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Western Capitalism & Rise of Asia: 2019 National Book Festival

Western Capitalism & Rise of Asia: 2019 National Book Festival


>>David M. Rubenstein: Okay,
thank you all for coming. How many of you are from
the Washington area? I’m just curious. Okay, how many of you are
from outside of Washington? Okay, how many of
you are capitalists? Any capitalists? How many anti-capitalists here? Alright, how many people came
because you think you’re going to learn how to invest in Asia? Okay. Okay–>>Parag Khanna: That’s
why you came isn’t it?>>David M. Rubenstein: Right. I should put that up. Okay, so we have two very
distinguished authors here and individuals,
and I know them both and let me just introduce
them briefly and we’ll get into a little bit about their
background in the conversation. So, to my immediate right
is the author of this book, Can American Capitalism
Survive?, by Steve Pearlstein. Steve is a native of Boston
area, and he went to college at Trinity and then later
did a number of things in the journalistic area, and actually started his
own magazine in Boston, the Boston Observer, but worked
at the Washington Post for many, many years and he
still is a columnist for the Washington Post,
and for his writing on the 2008 financial crisis,
he won the Pulitzer Prize. He is now the Robinson
Professor of Public Affairs at George Mason University,
in addition to writing for the Washington Post, in
addition to writing books. So, we’ll talk about
your book in one moment. And to his right is Parag
Khanna, who actually lives not in Washington DC area,
but in Singapore. And he flew all the
way from Singapore for this event, more
or less, right? Which is very good, okay. His book is the Future is Asian. Now he is, he grew up
in many different places around the world, but
Dubai among other places, and lived in the
U.S. He is a graduate of Georgetown University,
School of Foreign Service, he got his bachelor’s
and master’s degrees and then his PhD at the
London School of Economics. And he has written
many books about, I would say global affairs. He now is the head of a firm
he started called, Future Map, which gives a lot of
strategic advice to companies and other organizations
and he is a person who Esquire Magazine said not
too long ago that he was one of the 75 most important
people in the 21st century. That’s a pretty impressive–>>Parag Khanna: A
lot to live up to.>>David M. Rubenstein: Right. So, alright, well we’ll
see whether you can live up to that at some point. Okay, so, Steve–>>Steven Pearlstein: Yeah.>>David M. Rubenstein: Your
book has a very exciting title, Can American Capitalism Survive? So the answer is?>>Steven Pearlstein: Sure.>>David M. Rubenstein: Okay. And does it have to
do anything to change?>>Steven Pearlstein: Yes,
I think it probably does. I mean it will survive,
but whether it will, whether we’ll continue
to be the richest country and have the most vibrant
and innovative economy and to have the best
social and legal, and political institutions,
that’s not a given.>>David M. Rubenstein: Okay,
well in your book you point out, we have a lot of
challenges now and you point out the income inequality, social mobility issues,
and things like that. Why are there not
riots in the streets? Why aren’t people
as upset about this as you think they should
be, after reading this book?>>Steven Pearlstein:
Well, it’s not so much that they would have
read the book but of course they would
have experienced the sort of ruthless, unfair, unequal
capitalism that we have and why aren’t they
rioting in the streets? Well, it’s probably
not bad enough, first of all its America,
secondly it’s not bad enough. But I would say the election of Donald Trump is a
pretty good indication that they’re pretty unhappy
with things and they’re willing to sort of lash out at the
establishment and at the elite, so that’s a pretty good
indication that we’re, you know, maybe we’re not too far from it.>>David M. Rubenstein: So
you say American capitalism, what type of capitalism
do you like better than American capitalism?>>Steven Pearlstein:
Well, like my students, I think Swedish capitalism
is a little bit better. But Northern European capitalism
is a little more humane, that provides a little
more economic security, that’s not so shareholder
focused. They don’t have as many
financial crises as we do. They don’t start
financial crises, of course they’re
a smaller country.>>David M. Rubenstein: But
they have very, very high taxes.>>Steven Pearlstein:
Yes, they do.>>David M. Rubenstein: And
people move out of that, those countries to
avoid those taxes, no?>>Steven Pearlstein: Well,
they used to, but you know, the story you’re telling is
one that’s really 30 years old, when they did have
very high taxes. And they realized it,
it was when Bjorn Borg, the tennis player moved to
Monaco or something like that in order to avoid taxes. And they reduced taxes. Their overall tax
burden is around 50%. Our overall tax burden
is around 35%. But they get a lot for that; for one thing they get their
healthcare, which as you know, represents almost
18% of our economy, so 9% of that is private so 9% of that 15% point
differential can be accounted for by healthcare. And they also get
free childcare, they get mostly free education,
including higher education. So they get more for that
and they seem to like that, which is not to say that
we have to do the same. But, that’s where their
politics and their culture and their history
has taken them.>>David M. Rubenstein: So those
countries often have the highest happiness index. So our happiness index is–>>Steven Pearlstein:
Is pretty low for the industrialized country, especially if you factor
in that we’re richer.>>David M. Rubenstein: Okay. Parag, let me ask you
about Asia for a moment. Asia is, you say the future
is Asian, but you point out in your book that the
past was Asian as well, because Asia was more or
