Scowcroft – (chuckles) – General Scowcroft, Bahaa Hariri, General Jones and Shaukat Aziz, I want to thank you on behalf of everyone at the Atlantic Council for what you’re doing for our relationship to the regions we’re dealing with, for the trans-Atlantic relationship and for the Atlantic Council. Thank you very much.

    LT. GEN. SCOWCROFT: It’s an honor.

    GEN. JONES: Thank you.

    (Applause.)

    (END)


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  • International Engagement on Cyber Conference (Panel 4): 3/29/11 - Transcript

    Return to the event page for "International Engagement on Cyber: Establishing International Norms & Improved Cyber Security" 

    THE ATLANTIC COUNCIL OF THE UNITED STATES

    INTERNATIONAL ENGAGEMENT ON CYBER:
    ESTABLISHING NORMS AND IMPROVED SECURITY

    PANEL 4:
    NATIONAL AND GLOBAL STRATEGIES FOR MANAGING CYBERSPACE AND SECURITY

    PANEL CHAIR:
    FRANKLIN KRAMER,
    STRATEGIC ADVISORS GROUP,
    VICE CHAIR, ATLANTIC COUNCIL BOARD OF DIRECTORS

    WEDNESDAY, MARCH 30, 2011
    WASHINGTON, D.C. 

    Transcript by
    Federal News Service
    Washington, D.C. 

    FRANKLIN KRAMER: Thanks very much. Everyone who’s here sticking out the entire day certainly deserves a drink. We will try not to stand between you and that drink for too long. (Laughter.)

    I want to just make a few points and then get to the panel, because the panel has a whole lot to say. You saw what the title is, you know, national and global strategies. And I’d like to leave you with a couple of questions to think about as you hear each of the panelists.

    The first is, when you think national and global, are we just talking nation-state or are we talking something beyond that? Non-state actors, entities like ICANN, businesses? Whose strategies are we talking about?

    Second point is, is a good national strategy the same as a good global strategy? And that probably depends on whether a country or an entity is thinking about something you might call a global public good, as opposed to an enterprise or an integrated good just for the entity itself – the difference between, if you will, growing the pie and getting the biggest share of the pie.

    Third question is, strategies for what? What are we actually trying to talk about? Are we talking about use? Are we talking about protection? Free speech? Economic growth? Stability? And do all the arrows point in all the same direction? And if they don’t, which is almost always the case with any set of issues, how do you prioritize and value the different parts?

    Fourth point is, can you really have just one strategy or do you have to break it down into sub-elements? Is it the same thing, for example, to think about defense and other security issues as it is to think about strategies for business? Are the issues of national security the same as the issues of crime? And what about, again, the (use ?) sets of issues?

    We heard a little bit – little dispute here – I don’t know if John Nagengast is still here, but Mike Hayden, John, whether or not there was a market failure. My own view about that is, of course there’s market failure. There’s always market failure. That’s not a surprise. All that really means is what you learn in economics 101, something about economic diseconomies. You don’t really have an enterprise having the same issues as a nation as a whole. That is not a surprise. It is a market failure. Maybe John and I are just doing definition. Doesn’t mean the companies aren’t doing well; just means that their job is not to solve the larger problem for the country.

    So then the question becomes, OK, if that’s right, how do we solve it? And a lot of discussion already about public-private, et cetera, et cetera.

    What hasn’t happened here, and it regularly doesn’t happen – I spoke at Black Hat, and some of you heard Jeff at lunch, who founded Black Hat, whatever. Black Hat, pretty much technical discussion. I was the only policy guy, and gave a keynote. Here it’s pretty much a policy discussion, no technical parts.

    It’s a mismatch. We need – I used the words and – before, we need a wonk-geek interface. I’m a wonk. Jeff’s a geek. We need to have people talk about that, because we need to figure out what are the policy ramifications of some of the geek sides of issues. So what are the – you know, for example, if you think using safe language is a good idea and it has some value, et cetera, et cetera, how do you put that into a policy framework? Or should you?

    Or we heard a number of discussions about botnets, what Microsoft can do, other people about what ISPs can do. Well, there’s a technical part as to how you do that, and then there’s a policy part about who should do it, who pays, what are the liability issues, what are the ramifications. How do you put those together?

    We heard a little bit about resilience – way too little, as far as I’m concerned. But if you create systems that have, so to speak, a gold standard and the like, where do you have to put it? Do you – and who pays? Do you need to put them with – for example, into the industrial control systems of your critical infrastructure? And is that a problem that a company CEO should care about?

    I had a CEO say to me, well, I understand why I should protect myself against criminals. But why should I protect myself against a nation-state attack in China? Isn’t that what the government? Well, that whole public-private partnership and what the strategy ought to be I think are the questions.

    So with that, let me turn it over to the panel. We got a great panel. Michele, if you want to start it off; Mary Beth; Gao; Alex; and then Jim, of course, will finish, because Jim can do anything. (Applause.)

    MICHELE MARKOFF: That was a great introduction, but I’m not going to talk about any of those things, so. (Chuckles.)

    MR. KRAMER: That’s always what happens when I raise issues.

    MS. MARKOFF: (Chuckles.) I hope you’ve all awakened and had your cookie and your water. And I’m going to talk from the vantage point as a diplomatic practitioner. And I’m on the front lines of the international cyberengagement piece. And from that viewpoint, it’s very clear, if the last two weeks have not made that clear, that cyberspace has created a powerful new dimension in an already restless world where an – the international environment is increasingly complex, dynamic and, for many states, highly destabilizing.

    So traditionally reserved and unresponsive governments are literally shell-shocked at a technology that enables powerful and rapidly changing coalitions of citizens to challenge them, even as they themselves struggle to harness information technology for traditional statecraft. And recent events will only serve to heighten that unease.

    And it goes without saying, much of cyberspace use is productive and promising, where instant communications melt barriers between cultures and give voice to the previously unheard, where the web opens untapped markets and has become an economic driver of dramatic proportions. But much use is increasingly threatening.

    From where I sit and what I do, most notably in the last few years is the rise of a significant nation-state threat and the first efforts to project traditional forms of state-on-state activities, including conflict, into cyberspace. And certainly General Scowcroft talked somewhat about his views on this, and so did General Hayden and others. And while some have argued, and may continue to argue, that cyberspace is a borderless global commons and that sovereignty is a quaint, 18th-century notion, I would venture that you should think again: that cyberspace begins and ends with a server sitting on someone’s sovereign territory, and that it will be states that will have to act in this arena.

    After Estonia in 2007 and Georgia in 2008, the fact that some number of states have military or other network operations programs is hardly a revelation. Hardly a day goes by now that states aren’t reportedly either engaged in searching unprotected information for advantage, stealing intellectual property for commercial or intelligence purposes, monitoring enemies or pre-positioning tools for an as-yet-unplanned battle, or even subverting the IT supply chain.

    So it’s hardly a stretch to imagine that state actors with significant capabilities could turn cyberspace of the near future into a free-fire zone where exfiltration and disruption are the rule, public confidence is diminished and governments are increasingly concerned that their national security is threatened. Even the command and control over forces may be in jeopardy, with potential consequences that cannot be easily ascertained in advance.

    Moreover, the unique attributes of information technology make the response strategies anything but straightforward. And I’ll repeat the basic mantra of cyberspace that you’ve heard in one form or another today: our inability to attribute identity to an attacker in real time or with high confidence renders most deterrent strategies futile, since most decision-makers will require both high-confidence attribution of the identity of an attacker as well as the sponsor in order to respond decisively or even to go so far as to accuse another state.

    The potential to use skilled criminals as witting or unwitting proxies for cyberdisruption, which I believe will be an increasing trend, further complicates attribution, offering a state actor total plausible deniability.

    So ultimately, two options emerge for decision-makers, both of which are undesirable: Decision-making paralysis or simply lashing out blindly.

    So while the lack of attribution and the multiplicity of threat actors make Cold War forms of deterrence inapplicable, some modest forms of deterrence may be possible through a variety of overlapping, mutually reinforcing strategies, which include better defenses, nuanced declaratory policies, and what I intend to discuss today, establishing norms of acceptable state behavior in cyberspace.

    So in designing an effective strategy for this threat environment, our challenge is to figure out how to foster an international system where like-minded states coalesce around generally agreed norms of acceptable behavior in cyberspace, finding economic and other social benefit in a predictable, stable environment, with a – and with a stake in opposing those who would destabilize it.

