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U.S. Tax System and Politics; Planning for a Year of Planned Change; The World's Banker; The Silicon Valley View

Aired March 25, 2012 - 10:00   ET


FAREED ZAKARIA, CNN ANCHOR: This is GPS, the GLOBAL PUBLIC SQUARE. Welcome to all of you in the United States and around the world. I'm Fareed Zakaria.

We have a terrific show for you today. We'll start with the year of elections. The White House is far from the only seat of power up for grabs this year. Russia has just had an election. France is coming up. China will change hands later this year.

So what could all of this change mean on the world stage? We've got a great panel. They will look across the globe and into their crystal balls.

Also, James Wolfensohn has many claims to fame. Yes, he ran the World Bank but he also hired Paul Volcker when he started his own investment firm. I'll talk to him about the global economy and more.

Later, an insider look at the Silicon Valley with one of the greatest serial entrepreneurs there. PayPal, LinkedIn, Facebook, Zynga. Reid Hoffman has been in on the ground floor at all of them.

And why is one of America's friends, India, friends with one of its sworn enemies, Iran? Playground politics at large. I'll explain.

But, first, here's my take. We're going to hear a lot of polarized rhetoric over the next few months. The Republicans and Democrats will seem to disagree about everything. But there is one huge and important area where there is a possibility, a possibility of bipartisan action. That's tax reform.

Most Americans, Republicans and Democrats, dislike the tax code. They're right to do so. America has what is arguably the world's most complex tax code. The federal code plus IRS rulings is now 70,000 pages long. The code itself is 16,000 pages. The statist French, for example, have a tax code of only 1,909 pages, only 12 percent as long as ours. And then there are countries like Russia, the Czech Republic, Estonia, that have innovated and moved to a flat tax with considerable success.

You have to understand, complexity equals corruption. When John McCain was still a raging reformer, he used to point out that the tax code was the foundation for the corruption of American politics. You see special interest pay politicians vast amounts of cash for their campaigns and in return they get favorable exemptions or credits or loopholes in the tax code.

In other countries, this sort of bribery takes place underneath bridges and with cash and brown envelopes. In America, it is institutionalized and legal but it is the same thing. Cash to politicians in return for favorable treatment from the government.

The U.S. tax system is not simply corrupt. It is corrupt in a deceptive manner that has degraded the entire system of the American government. Congress is able to funnel vast sums of money in perpetuity to its favored funders through the tax code without anyone realizing it.

For those who despair at the role of money in politics, the simplest way to get the corruption out of Washington is to remove the prize that members of Congress gives away, preferential tax treatment. A flatter tax code with almost no exemption does that.

The simplest fix to our tax code would be to lower the income tax dramatically, lower the corporate tax, and instead raise revenues through a national sales tax or a value-added tax. The U.S. is the only rich country in the world without a national sales tax. Germany has one at 19 percent, Britain at 20 percent, Korea at 10 percent.

What's the appeal of a consumption tax? First, it's efficient. Most studies including the IRS' suggest that the federal government loses several hundred billions dollars a year to tax fraud. This is much tougher to pull off with a consumption tax. Second, it provides the government with a more stable source of revenue than income taxes. Income taxes fluctuate greatly between boom and bust years.

Third, Americans consume too much, often using credit and leverage to do so. A consumption tax would moderate this behavior. Government will always get less of a behavior taxes and more of what it subsidizes.

Ironically, the heavy reliance on income taxes makes the American system more progressive than those in Europe. The federal government gets about 43 percent of its total tax revenues from taxes on individual incomes and profits compared with only 29 percent in Germany and 22 percent in France.

The balance for France and Germany comes from the VAT, which is highly regretted. One recent OECD study showed that the top 10 percent in America pay a larger share of total taxes, 45.1 percent, than do the top 10 percent in any of the 24 countries examined. In Germany they pay 31 percent of the taxes, in France, 28 percent.

But the best thing about tax reform is that it kills corruption. So if you ask me what kind of tax code am I in favor of, I'm in favor of almost any new tax code that fulfills one requirement -- it should fit on two pages.

Let's get started.

If 2011 was the year of revolutionary change, maybe 2012 will be the year of electro change. Twenty-six of the world's nations go to the polls this year to vote for their president, prime minister, their punching bag-in-chief. That includes four of the five U.N. Security Council members, the United States, of course, but also France and Russia, where Mr. Putin, not surprisingly got the knot, and China has a big leadership change coming, too. This four countries alone represent 40 percent of the world's GDP.

