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Fareed Zakaria GPS

Interview With Bill Gates

Aired May 30, 2010 - 13:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

FAREED ZAKARIA, HOST: This is "GPS" the global public square. I'm Fareed Zakaria, welcome to all of you in the United States and around the world.

Lots of news this week from the never ending oil spill to North Korea's latest round of naughtiness. But I think the most worrying thing we saw last week was the return of fear to the global economy. See, over the last year, it had seemed as if everything was getting better, slowly but surely. Then came the troubles in Europe. And over the last two weeks, markets have been seesawing between despair and recovery.

So the question is are we in really deep trouble? Well, for Europe, this is the moment of truth. The European Union cannot really let Greece default now in an atmosphere of panic and despair. It will surely cause a run on Europe's banks and an unraveling of parts of the whole European project. It has to stabilize the situation, which means doing all the kinds of things that the Federal Reserve and the U.S. administration did after the collapse of Lehman Brothers and it has to do them fast and massively.

Now, for the United States, strangely the troubles in Europe make Washington look good. Washington's shock and awe, after all, worked. Europe's has not so far. Money that was in Europe is flowing into America. People around the world now seem perfectly content to lend the U.S. government money without even getting much of an interest on it.

What they are getting, I suppose, is safety and security. The dollar is strengthening. The loose talk about the euro replacing the dollar as the world's currency is history. The American recovery, while still fragile, is getting more broad-based. So in the land of the blind, the one-eyed man is king. But in the long run and maybe even in the medium run, America has huge fiscal problems of its own. Health care costs will explode the federal budget and cripple the economy. Our entitlements, immigration, tax policy, regulation all need a massive overhaul. And politicians seem deeply unwilling to tackle these hard issues.

There's an old saying, god protects fools, drunkards and the United States of America. And events have conspired once more to give the United States some breathing room. So politicians in Washington should take this time to begin the retooling of the American economy to restore its competitiveness for a new globalized world with many emerging challengers. Otherwise even divine protection might not be enough to stop the U.S. from certain decline. Those are my views. Now we will hear from the richest man in the country as to what he thinks about all these issues, Bill Gates. And then the picture that Iranian President Mahmoud Ahmadinejad does not want you to see.

And finally, a terrific panel, Martin Wolf, Richard Haass and Chrystia Freeland will talk about the world this week. Let's get started.

(BEGIN VIDEOTAPE)

ZAKARIA: Bill Gates, thank you for joining me.

BILL GATES, CHAIRMAN, MICROSOFT: It's great to be here.

ZAKARIA: Let's talk about innovation. There are many areas where it seems as though the U.S. advantage in innovation historically is slipping. Do you worry about that?

GATES: Well, it's a great thing if the whole world gets more involved in innovation. Our portion of the world's innovation is going to go down. Now, we should minimize that, but that's partly because the rest of the world wasn't that engaged in innovation. You know, China didn't have many research universities. Now they are trying to enter into that.

IIT in India was more about training good engineers and less about doing research. Now they're trying to change that. It's an amazing, fantastic thing. My foundation looks around the world for vaccines and we love the fact that now it's not just Europe and the U.S., it's also India and China. Some of the lower cost approaches are being pioneered there. So the world should want innovation to be more equally balanced. Most people don't get up and think what share does my country have of something.

ZAKARIA: But when you look forward, this is -- we're going into a world where the cheap commodity labor is going to be done by very low wage countries, India, China and many others, Vietnam, Bangladesh, so the only path for the American economy, I imagine you would agree, is a value-added path that involves knowledge and innovation and expertise, making complicated stuff, engaging in knowledge creation and knowledge application. So in that context, you know, if our lead in innovation becomes smaller and smaller, isn't it a problem for the American economy?

GATES: Well, let's say overnight everybody in the world was equally rich as the U.S. so everybody was like the U.S. and we'd be 5 percent of the world's population, we'd be 5 percent of the world's innovation, 5 percent of its energy use, 5 percent of its food use.