    So let me be clear first what I do not mean by this. I am not talking about an international treaty instrument, but rather envision, as a general model, the Proliferation Security Initiative: a voluntary regime whereby like-minded states so deplore the destabilizing threat of WMD proliferation that they act together to prevent it.

    In essence, what we must envision is a system or model of cyberspace stability, and provide the incentives for the international community to engage in the conduct needed to maintain it. Disruptors would be penalized through collective response and hopefully deterred to some degree by that prospect.

    And I would just, as an aside, say that this is not – you can analogize to the Cold War period. After the invention of nuclear weapons, deterrence did not rise up over a day. What we did was inculcate the Russians with our views of what would, in fact, create a retaliatory response. We need to do something similar now.

    This will not be an easy task. Over the last few years, the international community has become increasingly polarized in its approaches to cybersecurity writ large. Over the last two years, Russia, aided by China, has strenuously wooed the non-aligned – which are the G-77 states, which are not 77 but now 132 – in a collaborative approach, actively promoting a universal treaty instrument with a triad of elements. They would propose an arms-control ban on what they call information weapons to denote the fact that content such as mass propaganda would be covered. They would impose sovereign controls over politically destabilizing speech, or what they call information terrorism, which would affect the Uyghurs, the Chechens and others. And they suggest a cybercrime instrument sometimes they refer to as “CEO Lite,” which would be less onerous than the Budapest convention.

    Taking this polarization into account, the U.S. in 2010 began to advance a vision of a normative framework for state-on-state behavior in cyberspace in a United Nations First Committee–sponsored group of governmental experts. And we sought to define common ground that might address fundamental concerns about state-on-state behavior in cyberspace.

    And at the first meeting of this group of 14 nations in Geneva, which included Russia, China, India, Brazil, U.K., France, Germany and other – Israel, the Russian chair asked questions that many countries are asking: What are the rules of engagement in cyberspace? How is the U.S. likely to behave? Who should be held liable if an individual in our territory does damage to your territory? Are industrial information infrastructures legitimate targets?

    So the U.S. position was designed to address these concerns, as well as others, by establishing a foundation for what we hope will become a consensus view among all like-minded states on the basic norms of behavior that pertain to cyberspace, in the context of conflict or hostilities.

    So the U.S. contribution to the U.N. group divided norms of behavior into two categories: those domestic steps that we say national governments should take systematically to defend their national information infrastructures – what Anakin Teague (ph) would have called the “duty of care obligation” – and those norms of behavior that apply to state-on-state activity. The former we had stressed for years, but we had never articulated those norms that we, the United States, believe apply in the context of hostilities.

    So in the GGE, the U.S. put itself formally on the record as stating that, notwithstanding the unique attributes of information technology, existing principles of international law serve as the appropriate framework within which to identify and analyze the rules and norms of behavior that should govern the use of cyberspace in connection with hostilities. In particular, jus ad bellum and jus in bello.

    Thus, the United States has stated internationally that the same laws that apply to kinetic warfare apply to cyberspace.

    Importantly, we also noted the limits of our current understanding of how such principles may apply, since it may be difficult to reach a definitive legal conclusion whether a disruptive activity in cyberspace constitutes an armed attack, triggering the right to self-defense, and that much additional work needs to be done in this area.

    Nevertheless, we stated that, under some circumstances, a disruptive activity in cyberspace could constitute an armed attack.

    On self-defense, we noted that the right applies whether the attacker is a state or non-state actor, and that states are required to take all necessary measures to preclude their territory from being used for cyberattack purposes.

    With respect to jus in bello, as we interpret these principles, they would prohibit attacks on purely civilian infrastructure, the disruption or destruction of which would provide no meaningful military advantage. And in addition, the potential for collateral damage would have to be assessed before attacking a military target, just as it is when using kinetic weapons.

    We also addressed, newly, the concept of the use of proxies – that is, the witting or unwitting non-state actors that act on behalf of state or other non-state actors and afford them plausible deniability as a subject that creates new challenges for states that must be addressed.

    And then lastly, the U.S. suggested that over time steps need to be taken to address issues that could be problematic during conflict: the ambiguity of rules of engagement; the possibility of misperception, leading to escalation; and the general lack of predictability of state behavior through some thought-out confidence and risk-reduction measures.

    Quite unexpectedly, 13 of the 14 states present, including Russia, were supportive, to one degree or another, of the U.S. vision of international cyberstability based on generally agreed norms of state behavior. Only for China at that time was it a bridge too far. Ultimately, however, we emerged from the GGE with a short, modest, but valuable consensus report that points in a fruitful direction for further collaboration. Key among the recommendations was that there should be further dialogue to discuss norms pertaining to state use of information technology in order to reduce collective risk and protect critical national and international infrastructures and that further steps include consideration of confidence-building, stability and risk-reduction measures to address the implications of state use of information technology, to include national exchanges – to include exchanges of national views on its use in the context of conflict.

    This has had far-reaching implications so far. U.K. Foreign Minister William Hague’s speech at the Munich conference last month proposing a conference on norms; the French, the Germans and others; norms has now become a subject for discussion, as it should be.

    We have no monopoly on the best ideas in this area, and the U.S. will continue to pursue eliciting views from states in a variety of different multilateral international forums. There will be another GGE in 2012, at which we hope to unveil a further development of the U.S. position. We’ve had a very productive bilateral in the last three weeks in Moscow with the Russians where we have actually agreed on certain confidence-building measures, including crisis cooperation and communication measures to CERT activities and other things which had heretofore not occurred.

    So we are hopeful that we are being able to shape the international environment in a way that we, the U.S., can lead, and think is a useful track forward.

    And thank you. I will stop there. (Applause.)

    MARY BETH MORGAN: Good evening. Thanks for sticking with us. My name’s Mary Beth Morgan. I’m with the Department of Defense OSD policy cyber office. And it’s a pleasure to be here today. I’d like to thank Georgetown and Catherine for her great efforts in organizing this. I think over the course of the day a lot of the issues and the level of complexity has really been brought out to this – to these challenges that we face in cyberspace.

    And a great deal of them, or all of them, really, are what we’ve been thinking a great deal about at DOD, our concerns, everything from deterrence and declaratory policy to supply-chain risk management to how we can better work with our private-sector colleagues so that we can provide for better cyberdefense writ large.

    So today I’m going to keep my remarks fairly brief so that we can get into the question-and-answer period. And I just kind of want to give you a broad brush from a Department of Defense perspective of how we look at the international engagement piece.

    For DOD, as this conference really has demonstrated, you know, in cyberspace, a risk to one is a risk to all. No one nation has a hundred percent complete situational awareness at any one time of what’s happening in cyberspace. So if we as a department are to be successful in defending and providing enhanced security in cyberspace, we must build international partnerships both bilaterally and multilaterally. And it has to be a U.S. government effort and a whole-of-government approach if we’re going to be successful. So we’re very closely working with the Department of State as well as DHS as well as the national security staff.

    Given the importance of cyberspace to the department’s – to our ability to conduct effective high-tempo military operations in the 21st century, Secretary Gates tasked our office with developing a comprehensive strategy – cyberstrategy for the department. I’m pleased to say we’re in the final throes of coordination on that within the department, and it is up to the secretary’s office for his review and hopefully approval in coming days. And this is a critical aspect of how the department will kind of organize, resource, train and equip itself going forward.

    Service members assigned around the world, whether it’s at the Pentagon, from Stuttgart to Afghanistan to Japan, rely on resilient, reliable information and communication networks with assured access to cyberspace. The department runs some 15,000 networks with 7 million devices, serving some 2 million users around the world. When I first came into my position, I was told that DOD networks are probed roughly 250,000 times an hour. And when I heard that, I thought, I’m sorry, you misspoke, or I misunderstood. No, that number is correct. So as you can see, our challenge from a departmental perspective is great. And it’s a great microcosm of what we’re facing writ large as a nation and as a world.

    So as we’ve worked to develop our strategy, a key foundational element of that strategy is engaging international partners of all kinds: nation-states, private sector, and, most importantly, in the multi-stakeholder forums that help govern and develop the architecture for the Internet.