So what does all this potential change mean amidst all of the other challenges in the world? I've got a great panel to talk about this. Anne-Marie Slaughter and Richard Haass are both former directors of policy planning for the State Department. Ann-Marie has returned to Princeton where she is a professor of politics and international affairs and Richard Haass is, of course, the president of the Council on Foreign Relations.

On the other side of the table, Bruce Buena de Mesquita is a professor of politics at New York University.


So, Richard, when you were in government, would you find that there was an election. Let's say Sarkozy loses to Francois Hollande. Will it make a difference?

RICHARD HAASS, PRESIDENT, COUNCIL ON FOREIGN RELATIONS: Actually, it will. You got one person, Mr. Sarkozy, who is running as if he wants to turn France into Germany, and you have Monsieur Hollande who's running as if he wants to turn France into Greece.

And given the situation in Europe right now, this might be an election that actually does matter. And Mr. Hollande actually would implement 10 or 20 percent of what he's saying, it would make a difference. It actually would matter more than an election in what you might call a mature democracy wit normal matter.

ZAKARIA: Ann-Marie, you're shaking your head.

ANNE-MARIE SLAUGHTER, PROFESSOR, PRINCETON UNIVERSITY: No, no -- do we ever agree? But I think he might want to do all those things but I'm more worried about trends in German politics than I am in French politics. I really think the EU depends on France and Germany and France and Germany depend on the Euro zone continuing in terms of both their economies. So I don't think it's going to be so big.


ZAKARIA: And just to be clear, the issues you're talking about is Hollande is proposing first a very, very large role for the state of France.


ZAKARIA: They already has but 75 percent tax rates. And also proposing that the French get out of the business of this partnership with Germany and enforcing fiscal discipline on southern Europe.

SLAUGHTER: Yes. ZAKARIA: Do you think they'll have to continuing doing that but your worry is that the Germans will lose -- will not be able to keep doing it.

SLAUGHTER: Yes. The real concern is that Germany decides it doesn't want to play the central role it has played in the EU which has been the banker, which has been the country that often makes economic sacrifices for purposes of greater political union and German voters are tired. It's in Germany's economic interest to do that but politically that's not as sure a thing as it has been.

ZAKARIA: Bruce, you do a lot of modeling, you do a lot of modeling for the CIA, for the State Department, for other governments. If you were to try to construct a model, do you think that -- you know, about whether the euro is going to survive or collapse through this period of crisis, what would you say?

BRUCE BUENO DE MESQUITA, PROFESSOR, NEW YORK UNIVERSITY: I think the euro is going to likely survive for at least the next few years. When we talk longer term, that's a different matter. I think also that Richard is a little optimistic about the electoral possibilities in France.

ZAKARIA: You think Sarkozy will likely win?

DE MESQUITA: I think he will likely win and I think it wouldn't make a big difference who wins. Because politicians and democracies are constraint. They can move a little but they can't move far. I think we should note, with regard to France, that people thought that President Obama, when he was President-elect Obama, was going to have policies radically different from George W. Bush.

And on the domestic front he certainly has and in some parts of the foreign policy front he has. But mostly, you know, we're still in Guantanamo. It's -- we're still in Afghanistan. There hasn't been this radical shift.


SLAUGHTER: Well, we're pulling -- yes. We're pulling out of Afghanistan and domestically, hang on. You know we've had financial reform, we've had health care. Not of the scale he proposed, but those have been bigger domestic changes that any other government --

ZAKARIA: But there's one place, Anne, where you have to admit there will be significant continuity. Vladimir Putin becoming president as oppose to prime minister of Russia. I assume that you don't think there will be much change in Russian foreign policy?

SLAUGHTER: Actually, I'm not so sure. I think yes, of course, Putin was elected, everybody knew he was going to be elected. That's not different. What is different --

ZAKARIA: But he was already running the country.

SLAUGHTER: Yes, he was already running the country and he clearly imagines another possible two terms. I do think he's going to be under different constraints. I think is he going to be facing either having to be much more repressive, really shutting down the opposition in a way to now he has not done or he's going to have to start reforming in the way he says he wants to do.

His own account is, I stabilized the country, I increased the -- the national income, we're now growing, we're now strong. Now I can turn to sort of a more orderly transition to democracy. That's his story. That would be a way out with -- I think given the political pressures but it's also possible, certainly given his background, that that's all talk, in which case he's going to have to really tighten the screws on the opposition and then we might really see a lot of turbulence.