The total amount of innovation in the world would be dramatically higher, so we'd get Parkinson's drugs, cancer drugs, new technologies faster. Now it turns out the world doesn't have enough resources in terms of energy and materials and things like that, so we've got to be a lot more efficient before we can have that world. But it's not -- the game is not a relative game because it's not a zero sum game. When somebody invents a new drug in China, it is not bad for the United States. The fact that the Japanese showed us how to make high- quality cars when it took us awhile to learn that, that was a wonderful thing for everybody. And so you want more people participating. It does change the political balance, but that's going to be decades, decades from now.

You know, the Chinese economy doesn't match ours in per capita even if they keep up their amazing streak until close to 2050. So we have many decades to get used to the fact that our relative position is not going to be as unique in some things and yet the world will be richer. It is an amazing system and people are copying the good parts of it. But they won't get there overnight.

Great cars, great medicines, those are essentially global problems and we are getting more smart people around the world engaged in those problems and so we are going to have to shift our framework a little bit and not encourage our politicians to engage in games of saying, OK, China now is sort of the bugaboo. China and the U.S. need each other very badly. Yes, we should argue about some things, but it's not an us versus them, it's an us and them type scenario.

ZAKARIA: Let's talk about energy and climate change. If you listen to some of the advocates of kind of alternate energy for the United States, you would think that there are all these technologies out there and if not for the stupid political process in Washington we would have the kind of alternate energy powering the entire American economy.

Yet when you look at wind, when you look at solar, they are very small, intermittent because they can't be used continually. So while it's a good idea of course to fund innovation, what are we going to do for the next 20 or 30 years when there does not seem to be an alternate energy future that can be easily deployed for the American economy?

GATES: We need to see some huge breakthroughs. You're absolutely right that there is nothing that can be scaled out today that's even close to the economics, reliability of those systems that we have. So why innovate if the policy isn't going to be there where the country says that's OK.

Well, once you get rid of nuclear and clean coal, then you're totally talking about intermittent sources that are quite expensive today. Wind is the only one that's even close, even that has to be subsidized and that's only when it's at a fairly modest level, so we need a lot of breakthroughs. That's why the research part is key.

ZAKARIA: So you're really looking for miracles.

GATES: Absolutely. But miracles, remember, the lifestyle we have today is based on miracles. You know, you go back 150 years, you didn't have electricity's and cars and ships and global shipping and steel making and aluminum making. The technology richness that we benefited from, that innovation the last 150 years really is quite incredible. Now, the energy economy takes time to change. So if you invent for 10 years and pilot for 10 years, then in terms of broad deployment your best case is 2030, and that assumes that all these policy issues and cost issues and transmission issues get solved. The U.S. is lucky if it turns out that it's wind or solar, best we have that within our country.

Many countries, take Germany, they would have to depend on foreign countries for all their energy supply. So they are very tough questions that have to be answered. I'm backing companies in a number of these areas. I'm backing a nuclear design that's somewhat different and might substantially improve the economics. But they're all risky things. The world does need one or a few of them to pan out in a mind-blowing way.

ZAKARIA: You've heard the lists of solar companies and wind companies and people point out that there are very few American companies on those lists. Do you worry that we're losing out in the race for the kind of alternate energy revolution?

GATES: No, there's a lot of great American companies involved in these things, whether it's solar thermal, solar PV. Wind is one where a lot of the manufacturing has moved outside the United States. There's still some, GE, in the United States.

ZAKARIA: There's one.

GATES: But, you know, you're going to compete in all these different things. Because in the information technology business and the biotech business we were so strong and our universities were part of that, our risk-taking was part of that. When you name the leading companies, you have to go pretty far down the list and you'd get Microsoft, Google, Apple and a whole bunch. Eventually you'd get to SAP, which is a fine company. Then you'd go a long ways before you'd get to the next non-U.S. company in the IT space.