    As I stated earlier, cyberrisks and challenges demand new international partnerships to mitigate them. Risk in cyberspace is not accepted; rather, it can be transferred in the blink of an eye. And we are only as secure as the weakest link. We believe that engagement with our friends and allies promotes shared awareness, which leads to enhanced early warning and ultimately and over time can enhance and enable collective self-defense in cyberspace.

    Bilateral and multilateral exchanges inform our common understanding to address these challenges, effectively priming discussions on norms of behavior in cyberspace, which Michele was referring to. We must work with our partners to develop these international norms, and we need to look for ways to develop confidence-building measures that serve to minimize the miscommunication that can lead to escalatory behavior.

    In an interconnected world, situational awareness cannot stop at the boundaries of our networks. Only by working together can we increase our knowledge and ability to anticipate threats, vulnerabilities and intrusions. The speed that defines cyberspace will not allow us to face the new challenges as they arise. We must put mechanisms in place today so that we can respond to those threats in real time tomorrow.

    One example of our efforts is at NATO. Our close collaboration with fellow member states will increase cybersecurity awareness across the alliance, harden the NATO networks and thereby provide a stronger IT infrastructure for NATO activities and operations.

    Beyond these traditional military partnerships, we’re also looking to embrace new approaches to how we develop these – our international engagement. What this means in practice is that when we engage friends and allies on cyberdefense and cybersecurity, we are doing so with our colleagues from across the government. Cyberrisks imposed on sectors beyond defense – such as transportation, finance, critical infrastructure – and the dynamic nature of cybersecurity requires us to have close cooperation with our interagency partners. A whole-of-government approach, we firmly believe, provides foreign partners with a more comprehensive understanding of each of our department’s efforts and underscores how those efforts are complimentary and serves to reinforce our overall U.S. cybersecurity goals.

    For instance, we coordinate very closely with the Department of Homeland Security and other agencies when we work with foreign partners to explain the difference. It’s important to note that, while DOD is responsible for the .mil domain, DHS is responsible for the .com and the .gov. But in the event of a large cyberincident, DHS may request assistance from the Department of Defense. And given the department’s role in providing defense support to civilian authorities, we must build these close relationships with our interagency partners in order to be prepared to assist if and when called upon.

    So to help prepare and plan for such contingencies, the DOD and DHS signed a memorandum of agreement last fall to exchange experts that will help streamline in – real-time communications and coordination between the two agencies. We’re still at an early and a nascent stage in doing this, but this is a very important step forward if we’re really to be prepared moving forward.

    It also demonstrates the U.S. government’s robust activities to our international partners, especially as DOD works to promote shared awareness, early warning, and this concept of collective cyber self-defense.

    Turning to the topic that the third panel covered a little bit, in the globalized economy – and, in particular, the globalized information and telecommunications marketplace – it provides another huge challenge for the department. Engaging also means engaging with the private sector, and we have to factor that into our international relationships. Not only is our cyberinfrastructure owned predominantly by the private sector, but a globalized supply chain means that more and more of our key capabilities and technologies that we as a department and a nation rely upon are coming from overseas. For instance, the proliferation of counterfeit components will require multilateral efforts to reduce risk and assure quality. Continued and enhanced engagement in the multi-stakeholder standards bodies is also important to the future of cyberspace and ensuring interoperability.

    There’s large questions surrounding how we as a government and a department can work with the private sector to share information on a real-time basis. And in John’s presentation he highlighted that, of the problems of the legal aspects of government and industry sharing that information. So that’s a challenge that we’re trying to work through with our colleagues from DHS as well as the Department of Justice.

    So in sum, the challenges in cyberspace that we’re facing are cross-cutting and dynamic. And we have to be agile and we have to work across and through the traditional stovepipes, whether in DOD, across the U.S. government, as well as with the international community. And we have to find new ways to develop creative solutions.

    Thank you, and look forward to your questions. (Applause.)

    FEI GAO: Good evening, everyone. Thanks, Georgetown and Atlantic Council, to have me today. However, I am not expert on cybersecurity, so I only can do a general view on China’s policy on cybersecurity.

    The first: In past 10 years, China’s Internet growth really fast. Its growth, about 10 times in the number – in the terms of number of the Internet user. The total number is about 457 million people use Internet now. And 90 percent of people, they are broadband Internet user. And the Internet penetration rate is also getting higher, especially in the (east ?) coast and the west Uyghur autonomy.

    Chinese life right now, more and more depends on Internet. Different – (inaudible) – already established their government website so the people can easily access this website to have some government service. And also, in past few years, online business increased very fast. And more than 40 percent middle-sized and small enterprises right now has reached the Internet.

    And partly because China’s Internet developed very fast, there are some – also leads to some – (inaudible) – and problems. The more Internet user, the more troubles in Internet. And it’s also – faster growth means it’s very hard for the Chinese cyberpolicy to catch up with such fast growth of Internet user. And the switch of broadband also means increased range of things the people can do online, both something good, both something bad.

    And Chinese enterprises right now, really totally new. And the garment enterprises, they like the experience to cooperate with other to deal with the new challenge.

    And a lot of people have talked about, if you track the hack attack, you can find a lot of hacked attack come from China. But actually, China also biggest victim of hack attack. In 2007, on December, there is, according to the statistics, the bot-infected things in China is twice more than United States. It’s about 1.6 million computer with software, the bot infected.

    And sometimes the hack attack from China actually – the hack may be not in China. They only use some slave computer to attack other country or other computers. And according to China ministry of public security’s statistics, 80 percent of computers in China have suffered botnet attacks. And more than 95 percent Internet server experienced different kind of hack attack. And on September 2009, three thousand five – more than 3,500 were suffered malware attack. And more than 200 of them are government website.

    And in China, the cybersecurity facing a lot of challenge, both domestic challenge and external challenge. Domestic challenge partly because the most – more than – it’s about 60 percent of Internet user are under 30 years old. So this age, people, they like to challenge the authoritarian, different kind. So some people, it’s very easy to find some hack program to learn. And also, for the young generation, I still remember my generation, when we came to the university or the school, that they arrange a lot of class for us to learn computer. But now, the young generation – without learning anything, but they can use computer, even – easily become a hack.

    And external challenge also really serious. In most botnet cases in China, the controller was found to be locate(d) abroad. And moreover, more than 80 percent of the cyberattacks targeting websites of China government agencies came from overseas. And today’s China facing some dilemma on cybersecurity issue. The first is – it’s a balance between the economic and the technology innovation in cybersecurity. Because the technology elites, they dislike more and more restriction against the free flowing of Internet. So how to keep the balance between the security issue and the economic development and the technology innovation issue, that’s pretty difficult.

    The second is the political development on the cybersecurity. As Chinese, we cherish the Internet: provide opportunity for us to develop our own civil society and to provide opportunity for China to develop our democratic system. But the question is, the cybersecurity (getting ?) serious if the government involves, this precise, as well not good for the civil society development. Not good for future democratic construction.

    The third is the international communication and domestic stability. In – actually, in China, we know we’re facing some international challenge. But also, the biggest challenge come from our domestic society. Because China is still developing country, so many contradictions in our own country. So sometimes, especially in some – China also suffered some terrorist issue. Some group in China is a terrorist group, but in United States maybe not. So how to balance the international communication and the domestic-security issue is also another challenge.

    For this reason, in China – China’s policy towards cybersecurity, there are a lot of weak points, I think, although China already has more than one hundred laws, regulations, on the different – on the national and local departments level. But today’s China still hasn’t systematic cybersecurity strategy.

    Today’s China, it’s very clear we also look hard at cybersecurity, because the Internet play more and more important role in China’s economic development and political development. So how to make sure the (safe ?) of Internet – of Internet is also very important; I think is already in the agenda of China government. But the – but the question is, different government department only focus on different issues. The – there is no coordination among them. I think in the future, policy construction is very important – (inaudible) – trying to coordinate different department of the government, coordinate their policy, and also develop laws and regulations – of course, also including technical standards, and continuously intensify their efforts on network security to deal with network security problems.

    And for the last, about the China’s policy towards international cooperation. China’s policy is very clear. In China – China’s strategy is development. We know, as the biggest developing country, our country has a lot of troubles, but how to settle this troubles, both politically, both economically? The only way is to develop our country – not only develop our economy, but also develop our political system, and also social system. And in cybersecurity respect, I think it’s very clear: China and other countries, especially United States, both two countries, we experienced military conflict and political dispute, economic dispute for pretty long time. And it’s very clear, in the future, for both of our two countries, facing the same challenge. And we have the same common interests in the cybersecurity – in the cybersecurity respect.