ZAKARIA: Do you think that Putin is a person with whom the United States can continue to deal and that he will be a likely cooperative partner on some issues like Iran? I think, you know, because there's this whole idea that the Obama administration had, which was, we're going to reset relationships with Russia, not because we love them but because they have a veto in the Security Council, because we need then for a bunch of things, and we can establish a good working relationship. Do you think that's likely?

HAASS: I think the administration was right to try the reset. It's probably now going to be necessary to somewhat reset the reset. Putin is a spoiler. And when people face the kinds of choices Anne- Marie described at home, I think it's probably 64 to more likely he goes towards repression than real opening. The tendency is to use foreign policy a bit to vent and to distract than the rest. And my hunch is Putin is even less of a partner in moving forward, that he has been to date, which by the way is not much of a partner to begin with.

I think there's going to be a rough relationship. We're not talking about going back to the Cold War but essentially the United States is going to have to tackle a lot of this geopolitical challenges. Syria is an indication. I think Iran going forward without much help from Russia. And probably, by the way, just one last. It might mean less and less role for the United Nations if China and Russia are not there as partners in the U.N., increasingly multilateralism is going to have to be a little bit narrower without the formality of the U.N.

ZAKARIA: Well, what I'm struck by in broader terms is that there is a difference between China and Russia. China is a country that kind of wants to modernize. It feels like it has very parochial selfish interest that it wants to guard. The Russians, on the other hand, are the only major power that also basically an oil state. So in a very strange sense, the Russians benefit from international tension. They don't particularly benefit from those international tensions being solved.

DE MESQUITA: I think that's exactly right. The Chinese benefit from tensions being solved because it gives them cheaper oil and they need the energy. The Russians benefit from the price being high. And on betting on what Putin will do if the price of oil is high, he'll oppress because that's the efficient way when he's got the money to take people to the streets and bash heads in. Then he'll become more oppressive.

If the price of oil were to drop substantially, then he would probably liberalize because that would be the efficient solution under those circumstances. The likelihood that the price of oil is going to drop not real.

ZAKARIA: All right. When we come back, we're going to talk about Iran.


ZAKARIA: And we are back with Anne-Marie Slaughter, Richard Haass, Bruce Bueno de Mesquita.

Richard, before the break, we were talking about how Russia and China should have somewhat different foreign policies because Russia benefits from crises, price of oil goes up, it's an oil state as well as a great power, probably the only one that combines those two. China on the other hand benefits from international tensions being reduced and oil prices going down. But you thought that they don't quite behave that way?

HAASS: I do. There's a gap between what you think Chinese national security interest would dictate and what Chinese behavior is. China ought to be there, shoulder to shoulder, to use your word, partnering with us in the Gulf to get Iran to behave. The last thing China wants is the streets to be closed, the last thing they want is a war which would drive the price of oil to $200 to $300 a barrel.

They are a major importer. Their economy is already going through tremendous stress for 26 different reasons. Yet China is not there with us. They are essentially sitting back and they are not putting pressure on Iran much with sanctions or anything else or even with North Korea.

ZAKARIA: But do they care if Iran gets a nuke?

SLAUGHTER: Well, I'm not sure they care if Iran gets a nuke. But, also, this is short-term interests over long-term interests because in the short term they can be cut deals with Iran and get cheaper oil and actually benefit from the fact that everybody else is sanctioning Iran. And longer term I think that's right. It's a --

HAASS: But the longer term could be three or six months. And they could find themselves in a crisis during a year where China has to begin this heavy rebalancing away from an export oriented economy towards more of a consumption economy. They've got a leadership transition in China. Growth is coming down. They've got a lot to deal with on their plate.

ZAKARIA: Iran. Suppose you were to try and construct again using game material. Win-win solution that's not a war. Is there a negotiated outcome? Because we're having negotiations. But I'm surprised nobody wants to put out what is the solution. What is the kind of inspection regime that would be enough to satisfy the world and yet not so humiliating to the Iranians that they would accept.

DE MESQUITA: We have a problem in Iran that's very similar to the problem in North Korea. In the sense that in both cases we have a very close ally that feels threatened by their neighbor. We have this hostile neighbor that feels threatened and needs to deter. In the case of Iran, therefore, I think the solution is for our government to decide -- do we care more about the nuclear issue or do we care more about regime change?

For sure, if there was a constructive regime change in Iran, that might solve the nuclear problem. But our pressures on Iran may be exacerbating the nuclear pressure -- nuclear danger because of the fears that we are contemplating regime change.

