Rice Talk.

The International Economy sat down with Condoleezza Rice, the odds-on favorite to become National Security Advisor in a George W. Bush administration. The Stanford professor's views on American arrogance, trade with Mexico, and "photo-op foreign policy."

TIE: Under President Clinton, there seems to be a shift of emphasis from strategic foreign policy to economics. International economic policy seemed to play a big role in his administration, almost as a substitute for what we have traditionally known as strategic or defense issues. Would the same thing be true under George W. Bush? Will international economic issues drive the foreign policy debate?

RICE: Well, you must ask yourself, strategically, what is important at this particular point and time, what are you trying to achieve? And, if you look at the collapse of the Soviet Union, you're looking not just at the collapse of a super power, you're looking at the collapse of an entire alternative paradigm for how to organize the international system. Now there is one international economy, and it's an international economy in which all states are trying to find a place, in which there is a lot of pressure for economies around the world to open up, to be more transparent, to be places that are attractive for private capital investment. After all, we talk about the IMF and the World Bank, but that's a drop in the bucket, given private capital flows. And, on balance, this is a very good world for the United States because to the degree that you have increasingly open economies in a free-trading framework, you will get economic liberalization and ultimately, political liberalization. This is a world that the United States ought to want to support and push forward.

So, I do think the international economic issues are critical -- in a strategic context, not just as international economic issues, but also as issues that have a potential to reshape the entire international political dynamic by creating a more prosperous, more democratic environment. In order to achieve that, though, you have to pay attention to keeping the peace. You cannot have the American armed forces involved in every local conflict in the world, to the detriment of its readiness to keep the peace in East Asia or in the Persian Gulf, places of global strategic significance.

TIE: Under President Clinton, it seems there was almost a substitution of foreign aid in exchange for building up the nation's defenses. Instead of having a defense build-up, we gave a lot of aid to help countries develop. They were sort of substitutes. Would you agree with this assessment?

RICE: I don't think we did either very well, actually. On the defense side, the problem is that we permitted defense budgets to continue to decline -- they were declining after the Cold War, and they should have been declining after the Cold War. But the situation declined to a point where the resources were not matching the multiple missions that we were asking the armed forces to perform. This is showing up in morale and readiness problems, procurement problems, not being able to keep people in the armed forces, and not being able to recruit people into the armed forces. So we have significant problems on the defense side. We need to think about foreign assistance a little differently anyway. If you consider that the real goal now ought to be to get countries prepared internally, to the point that they can grow economically, then your entire purpose for assistance of any kind is somewhat different. Now, there's always going to be humanitarian assistance -- the AIDS problem in Africa, the World Health Organization, and so forth. But if the real goal is to create more prosperous trading economies around the world that can do something for their own people, then you think differently even about foreign assistance.

TIE: Do you believe that there has been a problem of American arrogance in international economic affairs? The Japanese and Europeans, in private, target Treasury Secretary Summers by name, but that may not be fair, given that the United States is so dominant economically. Thus any expression of leadership might come off as arrogant.

RICE: I won't comment on how Larry Summers interacts with the rest of the world. I do think that some of our rhetoric has been pretty unfortunate. I have said many times that Madeline Albright should never have said that the United States was the "indispensable nation" -- everybody knows we're very powerful, everybody knows we've got a lot of influence. We don't need to talk about it. We probably, in dealing, for instance, with the Japanese and their economic difficulties, have been less of a supportive colleague, and more scolding about what the Japanese should do. The Japanese know what they need to do to open that economy. They understand the problems that they have with banks that have relationships with industries that are not helpful. They understand problems with transparency. They understand the need to have accounting rules that people can read. And so, we probably have not handled those relationships in the best way.

TIE: What about Europe? Is the American message: "We're a successful economy, you do it our way, and basically, that's it?"

RICE: With Europe, my guess is that you don't have to say the message. The fact of the matter is they do have to do many of the things the United States did in the 1980s and the early 1990s, in order to make more themselves attractive for private capital investment. That's the gain. So, it's an unspoken rule. You don't have to trumpet it. You do have to have a level playing field. You do have to have taxation that makes sense to a private investor. You do have to have accounting statements that can be easily read. One of the reasons that I think you're seeing transatlantic mergers is that there's some interest in Europe in buying into some of what has made American industry terrific. So, yes, they do have to do a lot of the things that have made the American economy successful. But we don't have to say it.

TIE: Can we expect then, that a George W. Bush administration would have a different attitude toward Japan?

RICE: The first point is that you must call your friends before you need them, so that you can call upon them when you do need them.

TIE: Has there been a lot of damage done to Japanese-American relations during the last eight years?

RICE: I know that there is some resentment in Japan about the last several years. The Japanese resented, rightfully, the President's decision to go to Beijing for nine days and not stop in Tokyo. So, yes, you start with your allies. I think what you would see from George W. Bush is a very early effort to solidify those allied relationships that have been so important to us over the years.

