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Fareed Zakaria GPS

Controversy Near Ground Zero; Peril in Pakistan

Aired August 22, 2010 - 10:00   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.

Welcome to all of you in the United States and around the world.

I'm Fareed Zakaria.

Pakistan is in the news, of course, with its massive floods and the terrible tragedy that is ensuing there. We'll talk about that soon, but I first wanted to draw your attention to something else that's been going on in Pakistan in recent months.

This is an al Qaeda triple suicide bombing from July, killing 42 and injuring 175. What's strange is that the attack took place at a site of Muslim prayer -- you might call it a mosque -- just before prayer time.

Why would al Qaeda attack a holy place at a time of prayer? Because it is a Sufi shrine, part of a sect that al Qaeda despises and regards as a deadly foe in the real battle it is fighting, the battle within Islam.

The Sufis are a sector of Islam originating in South Asia. They're all about mysticism, love, brotherhood and devotion, with very little attention to dogma. They believe in saints, shrines, music, dance, and follow a very liberal interpretation of the Koran.

Sufi poets routinely extol the virtues of wine and song, both forbidden in the purer versions of Islam. Sufism has always believed in tolerance towards other people and religion, and in peace. You can see why al Qaeda views it as its mortal enemy. The more Muslims accept some version of Sufi Islam, the more dangerous for al Qaeda and its extreme jihadist philosophy.

So the West should encourage Sufi Islam and its imams when we get a chance, right? Well, that's certainly what George W. Bush believed, which is why the Bush administration found some prominent Sufi imams in America and sent them abroad to spread their message of tolerance and pluralism in 2007. And chief among them, of course, was Imam Feisal Abdul Rauf, the man behind the Cordoba Initiative, the cultural center with a prayer room to be built in the old Burlington Coat Factory that is two blocks from Ground Zero.

People have asked all sorts of questions about Imam Rauf. I don't know him personally. I have read some of his writings. But I'm struck by this simple fact -- if al Qaeda wants to blow up people like him, isn't that a pretty good indication of where he stands in the world of Islam?

On the program today we will dig deeper into the controversy near Ground Zero with a great debate with two spirited participants.

Then, just how bad is the damage in Pakistan? And how much of a coup have the floods been for the extremists? We'll talk to the politician and former cricket superstar Imran Khan, who's on the ground in Islamabad.

(BEGIN VIDEO CLIP)

IMRAN KHAN, LEADER, TEHREEK-E-INSAF For a Pakistani at the moment, it looks like an issue of survival. Anyone who comes forward, whether it is a religious charity or anyone, any help is welcome.

(END VIDEO CLIP)

ZAKARIA: Next up, "What in the World?" Why is the American economy stalling while another rich country is booming? The secrets of Germany's success.

Then an all-star GPS panel on China. It's just clambered over Japan to win the title of the world's second biggest economy. Is it on course to overtake the United States?

Finally, a last look at another house of worship in a perhaps uncomfortable place. You'll be surprised.

Let's get started.

There has been a lot of shouting and screaming on cable news about the mosque or Islamic center in lower Manhattan. And if you're looking for that here, you have come to the wrong place.

I want to have an intelligent conversation with intelligent people. So joining me now, Peter Beinart, a senior fellow at the New America Foundation, and a contributing editor at "TIME," and Bret Stephens, of course the foreign affairs columnist for "The Wall Street Journal."

Both of you have written about this topic.

Bret, let me allow you to lay your position out, because it's not exactly Newt Gingrich's.

BRET STEPHENS, FOREIGN AFFAIRS COLUMNIST, "WALL STREET JOURNAL": No, not quite. But my position, I guess, is twofold.

On the one hand, I'm not going to make an argument that Imam Rauf, the man who wants to have the mosque on Park Place, doesn't have a complete constitutional and legal right to have it. He does. So that's -- let's put that to one side.

The other question is -- and I think the more serious question is -- well, does this mosque really advance the purposes that he advertises? That is to say, interfaith understanding, dialogue, a new face for Islam in a very sensitive area. And my sense is that it fails on most of those counts, and that he ought to, in the interests of discretion, in the interests of interfaith dialogue, in the interests of having some kind of compromise position with what turns out to be an overwhelming majority of Americans, reconsider the location of the mosque.

ZAKARIA: What do you think, Peter?

