“Playing Baseball Without a Bat”

Nayan Chanda: I am Nayan Chanda, from the Yale Center for the Study of Globalization. We are delighted to have in our studio, back again, Thomas Friedman, foreign affairs columnist for The New York Times and author of the just-published book That Used To Be Us. Tom is going to talk to us about his book and also some ardent issues we face today.

Thomas L. Friedman: Great to be here Nayan, great to be here to talk about That Used To Be Us. In fairness I should say this is co-written with a Yale grad, my friend at John Hopkins University, foreign affairs professor, Michael Mandelbaum.

Chanda: So Tom, the question that comes to my mind is that you are the foreign affairs columnist for The New York Times. So what are you doing writing this book on America’s domestic crisis?

Friedman: Well, it’s actually even more complicated than that. I’m the foreign affairs columnist of The New York Times. My co-author is the Chair and foreign affairs professor at John Hopkins. What are two foreign policy guys doing writing a book about domestic American politics. The answer is very simple. We are friends. We are neighbors. We’ve had a conversation going for twenty years, almost daily, about the world, and we noticed something in recent years. We noticed that we start every day talking about the world and end up talking about America. And we concluded that that was because America – its fate, future, vigor and vitality – was actually the biggest foreign policy issue in the world.

Because we do believe that we make mistakes in the world, we do some dumb things, but on balance we think we do a lot more good things. And that we are a net provider of a huge amount of global public goods, whether it is keeping the sea lanes open in Europeor promoting free trade, or spending money to deal with AIDS in Africa. We firmly believe that we are a net plus to the world. In fact, we would even go farther: we are the key provider of public goods, we are, in a sense, the temple that holds up the world. If that temple buckles or frays, your kids won’t just grow up in a different America, they will grow up in a different world. Because when Britain went into decline in the twentieth century, America was right there to pick up that global, stabilizing role. If we go into decline, who is there to pick up that role?

Chanda: I think this book is essentially you analyzing why America is going into decline. I am especially interested in this book, especially coming right after your last bestseller, The World is Flat. Because the world is flat and is getting flatter, the US is now facing the challenge that globalization created. And now, it is feeling like a victim. How did this happen?

Friedman: Well, no question. We face two challenges. One is relative decline – that’s inevitable. Our friend Fareed Zakaria wrote a book about that: The Rise of “The Rest”. The rise of the rest was inevitable with globalization and the end of the Cold War. What we want to avoid is absolute decline, where the others aren’t just rising but we aren’t meeting them and are falling behind. I think we are a ways from that, but that is a real possibility. That’s really what we tried to explore in the book. We believe America made the biggest mistake a country or species can make. We misread our environment. We misread our environment at the end of the Cold War. We thought the Cold War was a victory – and surely it was in every sense of the word – but it was also the onset of the biggest challenge we had ever faced: we just unleashed two billion people just like us.

Chanda: What you mean is that China, India and Eastern Europe…?

Friedman: China, India, Brazil, Eastern Europe…all this pent-up emotion, all this pent-up energy and then we wired the world so that they could compete, connect and collaborate with us so much better and so much more efficiently. By the way, this is a huge net plus for the world, I believe. But nonetheless, it did provide us with challenges that we really were not ready for. Because we won the war and put our feet up, just when we needed to be tying our shoes. Then we compounded after 9/11 by spending the next decade chasing the losers from globalization, called the Taliban and al-Qaeda, rather than the winners, called India and China. We spent all this timing thinking about and planning how to chase the losers rather than thinking about and planning how to really compete with the winners. You put those two together and it explains a lot about why we are where we are.

Chanda:  Because the American deficit, which is now killing the US, is partly the result of the war on terrorism.

Friedman: Exactly. It was a huge diversion of assets and a huge diversion of attention. Now, we can debate history as well. Some of that was just inevitable - we were attacked. It was not like these people were innocent and that it didn’t require some reaction. The question is: did we overreact or did we overpay for what we achieved? And we would conclude, sadly, that we did. That whatever happens in Afghanistan or Iraq, we overpaid for. Let’s hope we overpaid for something decent and transformational. In Iraq, I think there is still a chance for that. In Afghanistan, I am very dubious. But whatever it is, we overpaid for it.