Likewise in the drug space, even the so-called foreign firms do a lot of their R&D here. So you'd expect us to be pretty strong in these energy things. It could be that you're going to invent ideas here and that the permitting to build something is going to be available elsewhere. So hybrid things like that aren't necessarily bad. We shouldn't be purely nationalistic about this thing.

But a lot of the value added should be here or else you have to say, geez, what are we doing wrong? We're not funding energy R&D at nearly the level we should. It's actually down, way down from its peak about 30 years ago. It's about a quarter of what it was at its peak. And no doubt as we put in some carbon revenue, the first thing, the first 10 billion per year of that should go to substantial increase, and that would be about four times as much, to taking the current three or four billion and adding that on top of it so that we could get a decent level of R&D so both from the U.S. point of view and from a global point of view these next 10 years will be a time of big breakthroughs.

ZAKARIA: And we will be back with Bill Gates in a moment. (BEGIN VIDEO CLIP)

GATES: To see things that are still headwinds and if those puncture the mood, you could actually stop the recovery.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

ZAKARIA: We are back with Bill Gates. The last time we talked, American economy, the global economy seemed like it was in pretty bad shape, and you were not as -- you were not optimistic in the short term that things would recover fast. Have you been surprised at how quickly the American economy in particular turned around?

GATES: No, I think the American economy has a lot of dynamism and an ability to reallocate resources. And I still think there's some fragility. But in the last four months, there are good signs, even sectors that are weaker had started to come back. But you see in Europe and you see in our state budgets that still don't really account for all their liabilities, you see things that are still headwinds and if those puncture the mood, you could actually stop the recovery.

ZAKARIA: You know, I have to ask you just because we haven't talked for over a year, the big thing that's happened in the United States is the health care reform. What did you think of the bill?

GATES: Well, the health care bill is an effort to increase coverage, and it will do that. But people sure spent a lot of time on health care without getting at the other big issue, which is the health care cost inflation going way ahead of the growth of the economy.

And that's a terrible thing, whether it's the health costs that hit the government budgets or that hit the private sector, it's making the U.S. less and less competitive. So there's a huge thing in health care that -- some painful things, some big things need to be done and I'm worried now that everybody is kind of tired of the topic. Some people declared victory, some people are sore, it's a very complex area. I worry that we're going to just let medical cost inflation continue ahead and that will create huge, huge problems.

ZAKARIA: But you don't buy the argument that many people made, and we've heard it just recently from Tim Geithner, that within the health care bill there are all kinds of cost containment measures and, you know, we're going to see how they work and then ramp them up. You don't see the beginnings of this bending of the cost curve?

GATES: No, absolutely not. Congress said they were going to cut reimbursement rates. That was not realistic. But in health, the idea of saying what shouldn't we spend on is very tough politically. And I didn't see anything in that debate about, oh, if you're going to cut back, that's a death penalty. I didn't see anything in there that showed a willingness to get at the core of the issue. If every insurance plan has to stay the way it is, if you always get to choose your doctor, if nothing can be done about end of life trade-offs there, you're not going to change this cost increase. But the thing that really makes it look bleak fiscally is that this medical inflation -- that we have not changed it. And no, the stuff in the bill I don't think is up to that task at all.

ZAKARIA: And the only thing that would really change it, isn't it fair to say, is -- you can call them what you will, but some kind of panels that look at procedures and say these ones will not be paid for by the insurance.

GATES: That's right. If somebody is 83-years-old and wants a knee replacement, that would have to be paid for privately. Or if the effect of proton therapy is very modest in terms of the extra months you get to live, that would have to be paid for privately. Those are tough decisions.

European countries have done better at making those decisions. They have avoided the huge number of specialists that our system has that creates difficulties. Right now, it's as rewarding for a company to invent a chemotherapy drug that costs $200,000 a year and only gains months of life for the people involved. That is as profitable as something that keeps people healthy. And so we have to reorder the priorities of the innovation system to get it working on our behalf, and that's the only way I see us making a change.

ZAKARIA: But this is a pretty dire situation then, because health care costs are by far the biggest driver of the federal budget. They are going to produce, as you say, a kind of essentially unsustainable fiscal condition.