less the center of the world for a thousand years in terms
of economy and so forth. Is that right?>>Parag Khanna: Yeah, and I guess I could have called
it the present is Asian also, because if you think about where
we are in global demographics, half the world population is
Asian today, 50% of global GDP in purchasing power [inaudible]
terms is in Asia today. So, it’s past, present, and
very much future as well. If you think about the
growth rates obviously.>>David M. Rubenstein: So
when did the West kind of take over Asia as at least
the dominant political and military power, and then
economic power in the world? When was that?>>Parag Khanna: Well you would
say roughly, the 16th century, you know with the rise
of European colonialism. And things could have
turned out very differently, I’m not a historian, but there
are two episodes that I look at that are real turning points
in, not only in world history, but in how Asians think
about those episodes today and how it motivates them; one is when the Ming Dynasty
had sent out its treasure fleets as far across the
Indian Ocean as Africa. But then retreated
in order to focus on domestic economic
issues and sort of, you know, border skirmishes. And that allowed for the
European colonial powers, particularly Portugal, to move
into the Indian Ocean space. But imagine Vasco da Gama
rounding the Cape of Good Hope and seeing Ming Dynasty
fleets in the Indian Ocean, just how successful would the, not only the Portuguese
explorers, but the Dutch and British East India
companies have been. And then there’s the Ottomans
sacking of Constantinople in the 1450’s and how that
motivated Europeans to look for alternate routes to Asia. So, you know, the
lessons that Asians draw from those historical
episodes that enabled the rise of the West, are that A,
they should not retreat from their now political
commercial expansionism through Belt and Road and
other sorts of things, and also that they
should not be divided. They should not allow themselves
to be divided and conquered. And they don’t view Europe’s
success or the West’s success as the product of great
ingenuity, but rather of luck.>>David M. Rubenstein: Okay, so
the Trans Pacific Partnership, TPP, would that have been
a good thing for the U.S. to keep our foot in Asia or
you think we’ve hurt ourselves by not moving forward with it?>>Parag Khanna: Yeah, that’s
a major own goal, you know, I mean economics is
everything to Asians, right? Economic growth,
maintaining economic growth, building their own economies,
building their trade networks over the last 30 years since the
collapse of the Soviet Union, and now with the rise of the Regional Comprehensive
Economic Partnership, the Trans Pacific
Partnership, Belt and Road, all of these acronyms
that I’m throwing at you and that you see unfolding in
real-time in Asia are meant to integrate Asian
economies and for us, it would have been an enormous
opportunity to sell more into Asia and already every
day we can see the data about American corporate’s
declining market share in Asia. And what you’re seeing
perversely is that our exports may fall
to countries like China as a result of the trade war. We will lose out to our own
allies; Canada, Mexico, Japan, Australia, New Zealand, they’re
all actively have joined the TTP, even competing to
lead it and to eat away at American market share. And Asians will trade
more with each other and we’ll be left out.>>David M. Rubenstein: Now
for those who aren’t familiar with Belt and Road, what is that and where did that
name come from?>>Parag Khanna: So the Belt and Road initiative is
really a continuation of what’s been happening over
the last 25-30 years in terms of this resurrection
of the Silk Roads from the pre-colonial
world where again, the Asians had much more
to do with each other than with the rest of the world. Belt and Road is China’s
contribution to it. Particularly in the
last 5-10 years, but really I’ve been watching
this over the last 20 years. They’ve been investing massively
in cross border railways, pipelines, highways, now they
call it a digital Silk Road with Huawei fiber-optic
cables and 5G. It is the infrastructural
networking of Asia, and China has committed
hundreds of billions of dollars to it, others have as well. It’s a real– it’s the
bazooka of infrastructure.>>David M. Rubenstein:
Now your definition of Asia is from where to where?>>Parag Khanna: Well
it’s funny you should ask, it’s a real bug bear for me
as a student of geography, there is only one definition of
Asia, and Asia’s not a continent so our kids always learn
the wrong thing, you know, which is that Asia’s
a continent, Europe is a continent, actually
there’s just one big continent called Eurasia. Europe shares it with
Asia, they’re two regions. But Asia, the Asian two-thirds
of it, so the Mediterranean Sea and the Red Sea, all the
way to the Sea of Japan, from Russia all the
way to Singapore, including India, that is Asia. There’s no dispute
about what is Asia. The fact is though, the
last 10-15-20 years, we’ve been focused on Asia
as if it’s just China. And, you know, China
represents all of Asia and actually China
is only one-third of the Asian population. It’s only about half
of Asia’s GDP, and now other Asian countries
are actually growing faster than China and much of what
we call “the Middle East; Saudi Arabia, Turkey, Israel, these countries are
geographically in Asia. And more and more, they are
gravitating towards the rest of Asia and away from
the West economically, and even strategically.>>David M. Rubenstein: Okay. Steve, let me ask
you, in your book–>>Steven Pearlstein: Yeah.>>David M. Rubenstein: —
you kind of make the 1970’s, which I lived through and I
worked in the White House, as a great time because
you made it sound like people were happier
then, is that true?>>Steven Pearlstein:
Well, first of all I don’t, I would say the 1970’s
was a transition period and it wasn’t a great time, not because you were