TIE: But wouldn't the Administration counter that toughness on America's part is the only way to open Japanese markets?

RICE: Japan has now had the experience of what it means to be a semi-closed economy. It's not good. So, you've got the arguments on your side in most of these cases. And, one of the really interesting things for economists to contemplate, and makes those of us who do politics maybe a little bit nervous, is that the countries that get this right -- that get the formula right, for the knowledge economy, for the attraction of private investment -- have a potential to really shake up the international political order. And the countries that get it wrong have the potential to end up failing in that political order.

TIE: It seems that you see international economics as extremely important in the area of what we used to call foreign policy and security policy.

RICE: Absolutely. And the challenge for the United States is to integrate things better in what we do. There shouldn't be separate Treasury policies, Defense policies, and State policies toward the same country. That's going to end up confusing the country, and confusing us. There ought to be an American policy toward these countries, and the challenge is to develop more agency coordination.

TIE: Would such a structure be institutionalized in a George W. Bush administration?

RICE: You have to find some way to do it, and I'll tell you, one of my big concerns, having been in government before, is that we're not particularly well structured to think about the integration of all of our instruments.

TIE: After World War II, there were really big ideas coming out of the United States, and a lot of them were non-selfish ideas -- one of them being GATT, that we promoted, in the sense that we promoted what led to the European Union. We wanted the Europeans to come out of the war using the regional approach to economic development, rather than the national approach, because nationalism was seen as the element that caused the war.

RICE: We did a lot. We sponsored free trade when we were controlling nearly 50 percent of the world's GNP.

TIE: These were obviously far-sighted big ideas, from people with vision. Since then, there's been a sort of "diminishment" in vision. Do you think the Clinton administration has demonstrated vision, in terms of big ideas in international economic policy and international foreign policy?

RICE: The President has had some successes. The Middle East, for instance, has been an area to which the American presidents have been dedicated to the same process for thirty years. That's not going to change. I think the absence of ideas is an interesting way to put it. You can't conduct foreign policy if it's a kind of photo opportunity after photo opportunity, and crisis after crisis. You have to think about the fundamentals of foreign policy. That means knowing the state of your military forces, the state of your alliances. It means keeping a view toward what it is you're trying to do. Again, I would return to the issue of the potential shake-up of the international economic hierarchy. The countries that get things right will determine the international political hierarchy. We need to encourage new centers of stability, new centers of prosperity. Let me give you an example: India. This is a country that we have generally treated as if it is simply a nuclear problem and a problem concerning Kashmir, and that's all we ever talk about with India. But this is an emerging knowledge economy that has a real place in the new international economy. There may not be the big ideas, like the Bretton-Woods institutions that were created after World War II, or like the GATT. The World Trade Organization has the potential to be a very big idea. But we can't be deterred by what happened in Seattle. Really going after achieving a fast-track authority or a free-trading zone in the western hemisphere is another big idea.

TIE: Flow important is free trade to George W. Bush?

RICE: Really important. He's the governor of a state that has been helped by export. And he believes trade is not just important because it builds our economy and jobs. Those are all important issues. With certain places like China, trade is a wedge to open politics, because you can't liberalize the economy and not eventually have pressures to liberalize politics.

TIE: Does George W. Bush have any views on labor mobility issues, and immigration issues?

RICE: He's been very supportive of legal immigration. For instance, the HB-1 Visa program -- he's been for expansion of that in the United States, and has talked eloquently about the situation with regard to Mexico. You're either going to have the development of Mexico or you're going to have labor mobility, planned or unplanned. So, one advantage to NAFTA is that you get less unplanned labor mobility. One of the things that has made the American economy great is labor mobility, both internal labor mobility and immigration. So, you don't want to have policies that are so restrictive that you lose that element.

TIE: Isn't this pro-immigration position a big change for the Republican Party.

RICE: Well, the Republican Party used to be quite pro-immigration. It went through a period of time when certain elements were not. But you might notice the party platform has gotten rid of the anti-immigration planks. You want to marry pro-immigration policies with strong education policies at home because you don't want immigration to become a substitute for educated Americans. You don't want to create a situation in which the Intels of the world can't find Americans who can hold those jobs, so they have to go to an immigrant population. But we've always had a nice mix in the United States, of enriching our population with new immigrants and yet educating the indigenous population.

TIE: What about illegal immigrants? You can't defend illegal immigrants because they break the law, but at the same time, they create a lot of private wealth.

RICE: You cannot support illegal immigration. George W. Bush has also said that you have to understand that family values don't stop at the Rio Grande and, assuming there are no acceptable choices, people are going to come and make themselves better.

TIE: So if NAFTA is a success, we will have fewer immigrants here.

RICE: That's right, and we'll have a good trading partner.

Condoleezza Rice is a Senior Fellow and Professor of Political Science at the Hoover Institution. She is also serving as primary foreign policy advisor to Texas Governor George W. Bush during his presidential campaign.