PETER BEINART, SR. FELLOW, AMERICA FOUNDATION: With all due respect, I don't really understand the argument. I mean, all over America we have religious institutions that set themselves up near neighborhoods where the vast majority of people in those neighborhoods would profoundly disagree, even find offensive their views. If a Catholic church wants to set up near a gay neighborhood in San Francisco, we don't say yes, you have the right, but let's start asking you a whole series of questions about your particular set of views on gay rights, and in the name of sensitivity, we ask you not to build.

People just build. It seems to me you can't divorce the right to do it from the ability to exercise that right, particularly in a context in which we now have people protesting mosques all over the country, very, very far from Ground Zero.

And if these people are essentially to give in, it seems to me it sends a message all over the place that, well, maybe there shouldn't be mosques near military bases because, after all, so many people died at the hands of Muslims there. We open up a very, very dangerous can of worms, and I don't think sugarcoating it by saying they have the right but they should in the name of sensitivity not do it, I don't think that gets us very far.

ZAKARIA: Isn't --

STEPHENS: Well, just briefly, an interesting set of poll numbers. On the one hand, a clear majority of Americans have said that they wouldn't mind having a mosque two blocks from where they live, which is to say just as this mosque is two blocks from Ground Zero.

On the other hand, a majority of Americans also think this particular mosque shouldn't be two blocks from Ground Zero. And it's not the same thing as having a Catholic church in a gay neighborhood or -- the analogy doesn't quite work. This is a --

BEINART: Why not?

STEPHENS: Sorry?

BEINART: Why not?

STEPHENS: Well, look, Ground Zero has a distinctive quality that's shared by very few other locations. Let's imagine another scenario.

Japan is now essentially a pacifist nation. It's fully redeemed itself from the events of the Second World War.

Let's imagine the Japanese government, in the spirit of outreach, wants to put up a sort of Japanese outreach cultural center across the street from the Pearl Harbor Memorial, or the German government decides that it's going to put up a tolerance center across the street from one of the concentration camps in Poland. And people objected to it because it's a sensitive thing.

And it's not necessarily a rational issue, but it's real, it's prevalent. Most -- I would be very surprised if the German government decided to put up the German --

ZAKARIA: Isn't another phrase for irrational sensitivities about large groups of people prejudice and bigotry?

STEPHENS: No, because look, there are a lot of -- there are a number -- I mean, some of them are. Some of them fall into some different category. You know, this is an event where a lot of people feel very strongly that this mosque ought not to be in this particular place.

BEINART: But the fact that a lot of people feel --

STEPHENS: It's a fact you have to contend with. And the fact that 63 percent of Americans feel that way doesn't make those 63 percent bigots.

BEINART: But I don't think we should make moral decisions based on the polls. If Japanese people need a place to pray -- I mean, I think this is about prayer and religious liberty -- and in Hawaii, near Pearl Harbor, that's fine. It seems to me we do not deny people the right to religious institutions because other people of the same faith victimized people.

ZAKARIA: Bret, these people own the Burlington Coat Factory, which is the building in which they want to build this cultural center. There are already people praying there. So is it already, you know -- I mean, is it already offending your sensibilities as we sit?

STEPHENS: It's not a question of offending sensibilities or my sensibilities. It's a question about offending a certain sense. And it has something to --

ZAKARIA: Does it offend yours?

STEPHENS: Well, I don't know. I think the judgment there is still -- I'd have to sort of withhold my judgment. And I wrote a column to that effect.

For example, if he has this center, and we have a place where lesbian and gay Muslims feel comfortable, I would feel much better about this place because of the treatment of lesbian and gays in many Islamic countries. If women feel genuinely comfortable there, I'd feel much better about it. But what --

ZAKARIA: This is going to really endear you to Sarah Palin.

STEPHENS: Well, I'm not trying to endear myself.

BEINART: With all due respect, do we ever ask these questions? Do we ever say about a church or a synagogue, well, are gay people welcome here? Are they comfortable here?

STEPHENS: You don't?

BEINART: No. In fact, in many forms of Judaism and Christianity, as you know, gay people are not allowed to participate openly in the service. Women are not allowed to participate equally in the service.

And we say if that's your theology, you go ahead and do it. If we don't agree with it, we don't go to your church or synagogue. That's the basic American principle.