    So I think for China’s policy, it’s clear, to cooperation, to make the (safe ?) of cybersecurity is our priority. China and the United States, we already experienced some kind of military race. We cannot spread that to the cyberspace. So I think that there is no other choice, only cooperation. Thank you. (Applause.)

    ALEXANDER KLIMBURG: So good afternoon. I don’t really care what anyone says; being the penultimate speaker on such a long session is really quite a challenge. So I’m going to have to speak very, very quickly to cover a lot of ground. If I go too quickly for some people, please ask me afterwards or maybe we can catch up on questions.

    First of all, I can’t skip what I think is an essential introduction. Everything in cybersecurity, in cyberspace is marked by ambiguity. We don’t even have a common way of spelling cyberwar, let alone a definition. If this doesn’t tell somebody something, then nothing will. We have no common actors. Between non-state and state, there’s a world, a galaxy of different actors that can sometimes be both things at the same time. We have no common definitions in terms of whole of nation, which we’ve been talking about all day. Even whole of government sometimes doesn’t even mean the same thing.

    Information warfare? Ask three specialists on cybersecurity about information warfare and you’ll get four opinions. Cyberpower, which is – which is actually the – one of the things I’m talking about today, has been actually defined a bit better, but that’s also not completely clear.

    The only thing I’d like to say is that cyberpower is not information warfare, in my opinion. And just to remove one personal ambiguity, I am speaking today as a member of an Austrian think tank and not as an advisor to government, so everything I say is, of course, my personal opinion and not the opinion of the Austrian government.

    I also want to put – point one other thing out while I’m at it, is that sensibilities are not, also, always the same. So while my research might appear slightly offensive to some parties, no offense is, of course, meant. This is just what my research has led me to.

    Cyberpower was defined recently by the National Defense University, so we actually got quite a bit further in the last two years. Just to be very brief, cyberpower has two definitions, and according to the definition that Frank did, first of all is a warfighting domain, which he talked about very often today, but also, it’s also something that works across the instruments of power. The instruments of power can be diplomatic, informational, military, economic.

    And for me that’s a really interesting question. How does it work across these different instruments of power? Because that’s not something we’ve talked about very much at all today. I think one of the things we have talked about, however, are things like whole of government. Now, whole of government is something that comes from a public-policy point of view. So this is not international-relations theory. This is public-policy theory. And this has been around for about 15 years. Whole-of-government approach, for instance, has given birth to interesting concepts in stabilization operations or conflict-prevention operations or other good stuff that’s been around in the security frameworks for about 10, 15 years.

    For instance, there’s something called 3D approach, defense, diplomacy, development, for those people who have been to Afghanistan. The whole-of-system approach has also been defined. That is, for instance, the joint horizontal effort of national and international actors working in conjunction across international borders.

    A comprehensive approach in NATO, for instance, is such a – such an example; but also the 3C approach, which is very popular in the international-aid community. That means coherent, coordinated, complementary, yeah?

    And finally, we have the whole-of-nation approach, which has been mentioned a couple of times today, but surprisingly has never been defined. It’s not – it hasn’t been defined anywhere. Australia has one definition as part of their resilience strategy, and Singapore has a very different definition. And trust me, they have nothing in common with each other.

    What happens when you take this type of public-policy theory and you try to superimpose it on, for instance – by the way, I call that boots, suits, sandals and spooks. But that’s just my own personal definition.

    What happens when you take these types of approaches or theories and you apply them to cyberpower? So I believe there – we have three dimensions to cyberpower. The first is integrated government capability. This is the whole-of-government approach. This is the center of – the center of gravity here is government departments. And the effect we’re looking at achieving is coordination.

    Such an example could be, for instance, a – the national cyber incident response group, for instance. That’s one example of coordination. It has to be cross-departmental to succeed. The integrated systems capability applies only to organizations that are broad. So it’s cooperation across international borders, and the center of gravity is going to be international frameworks and legal agreements – for instance, the convention on Europe cybercrime – the cybercrime convention, for instance – but also, for instance, the FIRST group. That’s the Forum of Incident Response and Security Teams.

    So this is international collaboration outside of government, but also within government.

    Finally, there’s integrated national capability. This is the whole-of-nation approach. And the center of gravity here are non-state actors. So this is – this includes criminals, academics, religious and ideological groups, but also, of course, independent businesses, which we’ve heard a lot about today. But they’re only one bit of non-state actors, in my opinion.

    They also especially include, in my view, very importantly, the civil society. And the effect that we’re trying to attain here is cooperation. So if, the big question for me is, whole-of-nation approach to cyberpower depends on the cooperation of non-state actors, how exactly do you achieve this cooperation as a government?

    Let’s start with China. So China, from my point of view, in – has, as part of its major topography, one particular issue. It has the fastest-growing Internet population, as we saw beforehand. It has over 400 million users, nearly 500 million users, 50 million blogs. And the netizens – so the people of the net – are probably also the biggest security concern to the Chinese communist party.

    It is the biggest issue in China security that I’m aware of. It’s not a big surprise it is also the only area where, for instance, dissent can be expressed in any particular way; it is the only way. It is also quite difficult to control. As everybody is aware of, there is – there are very comprehensive security programs in China to deal with internal communication of content. That’s why it’s often controlled, content control. But it’s not very effective in achieving all of its objectives.

    So what you need to do is you need to basically coerce – or co-opt, excuse me. You need to co-opt these actors into being part of your system. And there’s different ways of co-opting actors. You can have paid bloggers. There’s a national PR emergency bill that basically allows up to about 10(,000), 20,000 bloggers to be put on the payroll of the government, and in times of emergency they’re supposed to be able to – they’re supposed to follow orders from the government and effectively help the government in their psychological operations.

    There’s the national defense reserve forces, which is a program that’s been around for 20 years, which basically means that most students that are part of a technical university are automatically also part of some type of military organization. There are information-warfare militia units, which are not the information-operation militia units. They’re a different kettle of fish. They’ve been around for quite a while, and everybody’s heard of them before. And of course, the PLA hacker competitions that everybody’s heard about, which very often, supposedly, feed into these information-warfare militia units.

    Now, in my opinion, these competitions and these units and all these programs are not really there to wage aggressive warfare against the west or anybody else. They’re mostly there to deal with a perceived internal security threat. So it’s actually a big make-work program, if you will, and the people who suffer happen to be abroad. Because the main thing you’re trying to accomplish, you’re trying to keep these people busy.

    A vignette that I won’t be able to offer right now but which you can look up yourself is a guy called Wicked Rose and a network crack program hacker group. Time magazine did a very good article about them two years ago. They can be Googled, and it will give you an insight into what really one of these information-warfare militia units looks like, what their relation with the government is, and why you probably don’t have to be really worried about them.

    Second of all, Russia. Russia is said to exercise network control as part of their whole-of-nation approach. The first feature I would – I would raise is that they have probably the most techie population in the world. It’s been – it’s been talked about beforehand. They have a very, very educated technical population, and it’s also, unfortunately, given rise to the most active cybercrime groups in the world. Forty percent of all cybercrime in 2007 was down to one single cybercrime group, the Russian Business Network, which doesn’t exist anymore. However, they do have a lot of copycat groups, which are called RBNEs, so little RBN groups.

    However, the most important level is – important question is, how does the Russian government engage with this very wide and diverse and capable group of non-state actors? In my opinion, it’s through coercion. The ownership of the media is something that – well, basically, Jeff Carr basically mentioned beforehand as something that troubled him beforehand. Digital Sky Technologies is a very large company that’s very close to the Kremlin. They own 10 percent of Facebook, besides a whole bunch of other big Internet media companies. And you can also imagine that they sometimes exercise control over these companies. ISP networks in China – sorry. ISP networks in Russia are forced to implement Swarm II (ph) legislation – Swarm I, Swarm II (ph) legislation – which basically means that every Internet bit – every bit of traffic in Russia is copied and ends up at the FSB. It’s also very expensive to do that. So if you’re not able to actually pay for this technology, then they can get you to do a whole bunch of other things.

    There’s also political proxy groups, such as Nashi, but also such as the Eurasian Youth Movement, that have been – supposedly been active in attacks on Estonia, Georgia, Ukraine, a whole bunch of other countries. And there’s just the general relation of the intelligence community to cybercrime and the so-called hacker patriots.