Chanda: Now, the US invented the microchip. The US invented the Internet. And now, this Internet and microchip seem to be posing a threat to the US hegemon.

Friedman: Well they do – and they don’t. Of course, we not only invented the microchip and the Internet, we invented social networking and all the great networking sites: Facebook, Twitter, LinkedIn. So this is actually the next stage in the revolution. The problem with these new industries, Nayan, these industries based on bits and bytes, is that they generate enormous returns but very little employment. Do you know that you can take all the employees from Facebook, LinkedIn and Twitter and fit them into Madison Square Garden and still have room for your family? And they are worth multiple hundred billions. I mean, they create huge returns for their investors and founders, but they don’t create a lot of direct employment. Now, at the same time, Facebook is creating opportunities for people who want to become entrepreneurs to become entrepreneurial globally, to share your ideas, to collaborate with others, to find markets, partners and investors, like never before. These are enormously powerful tools. And we are in the middle of a whole new phase of the IT revolution. It’s a combination of social – these social networking sites -, mobile – wireless enabled smartphones that can get you right onto the web -, and the cloud. So when you are mobile, social and the cloud, and suddenly in this cloud you can actually get access to all the computing power that Google has…

Chanda: The “cloud” is all the software capacity that is made available…

Friedman: Right. It’s the servers that store all these applications. But now you, Nayan, can have access to literally the same computing power Google has. You can rent it by the hour. Do you realize what a factory that puts up in the air for anyone to access? So the problem is when we are in one of these transitions. It is very hard for people to see. People can only see the job they had or the job they need. And that is totally understandable. But in fact, a parallel universe is born in there.

Chanda: The kind of jobs that have been created was never known before.

Friedman: Exactly, and we are just seeing them.

Chanda: And now we have 4.6 billion people on cellphones.

Friedman: You realize what that means? That means that in a decade we will have universal connectivity. That you will be able to say that everyone on the planet has a cellphone. And when that happens, it’s just going to be mind-blowing.

Chanda: Because cellphones are creating a lot of business models.

Friedman: In India, as you know, all kinds of business models being done off the cellphone. People will use it for ill, we know, but think of the problems we are going to be able to solve. All of us are smarter than one of us, so imagine the ‘all of us’ we are going to be able to leverage. All that brainpower that wasn’t available is now going to be available. I find that tremendously exciting.

Chanda: The question of brainpower brings me back to a point you made in your book. You said that Tsinghua University and Beijing University are the biggest suppliers of Ph.Ds. to the United States. Now, why is it happening? Why is the US falling behind in this area?

Friedman: Well, there is a macro answer to your question. The macro answer is that we had a formula for success in this country. We didn’t become the world’s richest country by accident. We actually became the world’s richest country because we had… Don’t let anybody know I said this. We had an industrial base. There, I said it. We didn’t call it an industrial policy, but it was a five-part formula for success. Educate our people up to whatever the technology is, whether it is the cotton gin or the supercomputer. So first, we had universal primary education for an agricultural economy, then universal secondary for a factory-based economy and then finally, the world’s best post-secondary system for a knowledge economy. That was our first pillar of success. Second, we had the world’s best infrastructure: roads, airports, and telecom. Third, we had the world’s most open immigration policy, so we attracted all the most energetic and talented immigrants – we call high-IQ risk-takers – to come to our shores and start thirty to forty percent of new companies in Silicon Valley every year, as we know.

Chanda: And got tons of Nobel Prizes.

Friedman: Exactly. Fourth, we had the world’s best laws for incentivizing risk-taking and preventing recklessness. Last, we had the most government-funded research, to push out the boundaries of science and technology and physics, math and biology. So venture capitalists could pluck the best flowers and start great new companies that both were entrepreneurial and helped people.