Once you start going down a laundry list of, well, do you agree with us on this question, do you agree with us on this question, it seems to me you've opened a can of worms. I mean, we would never, ever tolerate that, it seems to me, for non-Muslims in this country, and that seems to me a profound double standard.

STEPHENS: Look, all the time we are asking, particularly in your corner of the media, asking serious questions about the kind of stuff that's being preached in Evangelical churches, what Pat Robertson had to say --

BEINART: But not to say close down the church.

STEPHENS: -- in the immediate wake of 9/11, that this was due to immorality in America and so forth.

BEINART: But I'm not saying he can't have his church.

STEPHENS: I'm not saying he can't have his church either. And I'm not saying he can't have his mosque. I'm not talking about rights. I think we're talking past one another, Peter, and this is what I'm trying to get at.

This is not a matter of -- the right and wrong of it does not simply extend to the constitutional questions.

BEINART: No. But what I'm saying is --

STEPHENS: The rights of it are indisputable, and I'm not debating you on that subject.

BEINART: No, but I think this is a distinction without a difference. If you say that people have the right, but they shouldn't take advantage of that right, in fact, it seems to me you're denying them that right. And I think it will be a really dangerous turning in this country if we now have basically every imam around the United States who wants to build a mosque is given a questionnaire of 20 questions about their political views, and we say if we agree with 17 of them, you can allow people to worship here.

ZAKARIA: On that note, we are going to have to close this debate. We'll try and maybe revive it again.

Bret Stephens --

STEPHENS: Thank you.

ZAKARIA: -- Peter Beinart, thank you very much.

BEINART: Thanks.

ZAKARIA: And we will be back.

(BEGIN VIDEO CLIP)

KHAN: If this is not addressed by us, the country is going to go into chaos. We could implore -- we could have starving people -- and you're talking, again, about 20 million people in dire straits.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

ZAKARIA: There are 20 million people affected, four million people homeless, countless dead, and one-fifth of the country under water. These are the bleak statistics about Pakistan today, and it's likely to get worse.

As we learned with Hurricane Katrina, it is when the floodwaters recede that the true extent of the damage can be known. Another similarity with Katrina, of course, has been the criticism leveled against the Pakistani government for its response to the disaster.

Imran Khan, the former Pakistani cricket player and politician, is the founder and leader of the Pakistani political party Pakistan Tehreek-e-Insaf, and he is one of the government's most vocal critics.

We welcome Imran from Islamabad.

Imran, tell us, if you will, whether we have understood the magnitude of this problem correctly. What is it like on the ground in Pakistan from your perspective?

KHAN: I don't think the international community fully comprehends the extent of the disaster, because as you quite aptly put, the real problem is going to come when the water recedes. And in that time there's fear of disease, but the biggest fear is that about 20 million people will be completely impoverished.

Now, most of these are subsistence farmers, so they have lost their crops, they have lost their animals -- they rely on their animals -- their houses, end everything in their houses, because as the water was going up, they left -- to save their lives, they left their homes. So they will be left without shelter, without food, without any source of income. And you're not talking about, you know, a few people. It's 20 million people.

And then on top of it, this area is also Pakistan's greatest producing area of cash crop cotton. So the cotton crop is going to be affected.

So, as it is, the country's going through its worst economic crisis. So, the extent, the magnitude of the crisis is so huge, that in Pakistan not -- the government still not has come up with a plan, how we're going to deal with it, and that's the worry.

ZAKARIA: Imran, what is the mood on the ground? I mean, is this just -- is there utter despair?

KHAN: Well, Fareed, if you go to these camps now -- and I went, you know, a couple of times, and I don't want to go again, because, you know, when you go to the camps, it's just so depressing, what you see, because you can't do anything. You take 10 trucks of relief with you, and there are literally people fighting over the trucks.

You have to have security to protect the trucks, because such is the state of the people right now, that they're really fighting over the goods. And even in the government camps -- and remember, this is a minuscule amount of people who got into the government camps -- there's no food there.

ZAKARIA: Do you feel that the government has simply not had a plan and that President Zardari has been in a sense asleep at the switch? You think that his taking a trip abroad right as these floods began was a very bad mistake symbolically and substantively?