GATES: Yeah, democracies, and particularly the U.S. democracy, has dealt with tough problems in the past. And how acute does it have to become, how do you take the complexities of it, particularly where you have many groups that love the current way the money is spent, how do you get that out in front of people when it's a very emotionally charged subject?

And if you layer on that that the number of centrist politicians or technocratic politicians really take the time to learn an issue in depth, we have less of those today than in the past, you can get worried about this one. But this is going to rise to the top of the list of important issues. And in the past everything that's risen like that, the country has come up with a way of dealing with it.

ZAKARIA: Let's talk about another aspect of American innovation that you've talked a lot about and your foundation does a lot of work, education in America. Do you think that we are finally turning the corner on education policy? Over 25 years of intense scrutiny of education policy, massive new funding, the system has not improved at all.

GATES: Whenever you get discouraged, you can go and visit an Aspire or Yes, or Kit or Green Dot school, there's many of these that are replicating and adding new schools. They're achieving the miracle. They're taking the kids from the toughest environments and getting over 95 percent of them to go to a four-year college. So when you see that working at the same cost as being spent on the dropout factory across the street, then you go, OK, there's a lot of pieces that have to come together here. But it is within reach. And if you had one wish for the country, I think there's no doubt you'd use it on this improvement in the education system.

ZAKARIA: But make that wish specific. If you had one wish, if you had a magic wand and you could change something, what would you change in current education policy?

GATES: I would change the system that helps teachers get better, how they're evaluated, how they're given a chance to improve, how they can see different metrics, how they can go online and see the very best teachers in the world.

I think that's at the center of this thing. We can add a lot of charter schools and get them up to -- there are only about 4 percent today and the really good charter schools are closer to 1 percent of the system capacity. So we can increase that.

But unless those best practices find their way into the mainstream of the public schools, which means that people in the unions feeling good about these things, seeing that they actually work, then it's hard to see that we'll achieve the goals. So you've got to get a new approach, including the learning.

The best teachers are incredibly good. In a public school system, there are people who are absolutely fantastic. And they haven't even been identified and even given verbal praise for the miracles they achieve. Now we want to say, OK, what is it you're doing. Why is it on any measure, class engagement, class test scores, class attendance, why are you doing so much better than all the other practitioners who are being paid the same as you are?

ZAKARIA: Bill Gates, a pleasure.

GATES: Thank you.

ZAKARIA: And we will be back.

(COMMERCIAL BREAK)

ZAKARIA: Now for our "What In The World" segment. Take a look at this picture. You probably recognize the man on the right, of course, Iran's president, Mahmoud Ahmadinejad. It's a picture Iranian authorities didn't want anyone to see. And it almost cost a reporter 180 days in prison. Many of you will remember the story of my friend and colleague, Maziar Bahari, "Newsweek's" man in Tehran. He was arrested after covering the aftermath of the Iranian elections. He was then imprisoned, put on a show trial. Then after 118 days in prison, released on bail and finally allowed to leave the country.

Well, he was recently sentenced in absentia of course and the judgment against him was 13 years and six months in prison, plus 74 lashes. Yes, 74 lashes. Those were for reporting on a clash between paramilitary forces and protesters. So I was wondering what the six months were for, why not an even 13 years or, I suppose, 14 years. Well, it turns out those six months were for this picture. One of Maziar's friends had posted it on Maziar's Facebook wall. Iranian authorities say Maziar was insulting their dear leader by implying he was gay. Maziar says his attempts to explain to Iranian authorities that he didn't post the picture fell on deaf ears.

Now this may seem funny, but countless innocent Iranians remain behind bars for supposed crimes like these during the post-election protests. According to human rights groups, 27 political activists remain on death row in Iran.

