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Fareed Zakaria GPS

How Low Can Oil Prices Go?; Russia, Most Dangerous to the U.S.?; Jewish Reporter on Jewish Life in Tehran; Happy, Well-Paid Workers Means Higher Profits? Aired 10-11a ET

Aired August 23, 2015 - 10:00   ET

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

[10:00:14] FAREED ZAKARIA, CNN 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.

(BEGIN VIDEOTAPE)

ZAKARIA: Let's start today's show with what many experts are calling the biggest military threat to the United States and many other nations, too. Russia. Could the increasingly urgent situation in Ukraine explode into war?

Also, inside enemy territory. What happens when a reporter for a Jewish publication goes to Iran? The answer might surprise you. I will talk to that reporter about what he learned.

And the future of work. Will computers take over for lawyers and doctors and all of us? Will robots replace most workers? I'll talk to the author of an eye-opening cover essay in the "Atlantic."

And finally, the long hot summer is almost over, but the heat may be here to stay. I'll explain.

(END VIDEOTAPE)

ZAKARIA: But first here's my take. While we have been watching ISIS and discussing Iran, something much bigger is happening in the world. We are witnessing a historic fall in the price of oil. Down more than 50 percent in less than a year. When a similar drop happened in the 1980s, the Soviet Union collapsed. What will it mean now?

Nick Butler, the former head of strategy for BP, told me, "We are in for a longer and more sustained period of low oil prices than in the late 1980s." Why? He points to a perfect storm. Supply is up substantially because a decade of high oil prices encouraged producers throughout the world to invest vast amounts of money in finding new sources. Those investments are made and will keep supply flowing for years.

Leonardo Maugeri, the former head of strategy for the Italian energy giant Eni, says, "There is no way to stop this phenomenon." He predicts that prices could actually drop down to $35 a barrel next year.

A primary reason that the price decline has accelerated is that Saudi Arabia, the world's swing supplier, that is, the one that can most easily increase or decrease production, has decided to keep pumping. The Saudis know it hurts them, but they hope it will hurt everyone else more, says Maugeri, who is now at Harvard.

One of Saudi Arabia's main aims is to put American producers of shale and tight oil out of business. So far it has not worked. Though battered by plunging prices American firms have used technology and smart business practices to stay afloat.

Major oil-producing countries everywhere are facing a fiscal reckoning like nothing they've seen in decades, perhaps ever.

Let's take a brief tour of this new world. Venezuela. Hugo Chavez's popularity, his 21st century socialism and his mismanagement of the country's economy were made possible by one factor, a prolonged oil boom. Oil makes up 96 percent of Venezuela's exports. Its economy is estimated to shrink by 7 percent this year, having already contracted by 4 percent last year.

Russia. Like Chavez, Vladimir Putin's popularity coincided perfectly with the steep rise in oil prices, which meant higher Russian GDP, government revenues and thus subsidies to the people. All that is reversing course. Russia's economy is projected to shrink by 3.4 percent this year. Oil and gas revenues make up half the government's budget.

Crucially revenues for Gazprom, the national gas giant, are estimated to fall by almost 30 percent this year. Remember, Gazprom is the machine that provides finances for Putin's clique that runs the country, said Butler, a visiting professor now at Kings College, London.

Iraq. Oil makes up around 90 percent of the Baghdad government's revenue. And despite the fact that it is pumping out as much as possible, it faces a massive drop in available funds. This is the backdrop behind the fragility of the government and also the rising levels of sectarian strife which have of course paved the way for ISIS. With limited resources the Shiite government in Baghdad is hard-pressed to make patronage payments to the Sunnis.

Iran. Despite the initial windfall that Tehran will get from the relaxation of sanctions it is, like most petro states, dysfunctional.

[10:05:08] In fact the IMF estimates that Iran needs prices to be at almost $100 a barrel to balance its budget. So in the medium term it will face pressures just like the others.