KHAN: Well, just look at the criticism George Bush got when Katrina happened, but at least he wasn't roaming around the world on a 10-day trip when all this devastation was taking place. And not just that. There was a personal trip.

He was visiting his chateau. Then he went to launch his son's coronation in Birmingham, in England. And all this -- that's where the shoe was thrown at him, and not surprisingly, because the country was being flooded and he then made this excuse that he had gone abroad to collect money.

But when you look at the money coming in, there's no money. It is the lowest-ever donations received in a catastrophe as huge as these floods. So, clearly, there was no leadership. At the moment, no one knows what to do.

ZAKARIA: Let me ask you something that people in the West are very concerned about, which, is it true that in these camps, the few people who have been able to get into camps, the Islamic fundamentalist organizations are making great inroads, precisely because the government has been absent and because there is no government help? So that it is organizations that like Lashkar-e- Taiba or it's renamed in various forms, or other Islamist groups that are providing the assistance and the aid, while the government has been still found flat-footed?

Is that true?

KHAN: Fareed, you know, the West has got to stop looking at Pakistan or Muslim countries in terms of the countries -- they're about to be the biggest threat as Islamic fundamentalism. Remember, in our part of the world these religious charities, parties have existed throughout. Never do they -- whenever we have elections, no one ever votes for them, or their vote is minute, a small percentage.

You know, people do not get carried away and become fundamentalists or become religious extremists just because a religious party is doing social work. For a Pakistani, this is not an issue at all.

For a Pakistani, at the moment it looks like an issue of survival. Anyone who comes forward, whether it is a religious charity or anyone, any help is welcome.

ZAKARIA: And what do you think of the consequences if this situation does not stabilize sometime soon?

KHAN: The consequence is in three months of this, if this is not addressed by us, the country is going to go into chaos. We could implode. We could have starving people.

And you're talking again about 20 million people in dire straits. Where are they going to go with no food, no homes, no money, no crops, no animals?

ZAKARIA: Imran, I'm going to have to let you go. You're doing amazing work there. Thank you. Thank you for helping us.

KHAN: Thank you, Fareed.

(COMMERCIAL BREAK)

ZAKARIA: And now for our "What in the World?" segment.

So, the American economy is stalling. Applications for unemployment insurance reached the half-million mark last week, the first time to cross this threshold since last November.

The housing sector is weakening. Private business is not hiring. And the consumer is not spending.

But meanwhile, there is a major global economy that's booming. No, it's not China or India or any other emerging market. It's Germany, the world's fourth largest economy, which grew at 2.2 percent last quarter. That was its best quarter in 20 years, and it blew the other major EU economies out of the water.

Germany, you might say, isn't that part of old Europe that Americans always make fun of, high taxes, big welfare state, strong unions, lots of regulation? None of that sounds conducive to economic growth. But Germany is powering ahead, bouncing back from the financial crisis and the economic recession.

So how did they do it?

First, the German consumer was prudent and didn't spend more money than he had. While much of the rest of the first world was on a spending spree in the last decade, especially the United States and Britain, Germans held back. They never maxed out on their credit cards. They never took out home equity loans.

One reason that American consumers aren't spending right now is that they are still working off mountains of debt. The average American has a debt load that is 122 percent of his annual income. The German average is a more manageable 100 percent.

Second, Germany has a strong manufacturing sector that exports products around the world. The United States and many other rich countries have essentially outsourced their manufacturing over the last three or four decades. It's cheaper to have things made in China or India.

But Germany managed to keep a lot of its manufacturing right there in Germany. It maintained technical institutes, apprenticeship programs, and in many other ways has encouraged and built and sustained manufacturing. So when it sells a Porsche or a BMW, that money comes right back into Germany.

Germans are also attentive to the risks of losing technical skills. So while U.S. businesses shed jobs the minute they see the demand for their products drying up, German businesses are more careful. They are more likely to keep their workers, perhaps on half time, or even quarter time, rather than fire them. They believe that this retains the workers' skills and his loyalty so that when the economy revives, the company has trained workers ready to ramp up.

Finally, reform. The Germans have reformed their pension system, they've raised the retirement age, they've trimmed workers' benefits, they've freed up their labor market, and of course they have an affordable national health care system, one that costs half as much as ours. So their workers are actually a lot less expensive to their businesses than American workers are to theirs with the huge pension and health care costs that come along with them.