working in the White House. But in fact, and this is
apropos to what Parag said, that it was during the
1970’s that our economy began to become very uncompetitive
for a whole variety of reasons. And it is, was as a result of
that, and as a reaction to that, that we decided that,
you know, Japan looked like they were going to
take over and Germany, and we were going
to be left behind. We were going to
be like Britain, a falling industrial power. And we really pulled
up our socks and we made our capitalism
leaner and meaner, and it worked. And we once again became
the most competitive country in the world. So, the 1970’s was not a
particularly good period. Now you say for workers. It was a pretty good
period for workers because at least it was absent
inflation, but the 1950’s and the ’60s are
considered the Golden Era.>>David M. Rubenstein: Okay, so
in the 1980’s, Reagan took over, Thatcher took over,
and the concept of shareholder being
the most important part of a corporation took over. Now the Business
Roundtable has said well, shareholders are not
the only thing that CO’s in companies should worry about. What do you think about the
Business Roundtable’s statement?>>Steven Pearlstein:
Well I had a small, minor role in that
actually, but I would say we, the pendulum swung from too
little regard for shareholders and profits, to too much regard
for shareholders and profits, and now, happily, the
pendulum is swinging back and the statement by the
Roundtable was more a signal that the leaders of
the biggest countries, companies in the country, understood that it
had gone too far. And they would like a more
balanced approach which, not like the 1970’s but
more like the 1950’s.>>David M. Rubenstein: Income
inequality is now as bad as it’s been in the late 1920’s, to what do you attribute
our growing inequality?>>Steven Pearlstein:
Technology, trade, deregulation, which happened during the 1970’s when you were in
the White House.>>David M. Rubenstein: Well
they didn’t listen to me.>>Steven Pearlstein: They
didn’t– You know, we’ve, there has been a natural
tendency toward winner take all competition among
companies, and among workers, the top lawyers today
get paid much more than the people slightly
below them. The top professors, the
top athletes, so there’s, and also companies, the top
companies make huge profits; Google, Facebook, compared to
companies that are almost as, have almost as good products. So the winner take all quality, the lack of anti-trust
enforcement, it’s a long list but they’re not all,
they’re not all because of government however. And I think this is a
mistake people make. They think oh, that’s Reagan
and Thatcher, and you know, obviously they play a role,
but a lot of it has to do with norms of behavior. In the 1950’s and ’60s, a chief
executive probably had the power over the board of
directors to pay himself, it would have been a himself in
those days, himself huge fees. They wouldn’t have
thought to do so. They, it would have been
socially unacceptable. If they’d gone to
the country club, another CEO would have said
hey, Joe, don’t doubt that, it makes us all look bad. And anyway, you’ll make
democrats of all of our workers. So they didn’t do
it in those days.>>David M. Rubenstein:
Okay, and you think that people were happier in
the 1950’s than they are today?>>Steven Pearlstein: Yes. We know they were, actually.>>David M. Rubenstein: Father Knows Best
period of time is what–>>Steven Pearlstein: Well we do
surveys of this, we ask people about their satisfaction
with life, about satisfaction with their economic
situation, and they were. They weren’t richer by the
way, they only had one bathroom in the house, they had
Formica countertops–>>David M. Rubenstein:
But the people who were happier were
white, presumably.>>Steven Pearlstein: Well–>>David M. Rubenstein:
Because minorities were sort of disenfranchised to a large
extent in our economic system in the ’50s and ’40s, right?>>Steven Pearlstein: Well, yes. But that doesn’t necessarily
mean that they weren’t happy. They had actually more
vibrant communities than some of them have today. And it was built around their
church, and their communities and to say that, you know,
happiness as you well know, you know, people get
happier they’ll get rich until they have incomes
that are equivalent today to about $70 thousand, and
then money and happiness, those lines start to depart. So, people were happier, mostly because they
had economic security. And this is something that
I think the market people, the market fundamentalists
don’t understand, people assign a very high
value to economic security. And we have a much less secure
economy for middle class and working class people.>>David M. Rubenstein:
Well some people say that economic security
and happiness with your financial
situation arises when you have exactly twice
what you already have. In other words, you need twice
what you have before you’re actually financially secure. But that may be a
different issue. So in terms of politics,
you say in your book that the political
contribution system in our country is really
skewed towards wealthy people and it’s really making
our economic system not so competitive. Is that right?>>Steven Pearlstein:
Well, I would say, what I said about that
was the following; that there are things we can do
and should do and if you want, we can talk about that
on a policy sense to, make our capitalism more
palatable to people. But we can’t do any
of those things until we first change the
political money situation.>>David M. Rubenstein: But
how would you change it? Because–>>Steven Pearlstein:
Constitutional Amendment.>>David M. Rubenstein: —
constitutional amendment, but as you know, constitutional
amendment requires a constitutional convention
or two-thirds of each house and three-quarters of the
states, is that realistic?>>Steven Pearlstein:
I think so. It’s realistic if you think