Many American experts and commentators have long hoped for low oil prices as a way to deprive unsavory regimes around the globe of easy money. Well, now it's happening, but at a speed that might produce enormous turmoil and uncertainty in an already anxious world.

For more go to CNN.com/fareed and read my "Washington Post" column this week. And let's get started.

Last week the outgoing Army Chief of Staff General Ray Odierno told reporters that Russia was the most dangerous threat that the United States faced because of the trouble Moscow was causing in Ukraine. That trouble has been, by all reports, ins intensifying in recent weeks.

Odierno closed by saying that we should pay a lot of attention to Russia and its actions there. So that's what we're going to do today. We have two guests who have dealt with Russia politically and militarily.

General Wesley Clark was a U.S. four-star general and NATO's supreme allied commander in Europe. And Radek Sikorski was for eight years the foreign minister of Poland, which of course shares a border with Ukraine. Before that, he was defense minister of Poland. He is now a member of Poland's parliament.

General Clark, you have visited the area and you have a pretty bleak assessment. First tell us, what is happening on the ground?

GEN. WESLEY CLARK, U.S. ARMY (RET.): What's happening on the ground is there is about a 450-kilometer zone of contact. And along that zone the separatists under Russian command and control are probing and bleeding the Ukrainian military. Behind the separatists forces about 50,000 Russian main force units are staged on the border between Ukraine and Russia and could intervene if Vladimir Putin pulls the trigger.

ZAKARIA: What would you say to somebody like Henry Kissinger who are -- who has argued consistently that look, you cannot stabilize Ukraine without the cooperation of Russia. Russia has to be involved in this and that this policy of confrontation is fundamentally the wrong way to go?

CLARK: Well, because this is all about linkage. And it's a question of interests. And so what Putin has done is he's played linkage against us. What he's done is he said to the American administration that if you want my cooperation on Iran don't push me too hard on Ukraine. We have to play linkages right back. So Russia has a lot of interests in the world. And Ukraine is one of them.

But we have to make it clear to him that the territorial integrity of Ukraine, that's non-negotiable. You can't invade a country, you can't give to Russia the right to interfere and intervene in the internal affairs of these states in its area.

I was with the president of Bulgaria. He said, he said this is just crazy. He said, we're acting like Putin has the right to come in and tell us what to do. Just because he is a bigger country. That's what the 20th century was all about. We said borders were sacrosanct. We pledged during the Cold War that we would prevent this kind of thing. We set up NATO to prevent that. We brought new members into NATO. We have to stand on our commitments. That's essential to the rule of law worldwide.

ZAKARIA: Radek Sikorski, how did -- how did we get here? I think that there was a sense that Putin had annexed Crimea, this triggered a reaction in the West, the West came together, you know, imposed sanctions on Russia. And we thought this would deter Putin, we thought that, you know, this would in some say stop Putin from more adventurisms. What happened?

RADEK SIKORSKI, FORMER FOREIGN MINISTER OF POLAND: Well, President Putin spoke of Ukraine as an artificial country already at the NATO summit in Bucharest in 2008. And as we know, some of those plans in Georgia for Crimea, for Ukraine, had been laid down before. President Putin has largely misspent the oil boom's money, but he has invested heavily in his armed forces. And we are now seeing the results of that.

[10:10:01] ZAKARIA: But what does this tell you about his intentions? Is he -- I mean, what does he want to do? What is the goal here?

SIKORSKI: Well, it's very difficult to gauge anybody's intentions. What we can determine are the outcome of their actions. And what I think we should do is, first of all, convince President Putin that the NATO area is out of bounds for Russian military adventurism. Secondly, I would try to convince President Putin that if he moves further into Ukraine he will face a prolonged conflict that he cannot win.