The result of all this, while the U.S. this week announced another round of bad unemployment figures, German unemployment fell in July for the 13th straight month. Germany has now regained almost all of the jobs it lost during the recession.

Maybe we could learn something from what's going on across the Atlantic in another high-wage, high-tax, high-regulation economy.

And we'll be right back.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: President Obama said, I think last November in Tokyo, power isn't a zero sum game, the rise of China doesn't imply some kind of relative decline on the part of the United States, which to me as a historian sounded quite surprising.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

ZAKARIA: It wasn't at all unexpected, but it was still amazing to see the headline in print. "China's economy eclipses Japan." Beijing is now in second place in the race for the world's biggest economy, second only to the United States. You should probably take it with a grain of salt, but some prognosticators say that China will overtake the U.S. economy in 2030.

What does it all mean? An all-star "GPS" panel joins me to help to get to the bottom of all this. Niall Ferguson is a professor at Harvard University and the Harvard Business School. Minxin Pei is the professor of government at Claremont McKenna college. Zachary Karabell is the author of "Superfusion: How China and America Became One Economy and Why World Prosperity Depends Upon It," out in paperback now.

And Nina Hachigian is a senior fellow at the Center for American Progress. Welcome to all of you. Niall, I should mention you have a wonderful new biography of Siegmund Warburg also out, while we're plugging books.

So tell me, you have written a lot about Jim O'Neill, the Goldman Sachs guy, who first predicted that China was going to overtake the United States, and he set a date about five years ago. And then last year, he revised the figures, and I think he brought it forward. He said China's growing so fast it's going to happen sooner than we think. Is it happening sooner than we might have thought? And do you think that China will overtake the United States?

NIALL FERGUSON, HARVARD UNIVERSITY: Yes and yes. Jim O'Neill produced the BRICs, the famous BRICs report actually nearly 10 years ago now, and said China would overtake the United States in 2040. And then subsequently, but before the crisis, he revised the date forward to 2027, even before your 2030.

That was before the crisis. Now, the really interesting thing, of course, is that the crisis since 2007 has really slowed down the United States. But against the expectations of most observers, it hasn't slowed down China in anything like as big a way. In fact, the Chinese have bounced back more strongly than any economy in the world. So I'm just waiting for Jim and his team at Goldman Sachs to bring the date even further forward.

ZAKARIA: And why do you think this is happening? I mean, part of it is, as you said, the unexpected slowdown of the U.S. economy. But even before that, as you said, China was -- everyone had thought a big economy can't keep growing at 10 percent a year. And people said that when China had grown that way for two decades, and they said that when it had grown for 25 years, and now it's grown at 10 percent a year for 30 years.

FERGUSON: And it's got a manufacturing growth rate right now in the range of 14 percent year-on-year. I mean, we've seen this kind of economic miracle happen before. In the post-war period, Japan, west Germany were growing at those sorts of rates. And the thing to remember is that China's really quite special in the sense that it has a strange hybrid model. At its core, it's still a planned economy, A bunch of technocrats in Beijing who decide how many light railways and bridges there are going to be. But outside there's now wrapped in an extremely dynamic market economy and that combination is proving to be the most dynamic in the world I and you think it will continue to be that.

ZAKARIA: Zach Karabell, why is this kind of central planned capitalism, as exactly I think as Niall describes, where some elements are very centrally planned. You look at urban policy in China, and they literally have cleared out 650 acres in the middle of Shanghai and are now creating a new industrial economic center there. And yet there are parts of it that are free market. Why is it working?

ZACHARY KARABELL, AUTHOR: Well, I mean, first of all, you just have to look at the contrast between the United States and its ability to deploy capital with urgency and the Chinese government. So in the United States, the Obama Administration recently announced that $180 million was going to be given to help innovate small entrepreneurs for green business. And that took 18 months of grant applications and due diligence and conflict of interest.

The Chinese government, however, can say, "Look, we recognize there's an urgency about high-speed rail and that we need to address the potential of a non-automobile future because it's -- we can't handle the pollution of 1.4 billion people having two cars each." So they say, "We're going to spend several hundred billion dollars over the next ten years to build high-speed rail."

And the minute the central government decides to spend money, money simply gets spent. And that is in a world of moving quickly certainly an incredible advantage to some place that says, "We're going to spend money, and we're going to spend money now and we're going to do it this way. And we don't have the messiness of a process that can get sclerotic and problematic," that we do in the United States.