having a democratic congress and a democratic president at
the same time are realistic. I think there’s a lot of
support for an amendment that would allow a reasonable
restriction on political money. And can we do something? Everyone who thinks
that they would vote for that constitutional
amendment, could you raise your hand? Okay, there’s broad
support for that idea. It’s not considered
a crazy idea.>>David M. Rubenstein: But– [ Applause ] People who come to book
festivals may not be a cross section of America.>>Steven Pearlstein:
No, they’re not. They’re not, so they’re
older, they’re richer, they’re more liberal, and they
live in Washington DC or a lot of them do, so that’s right. But–>>David M. Rubenstein: Okay.>>Steven Pearlstein: —
polling has been done on this. There is broad support for that.>>David M. Rubenstein:
Alright, and what about–>>Steven Pearlstein:
By the way, you know who’s against that? Politicians of both parties
right now are against it. Why? They’ve mastered
the current system. They don’t want to change
it, so they’re happy with the current system. We’re the ones that are going
to have to force it on them.>>David M. Rubenstein: Alright, is there any other
constitutional amendment you would recommend?>>Steven Pearlstein: No.>>David M. Rubenstein:
That’s the only one?>>Steven Pearlstein: Yeah.>>David M. Rubenstein:
I’ll take that one. Alright, is there
any legislation that congress could pass, not
a constitutional amendment, that you think would
bring us closer to what you would
like us to have?>>Steven Pearlstein: Well
there is, some of it has to do with boring stuff
like anti-trust. The one I’m going to
mention is a sort of two-for. I think that we should have
a modest $3000 per person, universal basic income
in the United States. Some of that to replace
some of the programs we have and I wouldn’t call it
universal basic income, I’d call it a dividend
for all citizens. And then I would pair that with
required universal service. Three years, some time during
your life, when you have to–>>David M. Rubenstein: How
would you pay for that $3000? Where would the money come from, because we have a
big debt already?>>Steven Pearlstein: Right,
well part of where it ought to come from is I’d
eliminate existing programs that we now have and part
of it I would raise money on people like me and you.>>David M. Rubenstein:
Higher taxes.>>Steven Pearlstein: Yeah.>>David M. Rubenstein: Okay. Alright, so you’re not running for congress though
to do that, right?>>Steven Pearlstein: You
know something, I think if a, if the democrats should stop
talking about how they’re going to give a middle class tax cut, because that’s not
what people want. They want good services,
they want social security and Medicare, and
childcare, and good education. And they don’t, they
don’t need a tax cut and they don’t want a tax cut. And I wish we would, I wish
democrats, and I’m a democrat and you used to be
a democrat, I think, I wish we would stop
playing the tax cut game. No tax cuts, period.>>David M. Rubenstein: Okay.>>Steven Pearlstein:
I guess maybe if I ran for congress here
I’d be alright.>>David M. Rubenstein: Now,
social security system is more or less financially bankrupt. No?>>Steven Pearlstein:
Well, it is not insolvent over a long period of
time by a little amount. It could be made
solvent very easily.>>David M. Rubenstein: By
increasing the taxes, or?>>Steven Pearlstein: I would
say you could do two things; one is you could very slowly
raise the age, and secondly, you could subject all income
to this payroll tax rather than only up to whatever
it is, $225 thousand.>>David M. Rubenstein: Okay. Parag, let me ask you this. Is Xi Jinping going to be in
charge of China in our lifetime? Is he basically like Putin,
going to be president for life?>>Parag Khanna: Well I
would strongly distinguish between Putin and Xi, because
China actually has a governance system, you know an ethos,
a set of institutions, a common almost, you know,
bureaucratic tradition that goes back 4000 years. Russia is an oligarchic
authoritarian kleptocracy, so even though you have
two leaders who appear as if they could rule for life, you have two very different
systems underpinning that particular individual. Xi can technical rule now, they
still, he abolished term limits, but there are still
term structures. Whereas in Russia, you know,
Putin has been president and prime minister
and he can decide which portfolio is more
important at any given time. So I can imagine a scenario
where Xi Jinping steps down either after, you know,
one more term let’s say because he has a
number of rings–>>Steven Pearlstein: He’s
in his second term now.>>Parag Khanna: Yeah, he is.>>Steven Pearlstein: So.>>Parag Khanna: He could
do one more for example, and that would be unprecedented,
but again, it is a finite period and he has a set of
people around him from which he can choose many.>>David M. Rubenstein:
Alright, does Xi Jinping or the Chinese people, do
they want a tariff agreement or a trade agreement
with the United States or do they really not want one?>>Parag Khanna: Well
I mean, you know, one of the hardest things to know is what the
Chinese people think, other than what is mediated
through the, you know, their official spokesman. I do enough generalization
in this book without trying to psychologically you know,
sort of capture the sentiments of billions of people, but,
if I could, if I had to, the fact is that, you know, China’s largest trading
partner is its Asian neighbors. And its second largest
trading partner outside of Asians is Europeans. We are actually its third most
important trading partner, and that trade volume
is now going down. So they actually are
decoupling pretty significantly from the United States. We should be selling them more
oil, more gas, more soybeans, more machinery, more tools,
more technology, instead, we’re selling them
less [inaudible]>>David M. Rubenstein: Do they