    There’s a general tradition in Russia that is best expressed in a vignette that actually Jeff Carr and I dug up about two years ago, which is a – which was basically the recruitment of Anton Moscol (ph). He was one of these patriot hackers who was – sorry, hacker patriots, who was contacted by the FSB, and they tried to get him to cooperate. He turned them down and then he basically posted a blog about his experiences. It’s quite interesting reading. Unfortunately, when Intel Fusion (sp) went down, I think we lost the translation as well. So I’m not too sure if you can find it online anymore.

    Finally, about the United States. So I always consider one of the major features of the United States to be that the vast majority of cyber – and I really mean the vast majority: 80 percent, 90 percent – of cybersecurity is non-state, and it is never going to be state. And we’ll – and it will – has to be convinced to happen. You cannot legislate 80, 90 percent of cybersecurity.

    This is – this is an issue that we constantly overlook when we’re talking about the political aspects of cybersecurity. It’s mostly outside of any kind of conventional political form. You have to engage with it. And there’s different ways of engaging with it. And the first level I see in a non-state group is the critical infrastructure protection, or, in the U.S., Critical Infrastructure Key Resources Group, which includes also the defense industrial base; also contractors and other people who have a formal relationship with government that’s usually marked by security clearance.

    We also have a second level, which includes McAfee, (Sandia ?), Microsoft, all the other companies whose job it is to effectively deliver security on the Internet. But then you have level-three groups, which is technical civil society, which includes the Internet Engineering Task Force, the open-source developers, and all the white-hats that we’ve briefly talked about but not actually talked about in any depth today.

    And finally you also have a bunch of policy and groups that – like ICANN, which is effectively a policy group, but also think tanks and other lobby organizations that play an extremely important role in maintaining overall cybersecurity. None of these people really have featured in any big way in any type of program. And it makes you wonder what we’re missing out, here. Because it’s quite clear that 60, 70, 80 percent, at least, of cybersecurity depends on these actors.

    And just as a test, how many people have heard of Kaminsky, Daniel Kaminsky? Can I see a short – OK, most people. Thank God, really. So if you don’t know how – who Kaminsky is, please Google him. There’s a very good story on Wired. There’s also a good story about how Kapela and Pilosov saved BGP that’s also on Wired, and also why Shawn Carpenter lost his job. Sean Carpenter was a guy at Sandia who basically helped reveal Titan Rain attacks to the – to the public. I’m not saying that the government didn’t know about titan rain attacks, but he definitely brought it to the media attention, and he got fired as a result.

    I want to just briefly also just explain what I mean, again, by integrated national capability and why the civil society can be such an important part of it. Civil society delivers one important thing, among others. That’s attribution. Everything I’ve talked about beforehand has been based upon research that was done in the public domain by volunteer groups.

    Estonian 2007 attacks was researched by the U.S. Cyber Consequences Unit. Georgian and Ukrainian attacks was researched by Jeff Carr and his group. The Russian Business Network has been subject to a whole bunch of studies by professionals online. GhostNet – “Shadows in the Cloud” has been done by Information Warfare Monitor. And Stuxnet has been done by the Cyber Security Forum Initiative, among other groups as well.

    Now, by publicly delivering plausible attribution, these guys lift the cyberveil and they help solve the attribution problem. This is certainly complementary, in my view, to U.S. and European policy. Now, you might argue that the level of attribution that these guys can deliver is not really – not really effective. It’s not really good enough for Cruise missiles. But it is good enough for CNN, and I believe that’s what’s mostly – what’s most important in cyberpower.

    So I’m going to actually conclude – well, I’m going to conclude in – about – in one minute. The – what I want to point out is that liberal democracies depend on non-state sector completely for cyberdefense. But they also depend on – depend on it for cyberpower. This is in Internet governance. This is in open-source development. This is in a whole bunch of other areas.

    Finally, legislation and cash can get you somewhere. It can cover basically level one, CIP, critical infrastructure, key resources. But for everybody else, voluntary cooperation is going to have to remain voluntary. Volunteerism is situational; it’s not institutional, and depends on a state – precedes legitimacy of action. And legitimacy depends on the overall inward soft power of a – of a state. And this is not nationalism, and this is not legislative fiat, but it’s reputational power.

    And you only have basically one choice. You only can either coerce, co-opt or convince the non-state into cooperation.

    Thank you for your time. (Applause.)

    JAMES LEWIS: Well, you guys are really hardcore, and I appreciate your sticking around. And I have a 412-slide PowerPoint deck, which I’m going to read in – I’m going to read in a monotone, right? No, actually, I’m going to do it in – the Marxist perspective on cybersecurity. But since it is cybersecurity, it’ll be Groucho, right?

    I want you to put one word in your head here, the maybe one word you could take away with – actually, two words you could take away. The one word is cacophony – if I could say it, you would know what it is. But it’s a Greek word that means a lot of noise. And so what we’re seeing now with cybersecurity is a lot of noise.

    The other word, and I’ll come back to it, is transition. And I thought to myself, you know, it’s the end of the day, I’ll talk fast and I’ll go quickly. And so I wanted to read a prepared statement.

    Since the private sector owns 190 percent of critical infrastructure, if we strengthen public-private partnerships to improve information-sharing and situational awareness, it will empower innovation and risk management in the cyberecosystem. (Laughter.)

    Thank you. Thank you. I ask you, ladies and gentlemen, what more is there to say, you know? (Chuckles.) And the answer is, quite a bit, unfortunately, because we’ve been saying that sort of nonsense now since about 1998. It doesn’t work, right? So where are we? And I want you to think three transitions here. The first is, we’re in a technological transition: how people connect to the Internet. It’s going to be mobile and it’s going to be managed. And last year was an interesting year, because it was the first year that pads outsold PCs. How you connect will be different, and it’s going to shift the locus of security, right?

    Second thing I want you to think about is the pioneering American ideology, the way we saw the Internet, right, and the way we thought about governance, right, and the way we thought about the role of government and why it should be limited. You heard all that. The pioneering American ideology is collapsing, for two reasons. One, the Internet isn’t American anymore. And two, it doesn’t work, right?

    So even we are having a hard time sort of keeping the boat inflated, with so many holes in it.

    Finally, you want to think about the extension of sovereignty. And other people have talked about that. There are clearly borders in cyberspace, right? Governments have figured this out. They’ve figured out that all this stuff they heard about how it was going to be a self-organizing global commune – we’re the Internet community, we deliver – (makes snoozing noise). (Laughter.) You know, come on. (Makes slapping noise.) Oh, I’m sorry, I must have dozed off. (Laughter.) It’s over, right? (Chuckles.)

    And so governments are moving into cyberspace, and they’re doing it, some of them, in a very obtrusive fashion. Others are not. So the issue for us, and the one that – this panel’s been a little unusual because we actually talked about the topic we were assigned – (laughter) – but how do we manage this transition? We’re in this big transition. How do we manage this transition to an Internet that will have a greater role for government without losing the values that we cherish? And a guy named Stefandre Holsteune (ph), who works at the Marco (ph) Foundation, he said something to me that was very interesting. He said, look, it’s clearly not a commons, right? That’s delusional. But the values behind the commons – openness, access – those are worth thinking about.

    And so don’t think of it as a commons, but think of the values we cherish. And how do we preserve those values? How do we preserve those values in this period of transition and in a period where – and something that hasn’t come up so much – where the other guys all fear us, right? Another acquaintance of mine said that to foreigners, we are the borg: You know, prepare to be assimilated. And they – you know, when we say things like “dominate,” it has a reaction. And so one of my – when I advise DOD, I say, you know, it’s OK to want to dominate. Just don’t say it. Right? (Laughter.)

    But – (chuckles) – so that’s – no, we would never do that. Trust me. Right?

    So the key political issue, right, on the international side is what I would call the big trade. And there was a quote by the president of Russia that didn’t make the Western press, and I was a little surprised by it. It was in the Russian press. And what he said is, see what happened with social networks in Tunisia and Egypt? They’re going to do that to us next.

    That’s an amazing quote, isn’t it? So when you think about that, what we’re basically asking some of our opponents in cyberspace to do sometimes is we’re asking them to commit suicide. And we’re always a little surprised that they don’t go along with it, you know? (Laughter.) Come on, is this such a big thing to ask? Right? Because there’s a(n) implicit conflict here, and there’s a real political risk to authoritarian regimes.