So that was our five-part formula for success. Let’s look at all five today. Education, by any global comparison, tests of fifteen-year olds were in the middle of the pack. Around there was Slovenia and Argentina. Infrastructure…Nayan, I just flew from Hong Kong, where we first met, to Lost Angeles Airport. That’s like flying from “The Jetsons” to “The Flintstones” today. Really, when you compare the infrastructure. Third, immigration policy. Well, we have the Republican debate, basically, where Republicans are outbidding each other on who can electrocute more people who are trying to get into our country from across the Mexican border. Now, we are not advocates of illegal immigration, but our minds should be focused on how do we get more people here legally who want to come here.

Rules for capital investing. How you get subprime crisis. And lastly, government funded research. [Gestures downward] Looks like that. So if you actually say “How do we get here?” and “How are we doing with how we got here?” – it’s a terrible story. We’ve taken our formula and we have put it all into decline.

Chanda: In your book, you have very interesting statistics. You said that US consumers spent 7.1 billion dollars eating potato chips and the federal government spends 5.1 billion dollars on energy research. These two numbers actually tell two stories. One is the obesity epidemic that is hitting the United States and secondly the price of oil and the havoc it is causing on the US economy.

Friedman: No question. There are all kinds of weird anomalies like that. California now spends more on prisons than on education. We are into just a whole series of bad choices. What happens, Nayan, when a country or society makes a lot of bad choices over a long period of time - that’s how a great country goes into decline. And we too much resemble today the high school football coach who always wants to tell you about that touchdown he threw thirty years ago: “God, I was there, and I threw that touchdown…” But I want to hear about the touchdowns you throw now and we are not throwing enough.

Chanda: This sense that America is number one and still number one and in real life people are realizing that this is not the case. So this dissonance between the perception of America being number one and the reality of what you described so vividly in your book about the shoddy infrastructure, falling education and falling health. This is creating anger in the public and that perhaps explains some of the phenomenon like the Tea Party and Occupy Wall Street that we have seen.

Friedman: It’s creating two things. One is anger or anxiety. And you see it in the Republican debates. They are so aggressive, whether it’s against gay and lesbian couples or whether it’s against illegal immigrants. There is a harshness, there is an exclusiveness. What it is scarcity thinking, it’s not abundance thinking. That’s really what it is: it’s scarcity thinking. And that is one problem. The other problem, in fairness, is that our economy became so ‘financialized,’ so dependent on Wall Street. And Wall Street turned out to be really off on its own quasi-criminal jag, where it got into the habit of what Jagdish Bhagwati, the Columbia economist, calls not financing creative destruction – the founding of new industries and the replacing of old – but really kind of the habit of financing destructive creation. I mean, really financial bets and instruments using your financial savings and mine that had no more social utility than betting on, as they say in “Guys and Dolls,” whether Mindy sells more cheesecake than strudel. That’s what a lot of these people are doing.

In fact, there is a very important case that was settled last week that, had Gaddafi not died, I think would have been front-page news. That was that Citibank agreed to pay a fine of two hundred million dollars to the SCC. This was a very important case because what Citibank was guilty of, although they admitted no guilt, but they paid the fine, was actually going out, assembling a package of the most toxic mortgages they could find, selling them to customers with one hand and then shorting them with another. Now Goldman Sachs did a similar thing, but they did it on behalf of a client who came and said this is what I want to do. Citibank did this for its own account. That’s as low as you get. And my savings account is at Citibank, so I take this kind of personally. You did that with my savings, basically. And what’s really scary Nayan, when you think about it, I don’t want to dwell on this, but that there was a meeting one day at Citibank and somebody said: “I have an idea. Let’s assemble the biggest pile of toxic mortgages about to default that we can find. Let’s sell them to some of our best clients and then on the other side of the floor, let’s short them so we make money coming and going.” And you know what, Nayan? This meeting happened and no one stood up and said: “Excuse me. That is illegal, immoral, unethical and completely beneath our global brand. Nobody stood up and said that. This is a very important story.

Chanda: This is the social contract of the country.