ZAKARIA: So you're saying the more you threaten the regime with regime change, the more the regime will say, hey, we need -- I need to buy insurance.

DE MESQUITA: Absolutely. And they're right. They need the capability to deter.

HAASS: I don't buy that. The Iranian nuclear program has been in business a long time. Iran has a whole imperial (ph) foreign policy. They want to use their nuclear capability in order to bolster their role in the region. And what we want to do -- I think there is a negotiation here. I think potentially there is a negotiation where we'd say there have to be intrusive inspections, not just the declared facilities, but legitimately suspect facilities, and have to be real ceilings on what it is you're allowed to do or what it is you're allowed to keep based upon what you've done in the past.

I don't think we try to get Iran completely out of the nuclear business. We don't humiliate them. We're not trying to use disparaging (INAUDIBLE). But I think there is a potential deal. But we've only got a couple of months to do it. I think what the Israelis are very clearly signaling is that unless there is serious progress and unless they're persuaded that the Iranians are not using any negotiation tactically as a cover to get stuff done, they -- the Israelis are going to either act or they will act unless they have confidence that we will act before our window closes.

So I think we've actually only got a few months to show that negotiations are really going to bear fruit or either -- I believe the Israelis are more likely to attack.

DE MESQUITA: Most of the conversation is about concessions by them. It seems to me that there is a deal that could be put on the table that would tie their hands to reveal the truth of what their intentions are and that is for us together with our European friends to arrange to deliver the civilian energy that Iran claims it needs. They pay for it.

They pay the price up to what they're spending on their nuclear program allegedly for civilian purposes, and they are guaranteed the energy. As long as we deliver the energy, they allegedly have no reason to develop the nuclear capability. As long as they don't develop the nuclear capability, we have an incentive to deliver the energy.

HAASS: I don't think it's going to work because they obviously want to do some of this themselves. A lot of this conversation today has been about politics. You just recently had elections in Iran. The so-called principalists around the supreme leader won. And this can now go one of two ways, and you'll find out, I believe, in April. Either against this backdrop where they are willing to show no compromise before their elections, you could see some Iranian flexibility, maybe they are a little bit worried about military attack, they are feeling obviously the heat of these -- of these sanctions or just the opposite.

They've decided they can brazen in and out. And either they don't believe the world will make good on its threats, or they believe at the end of the day, even as someone like Israel were to attack, they still might be in better shape because then they can throw the -- any inspectors out, there'll be a rally around the regime effect inside the country.

I don't think we know. But I actually think this spring is going to be extraordinarily critical for -- either negotiations are going to show some promise or not. And if not, then Israel is going to have to decide whether it trusts the United States to act or whether Israel is going to act itself. So sometime in 2012th this issue is going to come to a head and it is going to dominate the world, I believe this year.

ZAKARIA: Anne-Marie, finally just throw this one. The thing I worry about is the point you made, which is they have to make concessions but we also have to make concessions. I only say this because I can't think of any time in history where under foreign pressure a regime has simply just cried out -- I surrender.

SLAUGHTER: Yes -- no. I agree.

HAASS: They are unlikely to particularly given the divisions within their leadership. And second of all, this is a hard time for us to make concessions. We have politics, too. And all of this is going to play out against the backdrop of an American election year. You've seen the various Republican --

ZAKARIA: And Obama has space to go right but he has no space to go left on this issue.

SLAUGHTER: I disagree.


ZAKARIA: If he were to start negotiations with Iran direct --


ZAKARIA: No, no, no. Direct ones that make some kind of concessions.

SLAUGHTER: No, but talks are restarting -- ZAKARIA: The Republicans would --


SLAUGHTER: No, I actually think the contrary. I think he's made it very clear he's willing to go to war. He's covered his plank. The country doesn't want war overall and if he can now say, look, we use -- we are keeping pressure on Iran. We've kept the military option on the table. We're going to prove that diplomacy can work. I think he's got some room.

ZAKARIA: Do you think it's possible?

DE MESQUITA: It's going to -- he's going to be attacked as we've seen if he goes in that direction. But he can still do it under our constitution under our political process. No one can stop him. Congress can't stop him. The Republican candidates can't stop him but he's only got a couple of months. Not because -- again, our politics as well as Israeli politics and their clock gives in.

ZAKARIA: And we've got to stop.

Richard Haass, Anne-Marie Slaughter, Bruce Bueno de Mesquita, thank you very much.

Thanks for joining us.