want an agreement you think, or not?>>Parag Khanna: Better to
have one than not to have one. But is has to be one that isn’t
such a sort of so destructive to their supply chains.>>David M. Rubenstein: And explain to us what’s
going on in Hong Kong now. Is, are the Chinese going
to send troops in or not?>>Parag Khanna: Well technically the
troops are there. Actually the question is whether
they release them, you know, on to the streets and the
answer is, they might. If you want to know the answer
without knowing what’s going to happen tomorrow, it
still is this sort of death by a thousand cuts strategy
that began 20 years ago, 21 years ago, when
the handover began. Few people realize this
but part of the agreement with the handover was that
something on the order of one to two hundred Chinese, mainland
Chinese families would be allowed to move into
Hong Kong every day. So if you take 20 years and
multiply it by that number of days, number of
people, bottom line is, there’s a million, more than one
million mainland Chinese who’ve entered and now reside
in Hong Kong, over just the last 20
years in addition to those that were there before. So you have a very divided
[inaudible] right, you know, clearly there is a certain Hong
Kong ethos that we all know and love as a free [inaudible]
society, certainly one that has, again they have different
passports, they have you know, Hong Kong-British
linked passport. So there is that kind of,
you know, Hong Kong identity that I strongly sympathize
with and we probably all do. But given the proximity,
given the politics, given the legal handover, it’s
not likely that they’re going to be able to be in
the world [inaudible]>>David M. Rubenstein: In the
1970’s, as Steve mentioned, we were worried in the United
States that Japan was going to take over the
world economically. What happened to Japan’s
economy and its demographics are about the worst in the world. So what’s going to
happen in Japan over the next 10,
20, and 30 years?>>Parag Khanna: So, just as an
aside, it was wrong to believe that Japan was going to
take over the world then. It doesn’t mean that we are
equally wrong to view China as a major, you know,
peer competitor, because they’re two very, very
different countries, obviously. China vastly larger
demographically, you know, economically. When it comes to Japan,
you know, yes they are in demographic decline,
however, we’ve kind of, I think we need a new
conversation about Japan that doesn’t really judge the
country solely on the basis of the fact that their
population is decreasing. For one thing, they’re the most
evolved technological society in the world, so they are
moving towards this kind of man machine, you
know, sort of synthesis like no other place
in the world. They have robots deployed
just about everywhere; in restaurants, in
hotels, and so on. Then they are actually
significantly revising their immigration policies. So there have never been,
in the history of Japan, two million non-Japanese
people living on the four main
Japanese islands. That you have today. Half of them are actually
Chinese, you’ve got, on top of that, 700
thousand Koreans, 300 thousand Vietnamese,
50 thousand Indians, so you’ve got literally
several million and counting and growing, foreigners. So Japan is the last place
on earth we would ever think of as an immigrant
society and a melting pot. And it’s not going to be, but they are drastically
changing their immigration policy to fill labor shortages.>>David M. Rubenstein:
What about North Korea? Is Kim Jong Un going to
survive and is there going to be an agreement with him?>>Parag Khanna: I think
there will be some kind of agreement with him. It’s already been,
you know, underway. I think, you know,
what prompted–>>David M. Rubenstein:
What kind of agreement? They wouldn’t remove their
exciting nuclear power.>>Parag Khanna: No, I
think you go through stages of creating like a condominium. I mean Japan, remember
that China and South Korea generally agree
on what they want to see happen in the country that’s
between them. Those two countries have
a lot more influence over North Korea than we do. I think that Trump
summit helped to kick off or maybe amplify
a certain dynamic, but ultimately we
are not as decisive.>>David M. Rubenstein: Who
writes these love letters that he’s sending to President–
What is in those letters?>>Parag Khanna: I’m not
sure I would hire him for any particular
purpose, but I don’t know, but he could have his own
cottage industry at some point. But this is a place that
is already economically, [inaudible] has an economy
that’s already colonized in some ways by China
and South Korea, and those countries
have strong interests in extracting the resources
there and using the agriculture and the low cost labor force. So they’re going to
continue to do that.>>David M. Rubenstein: The chance of the North Korean
government being overthrown internally, that’s zero?>>Parag Khanna: Close to zero.>>David M. Rubenstein: Okay. And then [inaudible]
on this subject, India. Is India going to be growing
at a faster pace than China?>>Parag Khanna: Well, the thing
that’s surprising that India and China have in common, dispute their very different
political systems and societies, is that they both lie
about their numbers. They’re so flagrant
it’s unbearable, so you don’t know what
to believe when it comes to Indian economic statistics
either, but the closer you look at it, the more you have
to revise it downward, which is an unfortunate
consequence, to some degree, of being the chaotic democratic,
you know, place that India is. So, forget the growth rate,
they’ve got structural problems around unemployment, the risk of
labor automation, the lack of, there is no real
labor productivity, and of course, climate change. And the sort of you
know, desertification and the water shortages. So they’ve got big
structural problems there.>>David M. Rubenstein:
Alright, Steve, as I mentioned, you won the Pulitzer Prize for