    And so the deal, as Michele could tell you or Frank could tell you, any of these guys could tell you – the deal that they want is, we’ll deal with you on military risk and espionage and cybercrime. You deal with us on the political threat to our regimes. And that’s going to be a very hard deal to broker. We will have to deal with it.

    And I think that when we think about this, the solution probably lies in thinking about sovereignty, in thinking about governance. For me, these are issues where only the government, right, will be able to lead, right? And so you hear the private sector will do this, the private sector will do that. The private sector won’t do it.

    I’m going to beat five minutes. You watch this, right? (Chuckles.)

    We need to think – as Jeff Carr mentioned today, we need to think about how do we build consensus among governments. You heard some good presentations on how far apart we are. I know from the thing that Michele led at the U.N. – it was a three-week meeting. One entire week was spent fighting over the title, right? What do we call this? And they couldn’t agree. So there’s a hint, as we’ve heard, right?

    But how do we build consensus? And that will require leadership from governments. How do we articulate the vision of this new consensus that will not be the old pioneering nonsense about government, non-government actors and communal action and voluntary stuff but will do something where states preserve the political values that we cherish? This is now a global institution, and maybe it’s time for it to grow up, right?

    It’s a global – it’s – pardon me, it’s a global infrastructure, and maybe it needs global institutions. And when you say institutions, that does not mean the ITU, right? (Chuckles.) But it does mean agreement on norms, some kind of consensus, a place to work together, none of which exists. And so when we think about the international problem, that’s what we’re going to have to deal with, right?

    Security and governance are irrevocably linked. And one of the things that we’ve heard today is, you know, as we improve at the sort of lower-end things – you know, Windows 7 is better than Windows XP – you’re not going to eliminate the high-end threat. The people who did Stuxnet are going to beat anything that any company can come up with.

    So at some level, we will need to address this as a governance issue if we want to really depend on this thing and realize its full potential.

    So I have some requests, and that’s what I’m going to end on. We are in a period not only of transition; we’re in a period of cacophony, where everybody and their dog now has a white paper on cyberwarfare or something. And a lot of them are better than the stuff I write, so I’m not being critical. I mean, that’s a low bar.

    But do me some favors, right? First of all, let’s try and be more precise in our discussion here. And I’m as guilty of this as everyone. We all say cyberweapons; there is no such thing. Everything is a cyberattack, right? Everything is not an attack. Can we be a little more precise?

    The second thing is, can we bring in data, right? We use analogies, we use stories, we use anecdotes. We use myth, we use legend, we use fairy tales and magical thinking. How about a little data, right? So when people talk about things like market failure, OK, I can measure that, you know? Let’s start measuring this and let’s get real data.

    And one of the things that’s happened in the past few years is we now have the ability to collect real data. And that will change the cybersecurity debate. You can (help ?).

    Finally, do me a favor: Lose the blinders, right? Because we tend to think – you know, people still approach cybersecurity in this way that comes out of the 1990s. I don’t see any solutions.

    Lose the blinders, right? We need to rethink our ideologies. Cyberspace is not that unique, right? We are returning to the norm where the states, initially baffled by this new thing, have figured out how to deal with it. And this will become largely a state issue for me, and we will have to deal with that. so do me a favor. Think about all these things. Think about how we improve methods in the debate here. And maybe we can make some progress in the international realm.

    I have some more jokes I wrote down, but I think I’ll skip them, so. (Applause.)

    MR. KRAMER: Floor’s open for questions, and the shorter your question, the quicker the drinks.

    Q: My name is Randy Ford (sp). I’m with Raytheon. Mary Beth, was interested, you talked about international engagement, you talked about DHS, you talked about Justice, you talked about NATO. And just exactly like the deputy secretary of defense’s article in Foreign Affairs magazine last fall, you didn’t use the words diplomacy, and the Department of State was never mentioned. So I’m –

    MS. MARKOFF: She did mention –

    MS. MORGAN: No, I did mention the Department of State.

    Q: Well, deputy secretary of defense didn’t mention Department of State or diplomacy or foreign policy in his seminal article last year.

    You talked about whole of government. Now, I’m just kind of curious, who’s in charge of the foreign policy of cyberspace for the United States? Is it Department of State? Is it the Department of Defense? You’re talking about going off of international engagement. Michele’s talking about bilats with other countries that get into arms-control-type things. So where’s the connection? How is the U.S. government – this whole-of-government – tell us where that’s actually – where does – where does the connectivity take place, and where can we understand where the dialogue is and the liaison and so forth is actually happening?

    Thanks.

    MR. KRAMER: I’m going to have Michele and Mary Beth talk at the same time. (Laughter.)

    MS. MORGAN: (Chuckles.) We’re that good. No –

    MR. KRAMER: Why don’t you go ahead, Mary Beth, but then, Michele, jump in.

    MS. MORGAN: Yeah, no, I mean, I think that’s a fair question. But clearly the State Department is – charge of foreign policy for the United States government. We work this issue in an interagency process. Through that process, DOD is part of that team and helps and assists State Department on whatever it needs in this area. The elements that Michele was discussing have large impacts and we have large equities in what’s going on. So we’re part of that interagency team, just as we are on any other type of traditional engagement that we have as a department.

    Now, as a department, we maintain military relationships around the world with our colleagues in the ministries of defense. As we do that, the State Department is always connected and informed of what is going on.

    So, you know, the emphasis of the deputy secretary’s Foreign Affairs article was kind of the larger thought piece. It was – it was not meant to say that diplomacy isn’t important. We believe that it’s important, to the – to the point that one very large aspect of our strategy is international engagement. And it very clearly states that that is with the lead of State Department, with us there.

    And there’s going to be areas where we as a military, our mil-to-mil relations are going to be able to advance with certain friends and partners. And I’ll let Michele –

    MS. MARKOFF: Yeah, I would add – I would add as well that the basic U.S. submission a year ago to the GGE really represented a categorical jump-shift in U.S. policy. It was a policy where we did not talk about state-on-state activities, political-military activities in an international context at all. It was through collaboration between OSD and us that we actually came up with the basic position that we were able to put forward, that talked about the law of armed conflict, international humanitarian law, and affirmed this. It went through a big interagency scrub and a White House scrub. It was truly, I believe, an interagency document. And both in the GGE, in Moscow bilats, wherever we go, I have my trusty OSD colleagues –

    MS. MORGAN: (Chuckles.)

    MS. MARKOFF: – with me. And that’s not just OSD. I have Justice, I have the intelligence community, I have others. It really is a very, now, I believe, effective, collaborative approach. And it is allowing us, actually, to evolve our positions much more closely and with much greater alacrity, especially the norms issue. It’s a huge step to think where we go with the notion of norms post-IHL.

    We will have – somebody talked earlier – there will be a new international cyberstrategy which will have some key pieces, but that won’t answer all of the mail in the pol-mil context. And I believe it will be through collaboration with OSD is the only way that we’re really going to be able to move forward effectively.

    MR. LEWIS: Let me throw in a quick note here, Frank, which is that I do talk to some of our larger foreign opponents, and what I hear from them routinely is, oh, we’re so envious. Your interagency process works so well. Right? (Laughter.)

    MS. : Yeah.

    MR. LEWIS: And from their perspective – so it’s all relative, you know? It looks – inside the baseball diamond it looks messy, but from the outsiders, we’re the borg.

    MR. KRAMER: Question?

    Q: Yes, thank you. I’m Vinny Markovsky (ph). I’m speaking in my personal capacity as a cyberexpert who happened to be, eight years ago, with Michele Markoff, Chris Painter (ph) and others at the first southeast European international conference on cybersecurity cooperation.

    And I see that there is a big progress. We were held – we had this conference in Bulgaria; now we have it in Washington, D.C. But the topics – if you guys go to cybersecuritycooperation.org, the presentations are there, and they sound as if they were written yesterday, except maybe what President Medvedev said. And I want to thank Jim here, because the issues that we are discussing what’s going around the world, but we are actually – we didn’t hear except probably from the – from the gentleman from China, who is a Fulbright scholar, so obviously he spent some time here, what the others are thinking about this cybersecurity cooperation.

    And I would like to hear, actually – I mean, and putting in brackets: It’s very good that women are now in charge. Hillary Clinton took the – kind of the lead to – (inaudible) – our national – I mean, cyberambassador. And –

    MR. KRAMER: What’s your – what’s your question?