Up next, the story of a country that seems to be everyone's best friend. Its buddies with America and Israel just as it is with Iran. What country is it? We'll tell you when we come back.


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

I have a story for you. It's about a country that is America's friend, this country is also Israeli's friend, and yet it is also Iran's friend.

Amid all the talk of an Israeli strike on Iran, what is this country that manages to stay friends with everyone? What in the world is going on? The country is India and it's been criticized in America for continuing to trade with Iran despite coordinated sanctions on Tehran. The "Wall Street Journal" recently ran an editorial calling New Delhi "The Mullah's Last Best Friend." It also criticized India for casting its slug with Moscow and Beijing for a handful of rupees.

Let's get some perspective. New Delhi's defense is this. Iran is the world's fought largest oil producer. Its biggest customers in India which happens to be among the world's largest oil consumers and importers. The type of crude best suited for India's needs happens to be Iranian's oil.

So there's an economic argument here. India needs Iran's oil as much as Iran needs to sell it. There have been reports that the two countries reached a trade agreement to circumvent sanctions. Iran can't trade in dollars so it is selling oil to India for rupees and barter goods instead. But there are also geopolitical concerns. India lives in a rough neighborhood. With an intense rivalry with Pakistan, Pakistan has put decades believe that it needed to limit India's influence on the region particularly in Afghanistan. So Islamabad has supported the Taliban against the Indian -backed Northern Alliance. And who has helped India by siding with the northern alliance, Iran.

The Iranians have always been hostile to the Pakistan-Taliban access and have always sided with -- with India and its northern alliance friends.

Now outside of what are viewed as core interest India is nowadays inactive one foreign policy. It is rarely been a force for good in the region or around the world mainly because it's not been much of a force. When the mullahs recently had a coup, New Delhi remained passing. During years of unrest in Myanmar, India rarely took a firm stand against the country's brutal military junta. And so on with other crises in the region and Sri Lanka, Bangladesh, and more.

Compared to the cloud it once have New Delhi has really paid only mild attention to its foreign policy. The economists recently pointed out that India with its population of 1.2 billion has fewer diplomats that New Zealand with a population of just four million people.

Americans tend to believe that all good things go together. They befriend India, another democracy, so that India and America will have identical views on foreign policy. The same friends and enemies. But India is of course located in a different place. It has different economic and geographic interest. Indians for their part think they can be free riders on the international system.

They can exploit the stability and security of the current setup and narrowly pursue their own interest. But for the world's largest democracy that is an unworthy mission. India does have a tryst with destiny and it isn't just to buy cheap oil from whomever and damn the consequences.

And we'll be back.


JAMES WOLFENSOHN, FOUNDER OF THE CONSULTING FIRMS WOLFENSOHN & COMPANY: The most important thing that people want in developing countries, like in our country, is a job. They want to be able to support their families.



CANDY CROWLEY, CNN ANCHOR: I'm Candy Crowley in Washington. "FAREED ZAKARIA GPS" will be back in 90 seconds. But first a check of the top story. President Obama is in South Korea today where he had a chance to peer into North Korea. Across the border, North Koreans were marking 100 days since the death of Kim Jong-Il. Later at a joint press conference with South Korea's president, Mr. Obama said bad behavior by the north won't be tolerated.


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: North Korea will achieve nothing by threats or by provocations. The North Koreans know its obligations and it must take irreversible steps to meet those obligations. On this, the United States and the Republic of Korea are absolutely united.


CROWLEY: President Obama is in Seoul for a two-day international summit.

Former Vice President Dick Cheney is in a northern Virginia hospital recovering from heart transplant surgery. The 71-year-old underwent the procedure yesterday. He was on a cardiac transplant list last October when I asked him about the possibility of having the transplant.


RICHARD CHENEY, FORMER VICE PRESIDENT: I've got to decide on a heart pump now. I've got a piece of equipment inside me that supplements my heart. It works very well. I'm 14 months into the program and it's been functioning perfectly.


CROWLEY: A statement from the former vice president's office says, although Cheney and his family don't know the identity of the donor, they will be forever grateful.

A prosecutor in Paris says the brother of a gunman killed in a standoff should be charged with complicity in seven murders and two attempted killings. The prosecutor says Abdelkader Merah should also face terrorism-related charges in connection with the wave of shootings blamed on his younger brother Mohammed. Mohammed Merah was killed Thursday after a 12-hour siege in the city of Toulouse.

Those are your top stories. "RELIABLE RESOURCES" is at the top of the hour. Now back to "FAREED ZAKARIA GPS."

