FREE MARKET SOCIETY FEBRUARY 13, 1996 TRANSCRIPT

DAVID GERGEN: Tom, it's been 13 months now since you became the foreign affairs columnist for the "New York Times," and during that time, you've traveled all over the world. I think you may have traveled more than the Secretary of State. But coming back from Davos, Switzerland, at a forum we both attended, the World Economic Forum, you wrote a column in the "New York Times" which seemed to crystallize a lot of your thinking over the last year.

THOMAS FRIEDMAN: What I've really seen this year, David, as I travel all around, is free markets and free market principles spreading all over the world, and markets being integrated more and more. And as that's happening, it's putting a lot of pressure on every country in the world to compete to attract capital. Under that pressure, there are winners and losers. There are people who have the knowledge, skills in order to tap into that market, and there are people who don't, who are left behind. And really what I found is that some of the most interesting conflicts in the world today are between winners and losers within countries, whether it's the Communists against the Yeltsin forces, or the energy forces in Russia, the unions against owners in France, or the Buchananites against others in this country, and it's really those conflicts between winners and losers in societies and how they are resolved that I think it's going to increasingly shape international affairs.

DAVID GERGEN: Right. So you think that increasingly also foreign policies of various countries are going to be shaped by their internal conflicts?

THOMAS FRIEDMAN: Oh, absolutely. You look at Russia today. I mean, the outcome of this fight really over the next presidency in Russia, whether it's won by the Communists, or the Yeltsin forces, it's going to very much influence Russian foreign policy.

DAVID GERGEN: Right, right. And in addition to the Buchanan campaign, it continues to have an influence on the Republican Party. That will clearly have an influence upon our economic trade policy.

THOMAS FRIEDMAN: Absolutely. I think when people talk about America going isolationist, it's not happening in a vacuum. Who is an internationalist and who is an isolationist today is a lot dependent on whether you can tap into and are benefiting from this process of globalization, markets, and integration, or you're not.

DAVID GERGEN: Right. And so what you're seeing then is a backlash against globalization.

THOMAS FRIEDMAN: Absolutely. What struck me about Davos, of course, was that Davos is a convention of capitalists. It is, it is the place where people who get together to celebrate the process of global markets and global integration, and who is the start at Davos this year, who of all people but Gennady Zuganov, the head of the Russian Communist Party.

DAVID GERGEN: Right.

THOMAS FRIEDMAN: And that told me that--and he was there representing a backlash avowedly, and there were a lot of businessmen interested in talking to him because I think they intuitively understood that this is a wave out there.

DAVID GERGEN: Right. What also struck me about Davos in that same regard, and the losers here are people who have jobs, but they're low-paying jobs, whereas, in Europe, the losers are increasingly people who have, you know, can't get jobs, because the cost of creating a job there is so high, they haven't reformed their social safety net.

THOMAS FRIEDMAN: Absolutely. You know, Germany had 150,000 people unemployed in the 1960's. Today, it's got over 3 million people unemployed. And the, the Europeans really have not begun to go down that road yet. I sort of see the world like this, David, you know, Russia's what happens in a country where you have a social safety net, a whole system to protect people, and you take it away, the instability they've got. France today, a fight between the unions and the government, what happens when you have a very elaborate social safety net but you don't reform it to make it sustainable. Africa, where I just was two weeks ago, in its worst forms, is what happens when you have no safety net at all, and if one is really left to the tender mercies of the global marketplace.

DAVID GERGEN: But the Europeans, you know, in the chemical industry today in Germany, for example, it now costs a corporation some $43 an hour per employee. That's about twice what it is in the United States. And the result is they're having to lay off a lot of people. You can't compete in this process of globalization with $43 an hour payments.

THOMAS FRIEDMAN: Absolutely. See, every country is really in the same boat. Now, what is the role of governments increasingly? Everyone's motto is "Come hither," is to attract global capital and investment to their country because they don't have it indigenously to produce those jobs.

DAVID GERGEN: There was another important insight that you had in your column about the fact that it's not just corporations that are downsizing; because of the globalization process, governments feel it's important to downsize so that even as workers are getting hit by their corporations having to lay off a lot of people, the safety net that was there is also being withdrawn or being threatened because governments are downsizing.

THOMAS FRIEDMAN: That's what's scary, that as businesses streamline and downsize, and as governments do it, the left behinds are left in freefall, and that's, I think, the danger that we have to think about in this country and others do, that when you talk about taking away Medicare, Medicaid, Social Security, yes, it has to be reformed, to be sure, and made long-term and sustainable, but let's not take away these social safety nets precisely when our society is going through this cleavage and pressure.

DAVID GERGEN: What have you seen in your travels around the world that suggested to you that there are solutions out there that one could embrace?

THOMAS FRIEDMAN: Well, everyone is really grappling for the right combination. The good news is, I think, people are now really thinking about what is the formula to deal with. The bad news is nobody's quite got it yet, but it's going to be some combination of worker training, environmental protection, population control, and sustainable social safety nets. But one thing we know for sure is that globalization, free trade is not necessarily a win-win proposition. And I think that's the beginning of wisdom, and we've got to start looking, if you care about this process, and if you believe it is inevitable, as I do, that we've got to look how to, I think, cushion it a little more.

DAVID GERGEN: Do you see any country that's out in front and dealing with these issues? Have you visited a country that you think has been most successful?

THOMAS FRIEDMAN: Well, the best example is Japan. You go into a department store in downtown Tokyo today, and 14 women bow to you, and you say, what is this, and then you stay out at the karioke bar till 2 in the morning and walk back to your hotel and there isn't crime, you can eat off the streets, and then you understand what's going on, that Japan has made a choice, and that's full employment, that they want to employ those 14 women who greet you at the department store in order--it's a social choice--in order to maintain social stability and cohesion. You can only do that in Japan, though, where the system was basically rigged to keep foreign competition out. But that is one answer.

DAVID GERGEN: Yeah. But it's also an answer they can't sustain.

THOMAS FRIEDMAN: They can't sustain. They're under pressure.

DAVID GERGEN: In some ways, it's interesting because I found that just as we in America are fascinated by what happens in California, because we think it's going to happen around the rest of the country over the next three or four years, that many Europeans and Asians look to America for what's happening--what happens here first often happens there later.

THOMAS FRIEDMAN: Right.

DAVID GERGEN: And so they have the same fascination with America we have with California.

THOMAS FRIEDMAN: We're all in the same game. See, we've gone through a world, David, of superpowers to a world being increasingly dominated by supermarkets, and everyone really is under the pressure of those supermarkets. It's the Tokyo Bond Market the Shanghai Bond Market, the Wall Street Bond Market, the Frankfurt Bond Market. In the old days of the superpower conflict, you know, a country could play the Soviet Union in the United States.

DAVID GERGEN: Right.

THOMAS FRIEDMAN: Now, you really have to try to play off the markets, but you can't do that because they play you off.

DAVID GERGEN: So you have to be--there are two superpowers, I think, you say.

THOMAS FRIEDMAN: That's right. There are two superpowers in the world today in my opinion. There's the United States and there's Moody's Bond Rating Service. The United States can destroy you by dropping bombs, and Moody's can destroy you by downgrading your bonds. And believe me, it's not clear sometimes who's more powerful.

DAVID GERGEN: Okay. Thank you very much for joining us.

THOMAS FRIEDMAN: A pleasure.

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