ZAKARIA: Minxin Pei, most dictatorships, the traditional rap on them was they misallocate resources. In other words, they take the money, and they spend it firstly -- put it in their Swiss banks, spend it on their brother's car factory. Why do the Chinese spend it on high-speed rail and improving infrastructure?

MINXIN PEI, PROFESSOR, CLAREMONT MCKENNA COLLEGE: Well, first of all, they believe that it is some kind of manifestation of their effectiveness, that is the basis of legitimacy. This is a government that's based on competence. If it does not have evidence to show that it's competent, it does not have claim to power.

But China is probably at the frontier of building high-end infrastructure. If you want to get something built that takes money, technological expertise, China can do probably better than many other countries. But when you look at how a country is governed economically, then you have to look at the whole picture.

And in many areas China is not doing very well. In terms of human capital investment, education, health care, food safety, environmental protection China lags way behind the capitalist, democratic west.

ZAKARIA: Nina?

NINA HACHIGIAN, SENIOR FELLOW, CENTER FOR AMERICAN PROGRESS: You know, the other thing to remember is that China's at a much earlier stage of development. So that's one major reason for their double- digit growth. They're just at a much earlier stage. And just a couple things to keep in mind, which is that they are number two, but they are a very distant number two to the United States.

Our economy is still three times the size of theirs. They still have 150 million people's living on less than a dollar a day per capita. They're a tenth of what our per capita income is. So -- the other thing to keep in mind in this discussion is it's not really a race where there's only one winner to see who's going to be the biggest economy.

We are in very many important ways extremely interdependent. Our economies are. But even on issues like global warming or on nuclear proliferation, we are very tied together.

ZAKARIA: Do you buy that, Niall? I mean, because China is a thoroughly modern country. This is not a post-modern economy like Europe, a European economy where they want to pool sovereignty, they want to merge their authority within larger institutional structures.

The Chinese are -- one of the things that's happening is as a result of Chinese economic power is Chinese political power, and China's desire to have a greater say on issues of intellectual property, trade. So, you know, as China rises economically is it going to be easy to accommodate China into this world?

FERGUSON: I don't think so. President Obama said, I think, last November in Tokyo, power isn't a zero sum game. The rise of China doesn't imply some kind of relative decline on the part of the United States. Which to me, as a historian, sounded quite surprising because by and large the rise of one great power economically translates into relative decline for the incumbent.

And the United States is now pretty much in the position that Britain was in 100 years ago. Then, it was Germany that was gaining rapidly on the United Kingdom. Today, it's China that's gaining rapidly on the United States.

And however one understands the economics, the geopolitics I think are going to get harder and harder to manage because up until this point, really going right back to the early '70s, it's been a symbiotic relationship.

It's been mutually beneficial. And China's been content to be the junior partner. But I've been traveling the world this summer, and from Australia to Africa, I encounter a new assertive China that no longer wants to be the junior partner, second fiddle to the United States.

ZAKARIA: So you called it "Chimerica," which was China and America that had gotten together. And in your most recent writings you say, you know what? There's been a divorce. But you say China and America are still married.

KARABELL: And I think, you know, we just finished -- and this is a very kind of Wall Street inside baseball thing -- we just finished earnings season for the largest -- for the S&P 500 companies. And earnings were much stronger than the U.S. economy would suggest they would be. And a lot of people said, well, this has a lot to do with efficiencies.

But if you really look at what the driver is of a lot of this profitability, it's almost directly connected to business in China. So Procter & Gamble is profitable because its China franchise is growing 15 percent. That helps it maintain jobs and businesses in Ohio.

And again, I'm not trying to put a gloss on this that everything is rosy and beautiful. It's simply that this crisis has actually made the United States, yes, more dependent on China, but China remains highly dependent on the interactivity of capital and businesses in fueling this incredible story. It's not alone in its growth.

FERGUSON: But there's a macroeconomic imbalance here. Yes, it's certainly true that a lot of S&P 500 companies are doing very well because their business in China is doing well, not because their U.S. business is doing well.

But then you just look at the imbalances that we said prior to the crisis were going to cause trouble, which we blame the crisis on. These imbalances are back. I mean, the Chinese trade surplus is soaring. That brief period when it disappeared early this year is in the past. And of course the United States is not really seeing significant export growth.