ZAKARIA: Only three people have ever served two terms as president of the World Bank. My next guest is one of those men. James Wolfensohn. He is a native Australian by birth but he has spent much of his career in finance and consulting here in the United States. He joins me now on the GLOBAL PUBLIC SQUARE.

Thank you.

WOLFENSOHN: Thank you.

ZAKARIA: So tell me, I mean, after a long life in the private sector, you went to the World Bank and what was the -- you know, what was your biggest take away inside -- in term of doing something that was often seen by people in the private sector as giving away money, that the foreign aid is wasted, that you can't really get growth in that way. What did you think?

WOLFENSOHN: Well, I went to the World Bank because when I was there it was six billion people in the world and five billion of them lived in the developing world which was served by the World Bank, and it was already clear to me that the future was going to be in the developing world. That the billion people in the rich world maybe in 40 years would be $1 billion, 100 million.

But that the people in the developing world would grow by several billion. And so the waves towards developing countries was very clear and the fact that in those days people would look at them as the poor countries and not give them any great economic importance seemed to be -- to be unnatural. And while I was at the bank, it started to change. In the yea 2000, the momentum shifted.

And then all of a sudden people start to say, well, what China doing? What is India doing? And what is Brazil doing? And of course I was there during that period when we saw the lead is in the economic world, starting to come from the developing world.

But the other aspect of the World Bank's work is the people that are left behind. The billions of people who frankly don't have enough to eat, have no real future but who are the weight of the world. And the World Bank deals with those two issues. So I thought they couldn't be a more interesting fights together. When I was offered by President Clinton, I said immediate I'd love to do it.

ZAKARIA: And what did you find in terms of the eight programs. You know, I mean, there's a very standard not just conservative lament but a lot of private sector people say, look, all this foreign aid is wasted, you can -- that not how you get growth.

WOLFENSOHN: Well, I don't believe that foreign aid necessarily gets you growth. What I think it can get you is education of the local people, it can get infrastructure, he can set a framework in which the private sector can operate, but it was never my belief that something like the World Bank could introduce industrial projects and be responsible alone for employment. The most important thing that people want in developing countries, like in our country, is a job.

They want to be able to support their families. They want to improve their lifestyle. And that is at the epicenter of what the bank tries to do.

ZAKARIA: Do you feel as though things are getting better everywhere or are they worse? How would you describe -- you know, issues of good governance, corruption, is Africa moving forward, is Asia moving forward? WOLFENSOHN: Look, I think there is progress. I started a campaign against what I call the cancer of corruption 15 years ago. And interestingly enough, before I talked about the cancer of corruption, no bank president had ever mentioned corruption because many of the shareholders in the bank came from corrupt countries.


WOLFENSOHN: I think they're afraid of offending them. But the point is that it is now on the table and I think that there is some improvement. But I think the battle is far from won. I think it will take a generation, it will take more education of young people and then I think you've got a chance on the corruption issue. But I think what you need way beyond that is appropriate education, health care, a chance to develop the human -- the human capital that you have in this country and it has to start with education and that I think there is some movement forward.

ZAKARIA: How do you think Obama is doing on the economy in general?

WOLFENSOHN: Well, I am not as great a critic as I think some are because I think he inherited a terrible mess. Whether he could have done a bit better, I don't know. I think what is need now is really some clear action and it's unlikely that we will get that action in an electoral year because he can come up with a program. The Republicans can come up with a program and we all know that what they 're talking about is really dreams.

They're not going to get the true now and it will be dependent on what happens in the election. But I think it's important for the nation to understand that we've borrowed too much and I think neither party disagrees that we've spent too much in recent years and I think the Simpson/Bowles report, which came out and which has not had a lot of reference recently, did, first of all, a very fine analysis and secondly it came up with what I thought was a pragmatic approach.

ZAKARIA: You've been a Democrat. But independent minded. Do you -- will you support President Obama in his reelection?

WOLFENSOHN: If you come in to the voting vote with me, Fareed, I will you my vote -- but at this moment I think I probably would, but I'd like to see who the Republican candidate is and I'd like to listen to them, I think this period between now and the end of the year particularly in the debate between the two -- between the president and the candidate would be very important. Certainly in the past I've been Democratic.

ZAKARIA: But you must know Mitt Romney. You know everyone.

WOLFENSOHN: I barely know him. I barely know him.