And then thirdly I think we should persuade him that time is not working in his favor, that Ukraine is reforming itself, whereas the conflict is costing Russia too much. And then I believe he might be willing to make a deal and withdraw from the occupation of Ukraine. Ideally we need a process in which the European Union and the United States should participate. That would fix all of the frozen conflicts on the former Soviet periphery so Transnistria Caucuses and a couple of others.

ZAKARIA: Wes, you would like us to do -- you would like the United States to do a lot more to support Ukraine. You would like to arm Ukraine more. Do you think that's -- is that a viable strategy given that Russia, I think the last number I saw, outspends Ukraine 20 to 1 in terms of defense dollars?

CLARK: Well, you have to drive up the cost to Russia of aggression. And you have to convince them there is no quick and easy military option. So the Russians have a lot of modern technology and they've got long-range missiles. They've got unmanned aerial vehicles. They've got a lot of electronic warfare. And what the Ukrainians have been seeking is some very simple, basic, updated anti-tank gear. And we have it and we've refused to supply it. I think it should be supplied.

ZAKARIA: Radek, should there be a NATO base, a forward base in Poland?

SIKORSKI: Well, there are NATO bases in Britain, in Germany, in Spain, in Portugal, in Italy, in Turkey, and your generals are saying one after another that the actual threat is from the east. So where do you think NATO bases should be? I guess where they are needed, huh?

ZAKARIA: General Clark, would you agree? CLARK: I do.

ZAKARIA: That would be a major change in policy on that point of agreement.

CLARK: It would, but you have to adapt the policy to changing circumstances. And the key here is that Mr. Putin can't believe that he can bully these countries and the United States in particular will look aside.

You know, NATO was our creation. We've always been the leader of this alliance. We haven't relied on Germany or Britain or France to say, you lead us, boys, and we'll be there with some logistics. We were the leaders. They came to us after World War II. We saw it through the Cold War. Now nations in Eastern Europe are coming to the United States and asking for leadership. We should provide it.

ZAKARIA: General Wesley Clark, Radek Sikorski, pleasure to have you on.

Next up. Iranian leaders have repeatedly called for the elimination of Israel. They utterly and completely reject Zionism but invited a Jewish journalist to report in Iran. The first allowed in since the revolution of 1979.

What did he find in that country? We'll ask him when we come back.

(COMMERCIAL BREAK)

[10:17:50] ZAKARIA: Just nine months ago the supreme leader of Iran, the Ayatollah Khomeini, took to Twitter to call for the annihilation of Israel. Later he posted a listicle of sorts. Nine key questions about the elimination of Israel. Iran's former president, Mahmood Ahmadinejad, was infamous for his denial of the holocaust.

So how would you like to be a pro Israeli Jewish reporter for a Jewish publication and get off the plane in Iran?

My next guest did just that. Larry Cohler-Esses, an editor at "The Forward," has said to have been the first reporter from the Jewish media to be credentialed to report in the Islamic Republic of Iran since the 1979 Revolution.

Larry, a pleasure to have you on.

LARRY COHLER-ESSES, EDITOR, THE FORWARD: Thank you very much. It's really a pleasure to be here.

ZAKARIA: So give me your -- just your dominant, you know, reaction. What was the thing that struck you the most, that surprised you the most?

COHLER-ESSES: Well, the first thing to make clear is that I specified to everybody I met, both ordinary Iranians, ayatollahs and a couple of government officials, who I represented. I identified myself as a reporter for the "Forward," which is a prominent American Jewish newspaper. From the most hard-line politicians who are very much in line with what Ayatollah Khomeini said as you just quote to the people who opposed him, nobody batted an eyelash at talking to me or anything about my being Jewish or representing a Jewish media outlet.

Part of the reason is that among the hard-liners they make a kind of rigid compartmentalization between Jews who they consider people of the book under Islam and Zionists who are a maligned international force that has nothing whatever to do with Jews or Judaism.

ZAKARIA: What I was struck by is you talked about how Jewish life in Iran can be rich. And you point out that there are 13 active synagogues, five Jewish schools, two kindergartens and a 100-bed Jewish hospital. Did that surprise you?