The first anniversary of the disputed elections is in just two weeks and in an apparent effort to discourage protests, 11 people were hanged in a single weekend early this month. Sometimes the Iranian regime seems odd or weird or even funny. But it's repression of the basic rights of thousands of Iranians continues and is surely no laughing matter. And we will be right back.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: The ill will it has created across country, among countries and the tension it's creating within countries is very profound.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

ZAKARIA: North Korea stirring the pot again, Europe wringing its hands over Greece. It has been a busy week. And here to help make sense of it all, three star panelists -- Richard Haass, president of the Council on Foreign Relations and the author of a book that is out in paper book, "War of Necessity, War of Choice." Martin Wolf, the chief economics commentator at the "Financial Times," and Chrystia Freeland, global editor in chief of Reuters. Welcome all.

Martin, Europe has been trying mightily to assuage everyone's nervous jitters over Greece. It doesn't really seem to have worked. The market is still seesawing up and down. What do you make of it?

MARTIN WOLF, FINANCIAL TIMES: Well, it's pretty clear that what they did was a set of half measures. Everybody could see that at best all they have done is buy some time, maybe a couple of years at most. Everybody who looks at the numbers still believes that Greece is going to have to restructure its debt, i.e. default, and maybe that will be followed by others.

It's also become increasingly clear as time has passed how deep the divisions are among the major European countries. So what you have is a weakening of the European economy, real doubts about the solvency of a number of countries, and an obvious perception of deep and profound disagreements between the two most important players. Apart from that, everything is fine. ZAKARIA: But you wrote a piece in the "FT" about the fact that this highlighted, among other things, the lack of European leadership. Do you think there's also something particular about the lack of German leadership, because what's striking here is unlike during Helmet Kohl's era, during German unification, unlike during Schroeder's era, the German public seems to have said effectively, enough. We've paid these bills for a long, long time, and we're not going to pay the bills of weaker European countries, you know, which was done in Germany really out of post-war guilt in a sense that Germany had to pay reparations in a sense.

RICHARD HAASS, COUNCIL ON FOREIGN RELATIONS: Well, this is in some ways had -- the face of this is a Greek crisis, but in many ways it's really a German crisis, and the Germans were very slow to respond in part because of what you just said, internal politics. As is always the case when you're slow to respond, the bill gets much bigger, so they paid an enormous price for their dithering. But more broadly, Germany's relationship with the rest of Europe has become extraordinarily uncomfortable. Germany will not really expand its own economy in terms of stimulus. It's not willing to do its share. Instead they seem to be haranguing the rest of Europe for being profligate and irresponsible, and by the way, the Germans allowed them to do that for many years. No one ever disciplined anybody.

What I think we're seeing are the real fault lines in Europe. We're seeing not just north-south fault lines again, but the gap between the idea of Europe politically and the reality of Europe. And I say this without any sense, to use a German word, of schadenfreude. This is bad. It's bad for the global economy, it's bad for Europe. It's also bad for the United States.

Europe as a partner is far weaker than we would want it. So it means as we face all the crises I expect we'll be talking about here, the ability of Europe to pull its weight, to be a real partner of the United States is much reduced, and that is not good news.

ZAKARIA: You know, Andrew Morowshik (ph) has a piece in "Newsweek" where he argues, look, at the end of the day, what's going to happen is this is going to force the Greeks to do some reforming, the Portuguese to do some reforming. It will bring Europe a little bit closer together, and they will buy themselves some time and they will finally deal with the bank restructuring. So while it looks like this is all bad news, it is pushing Europe in the right direction. Is that fair?

CHRYSTIA FREELAND, REUTERS: Well, I think you have to make your bets. Personally, I actually disagree a little bit with Richard in terms of the Germans. Because if I had to make a bet, I think at the end of the day, the Germans care enough about Europe and have enough of a commitment to the European experiment, which it still is. But I think at the end of the day, you'll see them sort of pitching in. And there was an interesting piece by the editor of "Handlesplat" (ph) basically arguing this.

HAASS: But don't you think there's tension, though, between the Europe -- the German commitment to Europe and the German commitment, if you will, to tight money. And these two great principles of 20th century Germany are now coming into conflict.