ZAKARIA: All right. Final question. You are almost 80 years old. You are an Olympic fencer. You taught yourself how to play the cello. What is the secret to managing a life in which you are able to do so many things with such distinction? Do you -- do you take a special protein powder?

WOLFENSOHN: I do that.


WOLFENSOHN: But I also have for years, at the beginning of every year, since I was 15, written down things I'd like to do.

ZAKARIA: That year?

WOLFENSOHN: That year. And, you know, if I've wanted to be president of the United States, that wasn't possible but I thought I could be chief justice of Australia. I would write these things down and I'd have two days of dreaming about what I wanted to do. I must tell you at 78 the options are a lot less.


WOLFENSOHN: Now it's about health and it's about some of the things that I might be able to do. But I'm looking forward, I hope, to a few more years of active life.

ZAKARIA: But you still write this down?

WOLFENSOHN: Still write it down. But it's got very short.


ZAKARIA: James Wolfensohn, pleasure to have you on.

WOLFENSOHN: Thank you very much, Fareed.

ZAKARIA: And we will be right back.


ZAKARIA: Do you feel there's a shortage of people with the kind of skills we need?

REID HOFFMAN, EXECUTIVE VP, PAYPAL: Absolutely. But critically so.



ZAKARIA: My next guest has made his name by being ahead of the curve. Reid Hoffman is a serial entrepreneur. He is the co-founder of LinkedIn and a founding team member of PayPal. He is invested in some Silicon Valley's most famous startups, Facebook, Zynga and others. Before anyone had heard of them. Fittingly his new book is titled "The Start Up of You."

Welcome, Reid.

HOFFMAN: Great to be here. ZAKARIA: Now, you talk about in this book the idea that really you think of yourself as an entrepreneur. What are you seeing that's different?

HOFFMAN: Yes. Well, I think this kind of two things. The first thing is, that everyone should think about themselves as the interpreter of their own life, is the CEO of their own career. And all the things that apply to business you should think about applying to yourself, not just brand, but also how do you invest in yourself, how do you have competitive differentiation, how do you use business intelligence in order to navigate.

Now what that means is in terms of technology is you should be deploying technologies as -- like using the Internet, using LinkedIn to figure out how to invest yourself and how to essentially build your skills, build the connections with people, learn what is going on in industries, and be able to kind of navigate the new world of work.

Because it's changing. Globalization, technology disrupts industries, how do you navigate that both to protect the downside, not get laid off in a bad industry, and also how to get upside in terms of how to find the right kinds of breakout opportunities. And I think since technology is the driving force, both behind globalization and behind industry disruption, attuning yourself to what -- technology change means for you is I think very important.

ZAKARIA: So you found in your life a sort of these constantly meeting new people and learning new things, this was crucial?

HOFFMAN: Yes. I think it's critical for everyone. For example, one of the things we advocate in the book is think about who you're going out to lunch with and occasionally go out to lunch with someone who is, you know, presumably smart, accomplished, maybe two degrees away from you, I think how we first met, and then have a conversation with them where you're learning from each other. Like what's going to change in the world? Where is the world going? How is technology changing? Because then that helps you have the skill set and the knowledge to be adaptable and to be inventive in what you're doing.

ZAKARIA: When you look at the competition that Silicon Valley faces, do you think that the United States can retain its edge in technology?

HOFFMAN: Generally speaking the answer is yes. I think that Silicon Valley continues to be a global leader in the kinds of technology it does. Now I think there's a number of policies we need to be more intelligent about, like high immigration, is one of the ones that every Silicon Valley person beats that drum. Because it's really important. You're either going to import the talent or export the job.

You know, it's very simple. And if you keep the job here, that person then employs restaurants, dry cleaners, accountants, you know, auto mechanics, the whole thing. And that creates a whole wealth of ecosystem. Now, I do think that one of the things is we need to work a little bit more on some technologies, like manufacturing technologies and other kinds of areas because I think we're world class at software but I think we still have a ways to go -- like I think we may be competitively not at the absolute leading edge, I don't know, I'm not a deep expert there, but I think there's a set of technologies we should also be investing in.

ZAKARIA: Do you think that when you look at the young people who come out today, are they, in terms of, you know, science, technology, energy, dynamism, still world class?

HOFFMAN: I think there is a group that is world class which is really good. I think we could -- we could quite happily can accept that number and still be really under where we would need to be. And you know --

ZAKARIA: So you feel there's a shortage of people with the kind of skills we needed?