China's exports have bounced back in the most remarkable way. Its economy is now 20 percent above where it was before the crisis began. And that's why this marriage is on the rocks between China and America, because the benefits now seem disproportionately to flow to China.

And I don't think it's any longer a stable partnership. They're not divorced yet. Let's not get ahead of ourselves. But this is a marriage on the rocks, I think.

ZAKARIA: Counseling.

FERGUSON: I think it may be beyond counseling. Lawyers is what they need.

HACHIGIAN: I mean, this is, no doubt, a tense relationship. It's maybe a common law marriage where neither of us, you know, had the intention of getting married, but here we are 30 years later, you know, in bed together. And it will be increasingly tense, I agree with you. But I also don't think this is the world of 100 years ago where we have to worry about China's military threat to us.

I don't think that's it. We now have these global factors that impact both of us. The global financial crisis saw the U.S. and China together enacting large stimulus packages to prevent the whole economy from falling off a cliff. We also work together on terrorism. We work together on food security. We've worked together on North Korea, although not that well lately. And there are these huge imbalances, and yet global warming. If we and China don't work together, we're all sunk.

ZAKARIA: All right. We have to take a break. We will be right back. Lots more to discuss. Political problems in China, political problems in the United States, coming up.

FERGUSON: There's no question that we have seen this movie before. I mean, this is just the biggest and fastest industrial revolution ever. But it is an industrial revolution.

(COMMERCIAL BREAK)

ZAKARIA: And we are back with Niall Ferguson, Minxin Pei, Zachary Karabell, and Nina Hachigian. Minxin, one of the things that's been happening in China recently is the rise of a kind of workers' protest. I don't want to say movement, but you see it happening in lots of places.

There was this famous incident, Foxconn, this massive factory where the workers basically started committing suicide because they weren't being given raises and treated well. Honda. Do you think China is getting to the point in its economic growth where you're going to see a lot more of these kind of problems?

PEI: Oh, yes. China is at an inflection point in terms of its labor force. China is no longer going to have unlimited supply of cheap labor. And cheap labor has been China's chief competitive advantages. Now, the demographic trend in China is such that within the next few years China will have fewer and fewer younger people entering the labor force.

So labor will become more expensive. In all other areas, China's competitive advantages are disappearing. Land is becoming more expensive. Natural resources are going to become more expensive. So China will have to change the way it grows.

ZAKARIA: But do you feel that that means some of these growth numbers, these projections, may be a little too optimistic?

PEI: Oh, yes. China will be very lucky to keep growing at 7 percent for the next 10 or 15 years, because we're talking about paying for what we might be call -- what we might call deferred costs.

Upgrading the infrastructure -- not infrastructure. The environmental protection, social safety net, and so forth. And also paying workers actually some decent wages. So we should not be too optimistic about China's future economic growth.

ZAKARIA: As a historian, do you look at this rising labor protest and think, you know, there is something familiar here from the 1870s and 1880s in the United States, from the 1850s and '60s in Europe? When the west industrialized, you did begin to see this. Of course, it produced Marxist political movements, very strong labor unions. What's going to happen in China?

FERGUSON: There's no question that we have seen this movie before. I mean, this is just the biggest and fastest industrial revolution ever. But it is an industrial revolution. And what they're doing is not that different from what was done in western Europe and in North America in the 19th century.

Now, what that leads to is very hard to predict because of course the Chinese have seen what radical leftism can do to them, not just in the great leap forward but in the cultural revolution. So in a sense they're inoculated against radical politics. And I think what we're really seeing here is much more an economic story than an ideologically-driven political story.

Workers want higher wages because they really deserve higher wages. The fact that labor has been undervalued as a result of China's policy of undervaluing the currency.

ZAKARIA: It's not going to result -- it may not result in a broader political protest?

FERGUSON: Let me tell you a story. I was in China in June, and I was having a conversation with a young woman about her view of China. And she said a wonderful thing that really stuck in my mind. She said, "Now, we feel that we're the luckiest generation ever. You know, we're really getting to pursue our economic objectives. I get to travel. I get to, you know, learn languages. And we don't really talk too much about the square thing."