Friedman: Exactly. And that’s what Wall Street is about. They are saying “what is wrong with you people?” And here you have to ask “what is wrong with the Republican Party?” Because rather than saying let’s have a serious, frank, financial reform, they are basically defending banks for not wanting to keep regulation at a minimum. House Majority Leader, Cantor, called them a mob, the people on Wall Street. Well, if they are a mob, what would you call those people at Citibank? They are another kind of mob, a gangster mob. This is exactly the kind of behavior you would expect from the mafia. Is it like a numbers racket?

Chanda: Tom, if we could switch a bit to foreign affairs. Obama has now announced the complete pullout of troops from Iraq. How do you see that? There are some people saying that this is pretty dangerous because we are going to be exposing Iraq to the possible Iranian influence.

Friedman: You know what I say, Nayan? I am with President Obama on this one. Part of me very much sympathizes with Iraqi citizens – they want their country back. They don’t want Americans stomping around their country and having, basically, diplomatic immunity. I get that.

Chanda: That was the condition on which the talks failed.

Friedman: That’s why they failed. But also, I can understand their side. We’ve committed a lot of good things but a lot of abuses as well. Every Iraqi has a story about being caught in a traffic jam, Americans overstepping their lines and whatnot. And yet, we’ve obviously done a lot of good things there and invested as well. So I understand Iraqis saying “we want our country back and I’m not going to go to the Parliament to vote for giving the Americans immunity.” At the same time, Iraqis - 2003, we are in 2011, heading for, shortly, 2012 -, they need to get their act together. They need to sit down and look at each other in the eye and say “we are going to bury the Sunni-Shiite thing; we are going to find a way to live together and write a social contract without always needing a referee. Why do they want us there? Because, when you strip it all away, they don’t trust in their ability to live alone, together. At the end of the day, ladies and gentlemen, you are never going to get there until we go and you get there. I think it is a risky thing, I understand why they wanted us to go…

Chanda: It’s taking off the training wheels.

Friedman: Exactly. It’s taking off the training wheels. It’s time now to do that.  Because we became an escape valve for them - we became the valve that some could blame and others could hide behind. Some people say that it’s a huge victory for Iran. I disagree. I totally disagree. Because Iran won’t have us as its lighting rod that everyone in Iraq could focus on. Once we go, who is the imperial power in the region? It’s Iran. Iran and Iraq fought an eight-year war. Let us remember that. And it was not contrived. It wasn’t just about Saddam. I have a thousand years of history with me that says that Arabs and Persians don’t play well together. And so I think that this gets very complicated for Iran.

Chanda: Now, talking about Obama’s decision on Iraq, you were telling me earlier that Obama is basically ending part of the policy of Bush. Can you elaborate on that?

Friedman: It’s ironic that Obama has proven himself very deft in finishing and completing George Bush’s War on Terrorism much better than Bush because he has approached it in a very smart, tough way. He has leveraged our global intelligence assets and our allies, used drones to engage in targeted killings of known terrorists whom we could not get in any other way. Bin Laden – that wasn’t a drone, it was a ground attack, but al-Awlaki in Yemen. He has been risk adverse, but also willing to take very calculated risk and generally not getting us, as in Libya, overcommitted. You can really say, ironically, that Barack Obama has finished George Bush’s war much better than George Bush. And the country is better off for it. I think this is what drives Republicans nuts, by the way. Because who is this neighbor who was an organizer, used to hang out with a bunch of SDS people, and meanwhile he is doing it better than the tough guys. Score one for Obama.

But at the same time, Obama has been pretty much a failure in his own foreign policy. If you look at the Arab-Israel conflict, he completely made a mess out of that. The climate negotiations – completely made a mess out of that. Pakistan – we are in a war of words with them. Afghanistan – he doubled down in a way that I think was utterly reckless, starting in the transition. It’s kind of interesting; in his own foreign policy he hasn’t made much of a headway. And I think that has to do with the fact of what is diplomacy at its heart: it’s making deals between states, signing treaties, resolving conflicts.