FREELAND: Right. And what they are hoping is that they can push the profligate southern Europeans into being a little more committed to tight money, but what they've realized is, it's going to cost them a lot.

WOLF: What you're seeing is, I think, the beginning of what could be a very, very big set of conflicts, particularly in Germany, but not only in Germany, between the elites and, as it were, the people.

Now, the elites in Europe don't really care very much about the people. Germany is not profoundly committed to allowing the people to decide things like that. They have been there and they have got the t-shirts. So they will try to suppress this. But it makes politics very difficult.

My own bet at the end is that they will cobble this together, but the ill will it has created across countries, among countries, and the tension it's creating within countries is very profound. And if the economy doesn't really get to work again, and it looks very bad, this can only get worse.

ZAKARIA: Well, this is an interesting kind of exit question, as they say on panels, which is how would you rate this? I mean, my own sense is 80 percent of the chance, I think Martin Wolf is right, they will cobble something together, buy themselves some time. But 20 percent, which is a significant and large number, the whole thing collapses. How would you place this?

HAASS: Well, I think they're likely to cobble it together, but it will not be a great success. We are looking at a decade or perhaps even longer of probably anemic European growth, which means it's bad for Europeans but it's bad for the rest of the world. One-quarter of the world now will not be able to be an engine for the rest of the world. This is not good.

ZAKARIA: But no collapse of the euro.

HAASS: I think you'll have actually some breakdowns. I end up where you began. I think you will have some selective suspensions or defaults. I don't think you can simply have a smooth path ahead.

FREELAND: Yes, I think ultimately I would buy your 80-20 chance. I think Europe probably does hold together. I think the euro does remain a currency.

I think the other interesting issue is what the impact is on the fringe countries, on Eastern Europe, on the Baltic republics. Do you have them still go ahead with wanting to join Europe? And what's the political impact there?

ZAKARIA: And we will discuss that and its impact on America and its challenges when we come back.

(BEGIN VIDEO CLIP) HAASS: They're beginning to get it, that standing on the sidelines and saying, oh, don't ask too much of us, we've got to focus on our internal development, won't wash.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

FREDRICKA WHITFIELD, CNN ANCHOR: Hello, I'm Fredricka Whitfield. Here's what's happening right now. BP will soon be trying a new strategy to stop that gushing oil leak in the Gulf of Mexico after its top kill technique failed. The new option will involve cutting off part of a broken pipe that leads out of the well, and then capping the leak with a custom-built containment device. BP says the device won't be ready for another four to seven days. It also says the oil won't be completely shut off until a relief well is up and running, and that won't happen until August.

The economic impact of the spill is mounting. So far, more than 26,000 workers and businesses along the Gulf have filed claims with BP for lost income. BP has cut checks for about half those claims, paying out a total of $35 million. But some fishermen say the money they have received is just a fraction of what they would normally earn.

And those are the top stories. More "Fareed Zakaria: GPS" in a moment. And then join me at the top of the hour in the "Newsroom." We'll go live to the Gulf region for the latest on the oil spill.

(COMMERCIAL BREAK)

ZAKARIA: And we are back with our panel of stars, Richard Haass, Chrystia Freeland and Martin Wolf.

Richard Haass, you are just back from South Korea. What do you make of what the North Koreans are doing? Because now you're at a stage where North Korea and South Korea have both taken stances over this alleged sinking of this South Korean ship, where they have suspended relations. They have almost gone on a cold war footing all over again. Tough to see how you deescalate from here.

HAASS: Well, it is. And you used the phrase "Cold War." This is the last vestige of the Cold War. This June we celebrate or mark, rather, the 60th anniversary of the Korean War. This is this anachronism. It's an anomaly. The South Koreans responded with the few options they had. There's so little you can take away from North Korea, because we've already taken away everything, so they have added a little bit more sanctioning, they have cut off what little trade there was. There's going to be an effort in the United Nations. The real question is what role China plays.