And I didn't know what she meant at first. And then I realized she meant Tiananmen Square. So I think this is a movement which is materialistic. People want higher wages because they want to go consume. Remember, the Chinese, if you do survey data, are more committed to the free market model than anybody in the world, including Americans. They're the capitalists now. So there's no danger of some kind of left-wing backlash here.

ZAKARIA: Minxin, you were involved in the square.

PEI: Yes. 20 years ago.

ZAKARIA: What do your friends from then tell you? Have they become happy businessmen?

PEI: A lot of people who were involved in that movement have become quite successful economically, and totally apolitical today. But that does not mean that politics in China has died. The simple question is if ordinary people want to increase their income how do they get it? Do they go to the government and beg for better income? No.

They have to organize politically. And that's where the risk for China lies. Because in the current system there are no established mechanisms for ordinary people to get organized and demand decent housing, demand decent wages. And if you rely on the government to come and the government to provide it for you, it's not a bet most Chinese people would want to make.

Nina, when you look at political problems in China, the other part of this I think is political problems in the U.S. As China grows, we become more worried and you can see, whether it's our attitude toward trade, our attitude toward immigration, our attitude toward, you know, building mosques, I mean, in every way the country seems to be narrowing and getting more fearful.

HACHIGIAN: Yeah, no, I think you're right about that. I think that it's important for Americans to remember, I mean, we see China as this unstoppable train of economic growth. There's a survey recently that showed that 40 percent of Americans today think that China is the leading economic power in the world, even though our economy is three times the size of theirs.

So it really reflects on how we are feeling, as you point out. As a country, we're very down and out on our luck. There's sort of this national funk. But I believe that we have very strong fundamentals.

We have an innovation society that China is nowhere near. And as long as we make the right decisions at home on domestic policy, I think we're going to have a safe, prosperous future no matter how big China grows. But in this funk we have to remember that, and it's hard to remember sometimes.

ZAKARIA: Last word from --

KARABELL: You know, that funk is a cultural danger. And if you're going to look at the world today -- and Niall's point is well taken -- this is not the emerging world. This is the emerged world. They feel this is their moment to define the present and the future, which was the key characteristic of American culture from the late 19th century well through the 20th century.

And once you've lost that, that is preciously difficult to gain back, and it is an absolutely, I think, essential ingredient to being strong in the world going forward.

ZAKARIA: It's a sense of dynamism, of optimism, being forward- looking. All right. On that forward-looking note, Nina, Zachary, Minxin, Niall, thank you all very much. Niall is just back from Africa, so we give him a special thanks for making the trek 24 hours on an airplane to get to "GPS." Thank you all. We'll be right back.

(COMMERCIAL BREAK)

ZAKARIA: Now for our question of the week. Will China ever surpass the United States as the world's largest economy? When? Give me a date. Don't forget to subscribe to our podcast on iTunes. That way you'll never miss a show. And remember, it is free.

Now, as I do every week, I want to recommend a book. This one is called "The Birth of Plenty." If you like big, broad, sweeping histories, you'll like this. The author, William Bernstein, says that from the birth of civilization until 1820 there was little change in the standard of living. Then came prosperity. And what fueled it? Science. Freedom to innovate. Capital markets. Communication. It's an excellent analysis of how we got to where we are today, with lessons for how we can continue to be prosperous.

And now for the "Last Look." With all the talk about places of worship and where they do and don't belong, I wanted you to see this. This is the Magen Abraham synagogue. It's not in Miami. It's not in Tel Aviv. It's in Beirut. That's right, Beirut, Lebanon.

The synagogue is just now emerging from a painstaking restoration project. When the repairs began over a year ago, the temple was literally a shell of its former self. So why did this nation, often teetering on the brink of religious hostilities and hostilities with Israel, restore a Jewish house of worship? To show that Lebanon is an open and tolerant country.

And indeed, the project is said to have found support in many parts of the community, not just from the few remaining Jews there, but also Christians and Muslims and Hezbollah. Yes, Hezbollah -- the one that the United States has designated a foreign terrorist organization.

Hezbollah's view on the renovation goes like this. "We respect divine religions, including the Jewish religion. The problem is with Israel's occupation of Arab lands, not with the Jews." Food for thought. Thanks to all of you for being part of my program this week. I will see you next week. Stay tuned for "Reliable Sources."