your commentary on what happened in the financial crisis,
do you see any similarity to what you wrote
about then, now? And do you think we’re heading into a big financial
crisis again?>>Steven Pearlstein: Yes,
there’s some similarity and I think we are heading
into one that’s not so big. This, the previous one had a
lot to do with consumer debt, not only home debt, mortgages,
but cars and college loans. I think this one is mostly
in the business sector and there’s a lot of debt
that has been taken out, not all of which has
been productively used and if there’s a slowdown,
that will come home to roost.>>David M. Rubenstein: And
the recession starting when, would you say? [ Laughter ]>>Steven Pearlstein: Actually, our basic economy is
in pretty good shape. And so, there is this divergence
between the financial sector and the real economy,
and if you look at all the recent
recessions since 1987, they have been caused
by perturbations in the financial market. In other words, they’ve not
been the normal ups and downs of an industrial economy that
we had in the 1950’s and ’60s. These are financially driven
recessions, so I think it starts in finance and then that tends
to bring down, the economy.>>David M. Rubenstein:
And she wrote about the last financial crisis,
who was the greatest hero? Was it Ben Bernanke or
Hank Paulson, Tim Geithner, President Bush, the congress, who do you think
deserves the most credit for actually helping us
get out of that mess?>>Steven Pearlstein: I
would say it’s Hank Paulson.>>David M. Rubenstein: Because?>>Steven Pearlstein:
Because it was a lot harder for a republican
treasury secretary in the Bush administration,
who had been at Goldman Sachs, to get the country to agree
to something very unpalatable. That you had to help
the institutions, you had to prevent the
meltdown of the institutions that caused the problem
in order to prevent more, a worse outcome for
everybody else.>>David M. Rubenstein: Now, many people today
will say they’re for the free enterprise system,
politicians, but they don’t like to say they’re capitalists. Why is the word capitalist such
an offensive thing to people?>>Steven Pearlstein: I don’t
know, I see it in my students at George Mason University,
but it conjures up a sort of moral distaste. And again, that goes to the
ruthlessness and the inequality and the unfairness
that they see. They’re not socialists
though, if you ask them, first of all they don’t
really know what socialism is, but they’re not for, they’re not for the government
controlling everything and owning everything. They’re certainly not for that. So, you know, my students, I
ask them well how many people, how many of you want to go work
for government, and I think you and I would both be
very unhappy to know that I never get anyone
to put their hand up.>>David M. Rubenstein: Really?>>Steven Pearlstein:
And then I say, would you like to go
work for a big business? How many would like to do that? And nobody puts their hands up. I say, well who wants to
go work at Goldman Sachs? Maybe one person will put their
hand up and rather sheepishly. I say so what do
you all want to do?>>David M. Rubenstein:
What about private equity, you don’t ask about that.>>Steven Pearlstein: I
didn’t, I’m not sure they know, but I would recommend that they
do, but where they want to work, they want to work
at NGO’s, you know, non-governmental organizations,
they want to work at startups, which they somehow think
isn’t part of capitalism.>>David M. Rubenstein:
Startups all become unicorns.>>Steven Pearlstein: Right,
well it’s not that they want to get rich, they
think that those kinds of companies don’t have this
sort of moral stain on them.>>David M. Rubenstein: So how long have you been
teaching at George Mason?>>Steven Pearlstein:
Eight years.>>David M. Rubenstein:
Alright, so 8 years ago, were the students different
than they are today?>>Steven Pearlstein:
Not much, no.>>David M. Rubenstein: And they
just, their biggest question is, is this going to be on the exam? Is that what they always ask? That’s what I always asked.>>Steven Pearlstein: No, no. I tend not to, I tend not to
give exams and I also tell them, that grades are like sex,
the more you worry about them and focus on them, the
less well you’ll do. [ Laughter ]>>David M. Rubenstein: Is that
from experience or observation?>>Steven Pearlstein:
Observation.>>David M. Rubenstein: Observation, not
experience, okay. Okay, so the most popular export
from China is the Panda bear, as you know, we have
two in the zoo here. Why are the Pandas used by the
Chinese as tools of diplomacy, why don’t they just give
them to lots people?>>Parag Khanna:
They’re actually, it’s a supply and demand. There’s actually a
limited supply, you know, just like we’re trying to save
the Northern White Rhino right now, they’re in a constant
effort to, you know, breed Pandas and
get them to breed. They’re rather slothful
creatures as you may know. So not as energetic as
Steve’s students I imagine. So, but, I’m not sure what
the exact origins or you know, earliest date of
Panda diplomacy is. I don’t, I think that it’s
just a reminder that lot of Chinese diplomacy
is symbolism, right? And you have to really
differentiate between, you know, the rhetoric or fraternity and
so forth, versus the reality, which is much more capitalist and neo mercantilist
than anything else.>>David M. Rubenstein: So
let’s talk about Australia, how’s Australia, is
Australia a part of Asia?>>Parag Khanna: It is, yeah. I mean it’s not tectonically
part of Asia, but if by much is, you know, geographically. And when you think about their
economy as well, it’s you know, it’s a giant iron ore mine
that’s hitched itself to China. And they realized that and so
they’re in a desperate quest to diversify their export
destinations, to make more of you know, other sectors of
their economy like education and healthcare, real
estate, they are today, the largest net per