HOFFMAN: Absolutely. Critically so. I mean, and in fact, actually, given the technology as part of what sets the drumbeat for the future, I think many more people with their hands on, I know, how to participate in building and understanding deploying technology. I mean like one of the things that I've come to realize is, every organization should have a technology strategy.

Technology is disrupting industry. So it's not just, oh, what am I doing to IT, and which system do I use, it's how is technology changing the game that gets played in my industry, changing the nature of products, changing the nature of how we can deploy a service. If we use data, how do we use data to be a good business? And so part of that is coding but part of that is understanding well, how does that fit into a business strategy, how does fit into marketing, how does that fit into product design? It's all aspects of it in terms of being competent in the modern world.

ZAKARIA: Do you think that all these new changes are moving so fast from the mobile to big data and cloud computing, that it's conceivable that 10 years from now the top technology companies in America and the world would be a totally different set of companies?

HOFFMAN: I think that the transformational speed, right, for example, I think in the '20s and '30s the average 10 years and the S&P 500 was 65 years and the '90s was 10 years. The transformational speed you have to invest in the future. I think that applies to organization as it applies to individuals. And given that accelerating rate, I think it's perfectly possible that that the transition happens even at an accelerating rate.

Now what that means for individuals and organization is you need to keep investing and reinvesting in yourself. In the book we refer to that as permanent beta. Which is never think of yourself as a complete product. By the way that should be a company as well as an individual and always be thinking how do I invest in the future, how do I invest in the next generation, next wave? ZAKARIA: So when you apply the lessons in the book to yourself, do you -- I mean at some level you're, you know, incredibly successful, fabulously rich. Are you done or do you think of yourself as very much still a work in progress --

HOFFMAN: I still think of myself as a work in progress in a permanent beta because --

ZAKARIA: So what happens next?

HOFFMAN: I think being a part of the modern world is being curious. So I always ask, what do I -- what should I -- no. What should -- what question should I be asking because that's part of how you then adapt to the future.

ZAKARIA: Reid Hoffman, pleasure to have you on.

HOFFMAN: Thank you.

ZAKARIA: And we will be back.


ZAKARIA: April 15th is just three weeks away. That's tax filing day in the U.S. Hopefully our American viewers have already filed. But it brings me to my question of the week from the GPS challenge, which is, what percentage of the U.S. federal budget goes to foreign aid? How many cents out of your dollars? Is it, A, .5 percent of the federal budget, B, 1 percent, C, 10 percent, or D, 25 percent?

Some of you know this answer but stay tuned, we'll tell you the correct answer. Go to for more of the GPS challenge and lots of insight and analysis. Also follow us on Twitter and Facebook. And remember, if you miss a show, go to iTunes. You can get the audio podcast for free or you can now buy the video version.

Go directly there by typing into your browser.

This week's book of the week is called "Paper Promises: Debt, Money, and the New World Order." It's by Philip Coggan, the columnist for the "Economist." If you want to understand the issues surrounding all this debt that the world is awashing, this is the book for you.

Coggan says our debt addiction will cause governments to fall and will bring about a new world order and with China and the Middle East the lenders have great sway. It's a wonderful, interesting, intelligent book at this very important subject.

And now for the last look. The questions have flown across the Pacific for years, was China working on its first aircraft carrier or weren't they? Was it a direct challenge to American naval superiority or wasn't it? Had it been launched or hadn't it?

Well, it turns out China bought three carriers from Russia a decade and a half ago with plans to retrofit them. There's the one that's being militarized. But what about the others? Well, we don't have to worry about them so much. Take the former Russian carrier Kiev now parked outside Tianjin. Instead of being jam-packed with military hardware, the Kiev is now filled with soft ware. Very soft ware. Beds, pillows, comfy chair lounges and sofas. You see, it is now a hotel and it looks like the kind of place Elvis Presley might have called home, complete with round beds and mirrored ceilings.

There are five suites in all, all of them presidential suites according to the management. For entertainment, a restaurant serving mostly Russian dishes, naturally. And if you peek outside your window, you might see the reenactment of a naval battle. After all, the carrier is now the centerpiece of a military theme park extolling the powers of China's navy.

The correct answer to our GPS challenge question was B, around 1 percent of the United States federal budget is dedicated to foreign aid. One cent of your dollar. But if you answered D, don't be ashamed. You're not alone. The average Americans, according to pollsters, thinks that about 25 percent of the U.S. budget goes to foreign aid.

Thanks to all of you for being part of my program this week. I will see you next week. Stay tuned for "RELIABLE SOURCES."