COHLER-ESSES: No, because I had done some of my research earlier. I know it's surprising to other people. But yes, they do have a community there. It is much smaller than the community that existed before Khomeini came to power and the shah was overthrown.

[10:20:15] There are estimates, depending on who you talk to, between 9,000 and 20,000 Jews. Before the revolution in 1979 there were 80,000 to 100,000. So it's clear that life is possible there. Everything you said is correct. But many Jews have chosen to make their lives elsewhere since the revolution took place.

ZAKARIA: Is it your sense that the Jews of Iran are living fulfilled lives, or are they embattled and miserable, I guess would be the simplest way to put it?

COHLER-ESSES: They're not miserable, but they have discriminations. One of the leaders who I quoted in my story said, we're not oppressed, but there are limitations. And that's true, and it has many specific, multiple meanings. If an -- under Sharia, if a Muslim murders a Jew, the -- I was told by this Jewish leader the price is blood money. That's the penalty. But if a Jew murders a Muslim, the price is execution.

They were very proud because they are pushing back against these limitations in their own way, but they do not challenge in any way the legitimacy of Sharia. That gives them many disadvantages which they then try to figure out ways around and ways to fight.

ZAKARIA: The American foreign policy writer Peter Beinart who happens to also be Jewish posits that if the Tehran regime had genocidal inclinations towards Jews, surely they would have in some say taken it out on the Jews who live in Iran and the fact that they don't should cast some doubt on the idea that Iran has these kind of anti-Semitic and genocidal intentions.

Do you buy that?

COHLER-ESSES: No. I don't agree with that, although I certainly agree with the fact that the Jews in Iran are not being harmed or actively oppressed notwithstanding the discrimination I mentioned. But there are six million Jews living in Israel. And as you mentioned, there are statements by leaders such as the supreme leader, Khomeini, that talk about eliminating that state which would certainly involve eliminating many lives to make that happen.

And then they have 9,000 and 20,000 Jews in Iran who are accommodated within their civilization, within their society. They do that for many reasons. It may be a political asset for them to have a community of Jews, even though a shrinking one, that they can point to and say, look, these are our Jews in our country, and we're not doing anything to them, while maintaining a position towards Israel which, of necessity, would involve a military war that would kill many people including many civilians in order to get rid of the idea of a Jewish state.

ZAKARIA: Larry, pleasure to have you on. Fascinating report.

COHLER-ESSES: Thank you. Pleasure to be here.

ZAKARIA: Next on GPS my case for why the United States military should allow women in all combat roles. It seems to me a no-brainer. When we come back.

(COMMERCIAL BREAK)

[10:27:25] ZAKARIA: Now for our "What in the World" segment. Earlier this month at the Republican presidential debate former governor Mike Huckabee was asked how he felt about transgender soldiers serving openly in the military.

(BEGIN VIDEO CLIP)

BRET BAIER, FOX NEWS DEBATE MODERATOR: As commander in chief, how would you handle that?

MIKE HUCKABEE (R), PRESIDENTIAL CANDIDATE: The military is not a social experiment. The purpose of the military is kill people and break things. It's not to transform the culture by trying out some ideas that some people think would make us a different country and more diverse.

(END VIDEO CLIP)

ZAKARIA: Actually, America's military has always eventually reflected the country it protects, evolving and becoming more inclusive over time. It de-segregated the races in 1948. It allowed gays to serve openly in 2011. And just this week, two soldiers became the first women to graduate from the elite U.S. Army Ranger course. One of the most challenging feats in the military.

They endured a 62-day test of wills, participating in grueling evaluations and mock combat patrols on very little food and sleep, just like the men. But despite their accomplishment which only a tiny percentage of the army soldiers can claim they can't actually fight as Army Rangers. Why? Because the U.S. military currently prohibits women from participating in certain combat roles.