capita recipient of high net worth
individuals in the world, because they have this fairly
transparent immigration policy, and you’ve got Japanese,
Koreans, and obviously plane
loads of Chinese, that are buying real estate
in Australia and moving there, taking Australian citizenship. Under the age of I guess 30-35, there is a much faster growth
rate of the Asian population of Australia than
the white population. So it is becoming Asian
in many, many ways.>>David M. Rubenstein: Why
did the Chinese government want to build islands in
the South China Sea? What are they for? Tourism or what?>>Parag Khanna: Yes, tourism
in which you get to fly an F16, that’s my kind of tourism. So the island fortifications
in the South China sea go back to the fact that they’re,
it’s a legal gray area, right? These are islands that have
passed the hands and control over centuries and China
wants to use the fact that there is no clear, de jure, demarcation to simply build
facts in the water, you know, if you can, once China
claims something and starts to build you know, dredge
sand and put airstrips there and put military assets,
it basically controls that you’re never going to
get them through arbitration or otherwise, to give it back. So they’re in this, on
this island building spree. Now other countries are
starting to do the same thing and basically claim whatever
they can close to their shores; the Philippines is doing it, we’re helping the Philippines
do it, Vietnam is doing it, eventually they will have
a de facto settlement, everyone though they will
have a du jore disagreement.>>David M. Rubenstein: How’s
Vietnam doing economically?>>Parag Khanna: Vietnam
is an amazing growth story, it’s one of the countries that,
you know, when I first went more than 15 years ago, and
wrote very positive things about its incredible,
you know, potential, I even underestimated it then. And you go there today
and you not only see that with 100 million
people, they are, you know, they remain you know,
coherent, organized, they don’t have these
teaming, uncontrolled, polluted mega cities
like Jakarta or Manila. Ho Chi Minh City is an
impeccably organized place of 20-25 million people. So this is a disciplined
country, they’re urbanizing
rapidly, they’re very young, very hard-working, there’s a
lot of high tech supply chance, not just cheap manufacturing
stuff in special economic zones, but Samsung and lots
of others are starting to do more [inaudible]>>David M. Rubenstein: Because
of our trade disagreement right now with China, is it the case
that you observe people are, companies are moving their
manufacturing out of China to places like Vietnam? Is that happening?>>Parag Khanna: It’s definitely
happening, but, you know, and I want us to get our facts
and our sequencing correct so that 5-10 years from now,
we don’t look back and say, the trade war is what
caused American firms to shift their supply
chains out of China, wrong. China’s wages were rising
before the trade war begin, Japan began massively
shifting FDI out of China into Southeast Asia
10 years ago. Way before the trade war. Way before Trump. So the trade war’s only
accelerating something that was already happening and
it’s great for Southeast Asia.>>David M. Rubenstein:
What about Russia and its Asia ambitions? Is Russia an Asian power now?>>Parag Khanna: So, you know, Russia’s geographically
very much Asian, it’s a big resources
provider to Asia. Russia’s becoming
more relevant to Asia, but that doesn’t mean it’s as
influential in Asia as China or other countries like Japan. You know, they view it as a rear
kind of resource base, again, it’s you know, it’s oil and gas,
it’s timber, it’s agriculture. So Russia now has a, I think
it was during the Obama administration actually when
you know, we, this phrase, pivot to Asia, was coined. And Putin said something
like, well we pivoted to Asia a long time
ago, you know. And Russia has, you know,
constant diplomacy with China, according to the,
there’s an index that Peking University maintains
around country’s compliance with the Belt and
Road Initiative. Russia ranks number
one, you know, pretty much anything
China wants in terms of modernize these
railways, build this highway, allow us to transit goods
through your country to Europe, Russia does it.>>David M. Rubenstein: All
these Belt and Road things that have been built by
China in the Silk Road area, it is said that there’s a lot
of depth that has accrued, in other words, they
don’t give these roads, they kind of finance them. But is that debt
going to be paid back or are the Chinese just
going to walk away from it?>>Parag Khanna: It depends. There’s a wide spectrum
of possibilities. There are write downs
and projects that never see the light of day,
they’re the white elephants, just like you would
expect in any country with large infrastructure
projects going on. Then there’s cases where
countries are very strategic and even though the debt is high
and those countries can’t repay, those countries are
so important to China, that China will forgive the debt and reduce the volume
of, like Pakistan. And then there’s cases in
between where China is going to switch from concessional
and non-concessional, which is a fancy way
of saying really, ramping up the interest rates to punish those countries
and seize assets. All of the above.>>David M. Rubenstein: So do I
need to worry about a Pakistan, India nuclear problem?>>Parag Khanna: No, I mean
you know, for better or worse, you know, this is something
where [inaudible] moved in a way preemptively to
de facto settle something that was already in
some ways, settled.>>David M. Rubenstein: Did
the Pakistan government know that Osama Bin Laden
was living in Pakistan?>>Parag Khanna: It depends
on who you mean by government. I’ll leave it at that.>>David M. Rubenstein: Alright,
the most important question, if I have some money to invest,
and I want to invest in Asia–>>Steven Pearlstein: He does. He does.>>Parag Khanna: But yeah,