But I think all of this is likely about North Korea's succession. It's quite possible that what North Korea did was linked to its succession. Perhaps the son of the current leader, Kim Jong-Il, trying to do something, perhaps not. We don't know. It's the most opaque country in the world, as you know. But my view is that the line of U.S. and South Korean policy for the last 15 years has essentially been to negotiate with North Korea to get them to give up their nuclear weapons. It hasn't worked. It won't work. And this is a reminder, I think, of how dangerous it is to live with these guys.

ZAKARIA: So what do you do?

HAASS: Well, I think what's happening now is you saw the South Korean president talk for the first time about the desirability of a change in regime in North Korea. I think the conversations have to begin with China, which by the way has the preponderance of influence here. Almost all of North Korea's energy and trade goes through China. Its financial links to the world are through China. The real question is whether China now finally sees North Korea for what it is, a liability.

The only silver lining in this cloud is it makes China so uneasy with North Korea that it begins to use its influence that it's been reluctant to use.

ZAKARIA: Broadening this out, in a sense, Martin, to China and its broader world role. If you look at Copenhagen, if you look at currency issues, if you look at Iran, if you look at North Korea, China is in this kind of uneasy moment where it knows it has power, it knows it is sort of expected to play this broader role regionally or globally, but it doesn't seem entirely comfortable with it.

WOLF: Yes, it's very difficult to interpret this, but my sense of it is that first China has found itself, as it were, a great world power rather sooner than it expected, and it hadn't really worked out what its policies are, what its aims are for the world system. And it's treating these as individual events, individual problems, and what it wants to do is as little as possible. It doesn't want to be disrupted internally, of course. It wants to preserve good relations with the United States for sure, there's no doubt about that. But it doesn't want to do anything that will shake very uneasy consensuses that exist in China. It's not ready for this.

But because of the crisis, the economic crisis, which has changed its role in the world economy, because of the events that are carrying all over the world, it's constantly being asked to do things. And I think this -- we see this constant tension in the way that the Chinese respond. And their basic response is, I think, a very passive one. It makes it very frustrating for the Americans. I suspect this will last.

ZAKARIA: It seems as though the Chinese basic response to all these crises, can you please go away and let us keep growing at 9 (ph) percent a year?

FREELAND: The world's reluctant imperialist, right? Everyone wants China to play a role apart from the Chinese.

WOLF: The U.S. was isolationist in the '20s and '30s when everybody was desperate for it to be involved. And what a catastrophe that was. So yes, I think that's part of what's going on.

(CROSSTALK)

WOLF: I'm not (inaudible) isolationist, but they don't want to take responsibility.

ZAKARIA: And they don't have a worked-out sense of what their policies are. The United States when it entered World War II was still entirely unsure what its positions, its interests were around the world. You remember a commission, the Council on Foreign Relations to produce a series of papers telling it, what are our interests in the eastern Mediterranean?

HAASS: This debate is beginning in China. On the same trip I went to Korea, I was in both Beijing and Shanghai. Chinese intellectuals who are obviously very connected to the government, people in the government are beginning to have these conversations. Their old principles of nonalignment, of noninvolvement in other people's internal affairs are woefully inadequate for exactly what Martin said, for the world in which they're being asked to step up as a major power. They can't hide behind the fact they're a developing country, even if they want to, because what happens in North Korea, what happens in Iran, like it or not, will affect China. So they've got to step up, and they're trying to figure out how.

My hunch is over the next one or two years, we're going to see both the articulation of a new Chinese, if you will, strategic doctrine about the world, and we'll begin to see a slightly more active Chinese foreign policy. They're beginning to get it, that standing on the sidelines and saying, oh, don't ask too much of us, we've got to focus on our internal development, won't wash. So it's really interesting what's going on there.

FREELAND: The big question is to what extent that kind of greater engagement with solving the world's problems extends to the economic scare and whether we see the Chinese really engaging with Martin's favorite subject, which is global financial imbalances. Are the Chinese going to be prepared to say, actually we are now a big global economic player and we are going to have to behave in ways that make the whole system sustainable, even if that means we can't keep on growing in the same way that we have been?