I think the reason we are much less successful, Obama is less successful, previous administrations have been less successful – in fact, there has not been any consequential Secretary of State since James Baker at the end of the Cold War – is because the world has been so much messier, all these states that were propped up under the Cold War are now rotting or collapsing. Pakistan is a perfect example; if we are there, we just deal with the military even. And at the same time, we are much weaker. We don’t have the resources, the leverage. Diplomacy is all about leverage; it’s just like negotiating your baseball contract, basically, between you and some owner. Who’s got the leverage on their side? If we want to have an effective diplomacy vis-à-vis Iran, we need to have an energy policy that takes away their leverage. If we want effective diplomacy vis-à-vis China, we need a savings policy, and an education policy, and an investment policy that takes away their leverage.  Otherwise we are just going around the world negotiating with everyone without leverage. Negotiating with China or Iran without leverage, that’s like playing baseball without a bat. You’ve really got no way to deal with the world. And I think that’s why Obama’s targeted killing, police work, we can do. But when diplomacy is conventional like this, it’s much harder So I say: Momma, don’t let your kids grow up to be Secretaries of State.

Chanda: Before finishing off, you say in your book that Mandelbaum and you are flustered optimists. Now, how can you an optimist in the situation that you described?

Friedman: Well, it’s a good question. The reason the book is called That Used to Be US – that is, it has a backwards looking title but a forward looking theme – is because we know we didn’t get here by accident. We actually had these formulas for success. So, if we could do it before, why can’t we do it again? We are not asking Americans to become like India, China or Brazil; we are asking them to become like themselves. And that’s why the book concludes by saying that the history books we need to read are our own. The country we need to rediscover is America. That used to be us and it can be again.

Chanda:  So you are still optimistic that America will come out of this spin?

Friedman: Not only am I optimistic, Nayan. What’s frustrating is the solution – you can almost touch it. If we had a grand bargain right now where basically Republicans agreed to x-amount of short-term stimulus to get the economy going again and Democrats agreed to Simpson-Bowles plan for basically taking nearly four trillion out of the budget for the next decade or so, we not only would have the fiscal house in order to move forward, but we would lack the pessimism. Right now a lot of people here in America feel like we are all children of permanently divorcing parents. You know, when you look at what’s going on at the national political level, it’s actually very depressing. It’s not the kind of thing that really makes you say I’m willing to invest a lot of money right now; these people really know where they are going.

Chanda: So it looks like the way that Republicans are determined to block any initiative by President Obama, which might give him credit, this situation is going to continue until the elections.

Friedman: It’s much worse. It will continue after the elections. Because all the election will be about is who can get 50.01% in order to take power and then have no mandate for the real changes we need. My frustration with President Obama is not that; I can totally understand that the Republicans are trying to block everything he does. My frustration is why are they getting away with it then? They are mugging him in plain sight. Are they getting away with it maybe because he hasn’t actually given the American people a reason to stand up and stop the monkey

Chanda: Is it a failure to communicate, you think?

Friedman: Partly a failure to communicate, partly a failure of substance. I think Americans totally get where we are at. They know we have a real problem, they know we need a real plan. But the speech that Obama has to give has to start off by saying, first and foremost, friends, this is going to hurt and it’s going to take a long time. We can either have a hard decade or a bad century, but it’s going to be one or the other. And do you hear Obama saying that? People want a plan, in my view, that is at the scale of the problem. They don’t see that from the President, certainly don’t see that from the Republicans. [A plan] that is fair - everyone is going to contribute – and that is aspirational – it has a big vision of building and reviving American, not just balancing the budget. Because we have big things that we can do to help the world. So I think one reason that the Republicans have been able to mug him in plain sight is that he hasn’t actually told people “Here is what I’ve got to offer. Here is something big.” That’s my take. 

Chanda: Well, Tom, thank you so much.

Friedman: My pleasure.

Chanda: That Used to Be US is now in the bookstores and Tom, thank you very much for visiting us.

Friedman: Great. It was a real pleasure, thanks.