it’s purely hypothetical.>>David M. Rubenstein: — what
country should I invest in first and second and what
country should I avoid?>>Parag Khanna: So remember that Southeast Asian countries
are small, you would invest in asset class, you’d
invest in an industry because they’re all cross
border supply chains now. You’d invest in eCommerce
for example, where you’d look at you know, eCommerce
conglomerates that are headquartered
in Singapore. But Singapore is a tiny country, but they’re operating
everywhere. So you’d be looking at the rise of automotive manufacturing,
you’d invest in that. You’d be looking at
mobile phone production. You’d be looking at healthcare,
and financial services, and Fintech, all
the digital stuff. You would invest
in those things, not in a country,
but in the region.>>David M. Rubenstein: So,
where are you investing?>>Parag Khanna: Well I
live in Singapore, but–>>David M. Rubenstein: And we
didn’t talk about Singapore. Why is Singapore always pretty
prosperous and a happy place?>>Parag Khanna:
It wasn’t always, you know, I mean [inaudible]>>David M. Rubenstein: Let’s
say in the last 20 years.>>Parag Khanna: I
mean, even superficially as people know the story is it
actually had a very rough start as a former British colony and
then ejected from Malaysia, against its own will
really in the 1960’s. So it’s only in the last, the country’s technically
54 years old, the formally. And it’s become incredibly
wealthy, it’s obviously very much
a free trade driven model, foreign investment driven model,
an open immigration model, education focused,
talent driven model, very good government,
low corruption. It’s basically ticked
a lot of boxes.>>David M. Rubenstein: Who’s the most popular
American president in recent years, in Asia?>>Parag Khanna: Oh, it’s
obviously it’s Obama. Yeah, no question. He’s still a very popular,
he does go to Asia, you know, maybe once, twice a year.>>David M. Rubenstein: Who’s the most popular American
cultural figure in Asia?>>Parag Khanna: Oh,
that’s a good question. I couldn’t say it
was necessarily one, you know what I mean? It would, the answer in China,
you know, would be different than from, than somewhere else.>>David M. Rubenstein: Okay.>>Parag Khanna: It could
be basketball players. [ Laughter ]>>David M. Rubenstein: Okay.>>Parag Khanna: A musician.>>David M. Rubenstein:
Alright, so the chances of our country doing what you
want us to do is 50%, 100%, zero percent, in other
words, you have a lot of structural changes
you want us to make or legislative changes. You think these are
going to happen or not?>>Steven Pearlstein:
The things that I’ve, that I cite specifically
are actually, I think, fairly modest. I mean they’re lefties
who think I’m a woose. I mean I disagree with Elizabeth
Warren on almost everything so–>>David M. Rubenstein:
You’re against the wealth tax?>>Steven Pearlstein:
Yes, actually. But so, I’m not really that
radical and the chances, I think the chances of us
not improving anti-trust, the chances of us not raising
taxes on wealthy people, the chances of us not
dealing with political money, are actually pretty low. I, you know, as bad as our
political system is today, you know, it’s still reasonably
responsive to what people want. And it’s pretty clear
what people want, which is they want a more
humane and moral capitalism.>>David M. Rubenstein: Right, so we’ve given people a little
bit of a tease with this book, Can American Capitalism Survive? Why should somebody go and
buy this book and now read it, after you’ve already
told them what’s in it?>>Steven Pearlstein: Because it
makes a fairly, it’s a you know, it’s a book, in some ways, about
ideas and about how we glommed onto some very bad
ideas; greed is good, that all that matters is
equality of opportunity, not income, that if we become
more fair then our economy will shrink. We glommed onto those ideas,
they became widely accepted and this book explains why,
in fact, they’re not right.>>David M. Rubenstein: When
you won the Pulitzer Prize, when they called you up, were
you surprised or you said, I deserved it, [inaudible]
What was your reaction when you won it?>>Steven Pearlstein: You
know, I’m one of the few people who ever won a Pulitzer
Prize who was not nominated by his newspaper,
or her newspaper.>>David M. Rubenstein:
Who nominated you?>>Steven Pearlstein:
An individual did, back in those days anyone
could nominate anybody. And so it was a little
surprising to the editors of Washington Post when I won.>>David M. Rubenstein: So
what did you say to them? What did you say to them,
see I don’t need you, is that what you said?>>Steven Pearlstein:
I didn’t say anything.>>David M. Rubenstein:
Okay, okay.>>Steven Pearlstein:
I didn’t need to.>>David M. Rubenstein: Okay. So why should somebody, after
hearing this about your book, why should somebody
go buy this book and read this book,
The Future is Asian.>>Parag Khanna: Well we haven’t
even scratched the surface, that’s one reason. There’s a lot more in there. But if you want to understand
what five billion people think and what they’re doing right
now, and how, to put it bluntly, they don’t really care
what we think about them. I think there’s a lot of
learning that we all have to do as Americans, about
this vast majority of the world population.>>David M. Rubenstein: And so, how long did it take
you to write this book?>>Parag Khanna:
A couple of years.>>David M. Rubenstein: How long
it take you to write this book?>>Steven Pearlstein:
Well, it had a false start, but once I got working
on it by myself and not with a previous coauthor,
it went pretty fast. The writing isn’t
hard for me but–>>David M. Rubenstein: Okay,
well, I’ve read both of them. I enjoyed them and I hope
people will have a chance to read these books. Thanks very much.>>Steven Pearlstein: Thank you.>>Parag Khanna: Thank you.>>Steven Pearlstein: Thank you.

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