ZAKARIA: Does Russia have a role on North Korea, on things like that?

HAASS: Not a big one, to be perfectly honest. Russia is still more of a spoiler, if you will, than a great power in lots of ways, so its ability to influence the trajectory, say, in North Korea I really think at the margins. It is very much still China, and Chrystia's point is spot on. For a country like China, which is how it balances these things, and it wants to maintain the political prominence of the Communist Party. It needs to maintain high economic growth and high employment to keep stability, at the same time it has to begin to tackle these international challenges. The word "dilemma" is overused. This is a dilemma for the Chinese leadership. ZAKARIA: I'm going to China on -- this weekend. The big sort of unknown right now economically in the world is, is there going to be a dramatic drop in Chinese growth? You know many people believe it's overheated. The stimulus money, Chinese stimulus is 12.5 percent of GDP, huge stimulus. Property markets are overheaded. Do you worry that you could imagine some kind of dramatic decline in Chinese growth, which would have a huge impact around the world?

WOLF: It depends I think what one means by dramatic. They have done incredibly well in this crisis. If the external demand does not pick up very strongly, which they would clearly like, and isn't really on a net basis doing so, then there is a limit to which they can forego the stimulus package.

But they do control this. I think it's very, very important to understand that. I think the idea that the Chinese government doesn't have the levers to sustain demand is wrong. Unfortunately, the levers allow them also to waste an enormous amount of resources. But I do expect growth to slow. I think they will be quite happy with some declining growth, but I think they can certainly prevent anything catastrophic like 5 or 6 percent growth, which everybody else would be very happy with.

So I'm not terribly concerned about this. I'm more concerned that they might -- and this is not what's happened so far -- actually be hoping to keep going like this, and hope that the external demand will come back. But I believe they are also slowly getting away from that idea, but I'm not that pessimistic about China in the short run, which for China of course is the next 10 years.

ZAKARIA: On that note, Martin Wolf, Chrystia Freeland, Richard Haass, thank you very much. We will be right back.

(COMMERCIAL BREAK)

ZAKARIA: Now for a question of the week. Here's what I want to know. Do you think Europe's problems will derail the American recovery? How worried are you? Let me know what you think. Don't forget to subscribe to our podcast on iTunes. That way you'll never miss a show, and you can't beat the price. It is free.

Some of you might have gone to the website last weekend hoping to buy a GPS mug only to find that the store was sold out. As soon as I announced it on the show last weekend, there was a run on them. But the CNN store is restocking and you can order yours right now. Go to CNN.com/gps for details and a link.

Now as I do every week, I want to recommend a book. I'm off to China, and one of the things I will re-read on the plane is Simon Winchester's fascinating book "The Man Who Loved China." That man is Joseph Needham, a British scientist who stumbled into studying China. He wrote 17 volumes trying to answer the question, why did China, which for centuries was the country of innovation and invention, fall behind the West by the 16th century? As China now rises, that question is still very relevant. I'm going to stay in China for "The Last Look." Who says white men can't jump? This basketball game you're looking at was played last week in Beijing. What is remarkable about it? Well, you might notice one player who doesn't look like the others. First of all, he's wearing a dress shirt and slacks. That is of course U.S. Treasury Secretary Timothy Geithner playing against some Beijing high school students. We can't be sure, but it looks like the 5'8 Geithner is actually the shortest man on the Chinese court. But he still hit a couple of very nice baskets, including this one, an expertly executed drive to the hoop, and then it's in for two.

As you know, I'm always worried about American competitiveness, but it looks like we've still got it.

Now before we go, two anniversaries to remark upon quickly. It is CNN's 30th birthday and GPS's second birthday. We thought each celebration deserved its own cake. May there be many more. Now the crew is going to eat this and my staff is going to eat this. None for you guys.

Thanks to all of you for being part of my program this week. I will see you next week.