    Q: Question is, what do you think actually will be – will happen with – (inaudible) – international cooperation? How are we going to bring the other countries on the table?

    MR. KRAMER: Well, do you want to take one? And then Jim?

    MS. MARKOFF: Sure. Well, we have a – we – with what we came out of of the GGE, it really framed the issue. I believe that our close allies and actually some of the other countries of the 14 that were in the GGE have thoroughly bought on to the notion of norms as a way forward. We are going to discuss this with our allies and PfP countries in the context of OS – in the OSCE in May. We will use other multilateral opportunities to develop this. We will go back to the UNGA this fall with some new ideas, maybe a new resolution.

    I think there’s a lot of ways where we can socialize these ideas and elicit from other states their own ideas, because I don’t think we have a monopoly on all the good ideas in this area.

    MR. KRAMER: Gao Fei, would you like to jump in there?

    MR. FEI: Yeah. I think from China’s respect, China really encourage different kind of cooperation among the different countries, both bilaterally or multilaterally. And China and the United States, we already have a bilateral talk about the Internet, about cybersecurity cooperation. And also, China very – China emphasize the new implied form to start the deep research on cybersecurity, because the technology develop very fast. So how can – really start or substance cooperations? That’s very important; needs an expert to research first.

    MR. KRAMER: Alexander? Yes, sir.

    MR. KLIMBURG: As somebody who has – who worked with – actually, with Michele three years ago on the – two-and-a-half years ago on the OSCE floor, where I was with the Austrian delegation, I think it’s – things have changed a lot, from the international perspective, especially from the European perspective. The United States a couple of years ago was not really willing to engage with other countries on their capabilities; was more willing to have their – have other countries develop their own capabilities. And now there’s much more talk about working together on a cooperative level.

    For instance, what happened also in Mexico is – was a sea change from the European point of view. The Europeans previously were always for internationalization of the entire Internet governance issue and were kind of resistant to calls to maybe – maybe ICANN is the best of a whole bunch of bad options.

    And people changed their minds. They changed – people changed their mind because we discovered that we do have common values that were more important than wishes, that we have to work together on these issues. And also, the present discussion on rules and norms of behavior, that also is a very new development. The United States was not willing, I think, to go down that track three years ago. They are now.

    And from the European perspective, that is definitely, definitely welcoming.

    MR. KRAMER: Next question?

    Q: Good evening. My name is Sean Canuck (ph). I’m a U.S. national security analyst. In one of the panels this morning, General Hayden very simply accepted the fact that nation-states will try to steal each other’s information in cyberspace. My question, very simply, is do we also have to accept that nation-states will try to forward-deploy cyberwarfare tools in each other’s territory?

    MR. : Go ahead, Jim. Go ahead.

    MR. LEWIS: You know, I think that – we’re just going to – this – we tend to overstate the effect of cyberconflict and cyberwar. And so – you know, some – we all know there’s a famous statement from someone who said, it’s like nuclear war. It’s not like nuclear war. But it is a new way to attack opponents. It is a new military capability. Right now I think we could say five or six countries have advanced capabilities. Another 20 or 30 are trying to acquire advanced capabilities. And it’s on the path that airplanes were on, you know? Everyone will have this capability, and everyone will plan for its use. But I think they will be careful to try and observe the thresholds, implicit or otherwise, set by the law of conflict, which you, of course, know very well, and that is that doing reconnaissance, planning, developing the capability, all perfectly legitimate. Actually intruding and planting something on someone’s network, potentially a violation, something that crosses the border into the use of force.

    So I don’t think we’ll see it. I think we’ll see a lot of sniffing around, as we already have. And I’ll think – I think we’ll see the capability. It will be part of wars in the future, but I don’t worry so much about that.

    MR. KRAMER: Can I jump in? because one of the things the U.S. did was to put forward the notion, accept the laws of armed conflict. One of the elements of the laws of armed conflicts is the law of mine warfare and naval mines. (Inaudible) – it’s illegal under mine warfare doctrine to put a(n) active mine into somebody else’s territorial waters. You can decide whether or not that’s an analogy that you like with respect to cyber. It’s just an analogy. It’s Jim’s point; I just want to make it a little more specific.

    The second thing is that if – and I think it’s important to say this; it’s been said a couple of times – if one thinks back to – it’s now, I think, about 13 years when we all got the first use of Google, right? The Internet’s changed a lot. I will be extremely surprised if it doesn’t change a lot in the next 13 years. It’s a bad idea to straight-line the concept of the Internet or cyber or whatever you want to talk about. And so that may change the set of opportunities, both from a warfare point of view, from an international point of view and the like. Everybody has to think today, but straight-lining is not a very good way to predict the future.

    Q: Yes, good evening. Thank you for your panel and your – the discussions. I was wondering – you know, as we try to formalize a global strategy in cybersecurity, what I observe locally is that we don’t seem to have – we don’t seem to have a local – a U.S. cybersecurity strategy. And I believe the cybersecurity act has not been passed as yet.

    So I was wondering if you have any comments on the progress made on those two areas locally, so that it’ll enable us to speak with one voice as we go onto the global stage. Thanks.

    MR. LEWIS: Our government colleagues will take that one on first. (Laughter.)

    MR. KRAMER: (Chuckles.) If I understood the question correctly, there were – there were two parts. One, whether there was legislation passed, and two, the ability of the government to speak with one voice. Is that correct?

    With respect to the legislation, I think you heard this morning that the congressman who’s – who is the – either the key or one of the key people in the House said that he thought there was a good chance that there would be cybersecurity legislation. What I don’t think anyone knows yet is what the content of that legislation would be, whether it’ll be broad or narrow.

    The White House is thinking about broad, but they’re not sure. You could see a much narrower kind of approach that might just affect the critical infrastructures. It’s not clear.

    With respect to the ability of the government to speak with one voice, that’s never happened before. (Laughter.) But it’s doing better. And I – without trying to have Michele or Mary Beth say what, in effect, they’ve already said before, which is to say, they do work together closely, and that the White House actually now has a coordinator, and DHS and DOD have actually signed a memorandum of understanding – it’s not a surprise that there are multiple voices in the U.S. government. The issue is whether they can coordinate them effectively. We have pretty good people trying to do that, and if it’s all right, I’ll just speak for you and say you’re working hard at that issue.

    MR. LEWIS: Remember we’ve got the 60-day review as well, which is still – you know, it’s still sort of a good plan to work off of.

    MR. KRAMER: Right.

    MR. LEWIS: So we have gone through another iteration. And I know it took 120 days to do the 60-day review, and maybe that’s a hint.

    MR. KRAMER: Well, and the CNC and the like.

    Next question?

    Q: My name is Walter Girassic. I am lifetime student and observer. (Laughter.)

    Through the history, we had classical, industrial and political spies. And today we have cyberspies. My question to you: The spy agency across the world, from Russia KGB to CIA to other, do they have any agreement that they will not use cybertechnology to spy on each other? And what we going to do with the youth, young men and women who are highly qualified and they do not have a jobs? They will find somewhere to go who will pay them highly, salary, and work for someone who is really unfriendly to world community.

    Thank you.

    MR. KRAMER: Jim, you’re a former – you’re a former, so you can answer the spying question better than the current people.

    MR. LEWIS: What? (Laughter.) No, I’m actually – of course there’s no agreement on not doing anything. And the answer where the young people go – well, in Moscow they go to the – work for the government. So, you know, one of the things that would be a benefit of having a better articulation of governments and values and norms, all the things you’ve heard from Michele on down, is it would put boundaries around the degree of espionage and make it a little more normal. What we have now is an unusual situation where the U.S. in particular, because of political choices, is amazingly vulnerable. And when that changes, I think you’ll see espionage under control.

    MR. KRAMER: Next question.

    Q: Hi, my name is Rebecca Lewis (sp). I’m an attorney here in Washington. I’ve read and heard anecdotally from military personnel that I know that one of the biggest, if not the biggest, cybersecurity threat is social engineering. And I was just wondering, maybe for Mary Beth or the rest of the panel, if you could speak specifically to what the U.S. is hoping to do in that area.

    MR. KRAMER: I think we should hear from the U.S., but I’d also be interesting in hearing the Chinese view, if you’re willing.

    MS. MORGAN: What do you mean in terms of “in that space”?

    Q: I guess I’m just thinking of stories I’ve read about thumb drives being picked up, infected thumb drives, or military personnel maybe leaving computers unguarded.

    MS. MORGAN: Yeah, the notion of kind of the malicious insider, the ease of thumb drives and DVDs. And, you know, then there’s the social media sites that are also another attack vector, that if you’re a military personnel and you’ve got a Facebook page, hopefully you’re not putting your uniform where you’re located and all of these other things, because it’s another way that actors can find out information. So it can create an operational security risk when you’re engaged in kind of the Twitter and the Facebook world. You have to think about what is your cyberidentity and what’s your cyberprofile that’s out there. It doesn’t mean that folks can’t use it. It’s just you have to be thinking that it’s not this anonymous space: that you and I, you know, are talking privately in a room, closed door. When you put that out there, anybody can see it and anybody can hack into those elements.

    The notion of, you know, thumb drives and DVDs – we at the department unfortunately have had a lot of experience in that in the past year. And those are new techniques for adversaries and threat vectors to come at us. So we’ve had to look at our internal policies of how do we do business. I can’t – if I’m traveling with the secretary of defense, I can’t use a thumb drive anymore. I have to take – I have to do other things to make sure I have all the files that I need to support him when I’m traveling. That’s just an example.

    But there are real operational impacts when you’re downrange. When we do certain tasking orders or flight combat or weapons systems, a lot of that is cyberenabled. And so there are real – when you say you can’t use a thumb drive anymore, for me, OK, I’ll work around. I’m writing memos and papers and, you know, trying to get things done within the building. But there could be a uniformed military person in the area of hostility, in Afghanistan or Iraq, that’s dependent on that, because that’s how they load things into their weapons system that they need to use.

    So when we have to take action against these new threat vectors, we have to consider all the ripple effects that come into play. And it’s nowhere near as easy as people think it is. And oftentimes we don’t know until, you know, something’s promulgated and then somebody raises their hand and says, but wait a minute, I really need this. And then how do we exempt or how do we mitigate that and deal with it at the same time?

    So it’s a huge, huge challenge. And the Facebooks and the Twitters of the world, when you’re dealing with a military force that’s much younger and much more computer-savvy, is used to being online, it becomes a morale issue. But then there’s also the operational-security issues that we have to take care of. And it’s a very difficult set of choices and management that we have to deal with.

    MR. : I just – sorry.

    MR. KRAMER: Gao Fei, would you like to talk about the Chinese?

    MS. : Oh, sorry –

    MR. FEI: I have no idea about that. (Chuckles.) About the Facebook, or – ?

    MR. KRAMER: Yeah.

    MR. FEI: Actually, I don’t know how to use the Facebook. (Laughter.) And in China, I never heard about that. Just some my friends send the link of Facebook, but I’m very locked into – (inaudible). (Inaudible) – I only use the Internet to search some academic articles or some – use that e-mail.

    MS. : It’s a time suck. (Chuckles.)

    MR. FEI: You know, I never – (inaudible).

    But as I know, in China, the Facebook was blocked because – (inaudible) – war that China – China, if – you see, China has a strategy for separate security. It’s a negative strategy – negative defensive strategy – (inaudible) – war. And some Chinese people, they are very like to – if you are some pretty famous person, they put everything online. Everybody can see your family, your godfather, your father, what – type in the name.

    So the Chinese government dislike that, and – yeah. So partly for this reason, I don’t –

    MR. KLIMBURG: I just want to quickly pick up on the question, because I think it addresses a much larger issue, which is, in Europe and the U.S. and the Western world in general, there are a lot of complaints about how intrusive, for instance, legislation is becoming; how much – how the government always wants increased information from us, and how we have to be aware of Big Brother cap. And nobody really thinks about how much benefits we’ve actually derived from this new openness already in terms of Facebook, in terms of social media, in terms of the Internet overall. And some of this new openness and some of the benefits that have come from this openness is – are going to require changed behaviors. And some of these behaviors will be voluntary, and that means, for instance, not being – doing stupid things online. And some things will have to be mandated by government.

    MR. KRAMER: Last question.

    Q: Hi. Thank you for letting me ask my question. My name’s Amanda Palleschi. I’m with Inside the Pentagon, and my question’s also for Mary Beth. You had mentioned that Secretary Gates is planning on signing a comprehensive cybersecurity strategy in the next coming days. If you could – if you could come up with maybe the one or two most important things that you expect that strategy to be able to do to kind of move us forward in terms of different agencies working together, working with our international partners, that sort of thing, if you had to say what the two most important things that are going to come out of that would be, what would they be?

    MS. MORGAN: I think what the strategy that we’ve, you know, developed, and once it’s signed – so I have to preface all of that, that it’s still pre-decisional, until the secretary signs it. But I think what the strategy does is, it’s the first time ever that the department has put together a comprehensive strategy. So in a way it’s hurting all the disparate elements of the department and vectoring them into vectoring their energy. So it will help the department better organize, train, and equip, and be prepared for its operations across, you know, the spectrum, whether it’s military, it’s business operations, as well as intelligence activities.

    But it’s a way for us to ensure that we’re organizing in the right way, that we’re training in the right way, that we’re resourcing in the right way. And it provides a flexible structure so that as this environment and the strategic context changes over time, the department can change and develop over time. It’s a great challenge. I mean, we’re a huge department. So herding the cats has been part of the challenge in doing this, of getting everybody’s perspective and bringing some level of organization.

    So I think that’s a real key use to all of this, is it gets everybody on the same page and moving forward together so that we do have a more strategic approach to this area.

    Q: And I’m assuming U.S. Cyber Command and the various forces within the services were involved and that they’re included in the spectrum as well? OK.

    MS. MORGAN: Absolutely. Absolutely, as were our interagency counterparts, in taking a review, absolutely.

    MR. KRAMER: Right. The Siamese twins in the interagency are on my left. (Laughter.)

    Well, we’ve reached the end of our time. All of you deserve enormous congratulations for sitting upright in your seats. I understand that there is going to be a reception. Catherine will let us know exactly where we’re going and what we’re doing. But I thank you very much for the panel. (Applause.)

    MS. : Thank you, guys.

    If you don’t mind just staying for one minute, because I’m going to take about two minutes and wrap up, tell everyone what to do.

    Today’s conference has certainly been both comprehensive and informative, thanks to the insights of our panelists, the leadership from the panel chairs, and the questions and topics you all have raised. At Georgetown University, we strive to better understand the issues facing the global community, while providing a forum for continued dialogue and debate.

    This conference has certainly achieved its objective of promoting such discourse among policymakers, academics and key industry stakeholders in cyberspace, as we continue to grow more interconnected.

    I would like to thank Spirostine Moulitsas (ph), senior vice president for the university, for his continued support and vision for the cyberproject, and Dr. Chris Joiner (sp), the director of the Institute for Law, Science, and Global Security.

    I want to extend a sincere thanks to the Atlantic Council members who played a key role in today’s event: the council’s president and CEO, Fred Kemp (sp), vice chairman, Frank Kramer, and Damon Wilson (sp), the council’s executive vice president.

    Also want to welcome to the Atlantic Council Jay Healey (sp). Jason Healey’s (sp) currently teaching his class here on campus. He will be the new incoming director of cyber statecraft initiative at the Atlantic Council.

    I want to recognize Matt Angelo (sp), whose hard work may go unnoticed but never unappreciated. (Applause.) Lastly, today’s conference was a success mainly because of the work done every day by all of the panelists. Their contributions today and their daily dedication to the advancement of cybersecurity for the global community is truly significant and remarkable. So thank you.

    Video of today’s proceedings will be available online at lsgs.georgetown.edu. We’ll push out e-mails to everybody who RSVPed so you’ll know it’ll be available.

    The Georgetown University Journal of International Affairs will be publishing a special issue based on today’s conference. It will include the proceedings from today as well as individual articles submitted by participants. I encourage you to consider submitting an article.

    Thank you all again for your participation today. It’s been a long and productive day. And in the words of a good friend of mine, Professor Tony Aaron (sp) here at Georgetown, it’s time to rock and roll.

    Please join me in Dahlgren Quad for a reception – it might be a little chilly – and the chance to maybe relax a little and talk among friends and colleagues.

    Thank you once again. And thank you – (inaudible). (Applause.)

    (END)
     


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