Former Defense secretary Leon Panetta repealed the military's ban on having women in certain combat roles two years ago. But it doesn't go into effect until January 1st and branches of the military can file exceptions to the policy before it goes into effect.

It's time to fully lift the ban. If you look at other countries women have been fighting in direct combat roles with great success for decades. Several European nations allow women to fight in combat according to the "Washington Post." In Israel where preparedness and war-fighting are absolutely critical, women are required to serve in the military, as are all men. Well over half the soldiers in the Israeli Defense Forces are female as of 2014.

One combat battalion that guards Israel's border with Egypt is 60 percent female, according to NPR. Canada has been allowing women to fight in all combat roles except submarine duty since 1989. And since 2000 they've been allowed to fight on subs as well. Canadian women fought on the front lines in Afghanistan for over a decade, like Captain Ashley Colette, who commanded a platoon and received the nation's third highest military honor.

[10:30:00] Even North Korea's military has women in combat roles according to "The Post." When you're more behind the times than Kim Jong-Un, you know you have a problem.

The arguments against women serving in combat have been raised time and time again, that they lack the physical strength, that they will threaten troop morale. And countries like Israel have reportedly experienced challenges integrating women into their militaries but that's to be expected. Big changes are hard. That's an argument to do them carefully and well, not to resist them. Keep in mind there is a chance that the next commander in chief will be a woman.

Next on GPS, are robots and machines going to take over all our jobs?

(BEGIN VIDEO CLIP)

DEREK THOMPSON, THE ATLANTIC: You look at sort of the fleet of automated technologies that exists right now, and it's rather frightening to me to think about how many jobs can be replaced by technologies that we understand to be right on the horizon.

(END VIDEO CLIP)

ZAKARIA: I'll talk to the "Atlantic's" Derek Thompson about the future of work. Terrific "Atlantic" cover story when we come back.

(COMMERCIAL BREAK)

[10:35:14] ZAKARIA: The great economist John Maynard Canes looked at his crystal ball in 1930 and imaged life 100 years later, in 2030. In a piece entitled "Economic Possibilities for Our Grandchildren," he envisioned those descendants of his working only 15 hours a week yet producing enough to live happy and fulfilled life with lots of leisure time.

It's not 2030 yet but a not-so surprising survey by Gallup last year found that only 8 percent of American full-time workers work less than 40 hours a week, 42 percent work the standard 40 hours, and the other 50 percent, well, they work more than 40 hours a week. But are we at a turning point? Will the huge advances in robotics and

artificial intelligence strip away more and more jobs from us humans until we are all working about 15 hours a week? And will that be the fulfillment of Canes' dream or a nightmare of part-time work, low wages and job insecurity?

Derek Thompson has written a great long read for "The Atlantic" called "A World Without Work" about all this and much more.

Welcome, Derek.

THOMPSON: Thank you. Good to be here.

ZAKARIA: You start with Youngstown, Ohio. Explain why. What's the story there?

THOMPSON: Youngstown, Ohio, in many ways, was the American dream of the 20th century. It had one of the highest typical incomes for young people, it had perhaps the highest rate of home ownership of any city in the U.S. in the middle of the 20th century. But then something happened in the next 20 years. The steel industry started to collapse for a variety of reasons, globalization and technology.

And in September 1977 an enormous steel mill in Youngstown essentially said we're done, we're shutting down. So while the rest of America thinks about the end of work as a futuristic concept Youngstown very much has experienced something very much like the end of work. So I went there to see how have they dealt with it in the decade since. And in many --

ZAKARIA: What did you find?

THOMPSON: In many ways, you know, people are -- people are still leaving Youngstown. The effects are still rippling through this community. And what I found is that as people have found fewer opportunities of full-time work in the labor force that exists in Youngstown, they've found ways to make do. They've cobbled together jobs. There are people there who work as T-shirt designers and bartenders and they do urban agriculture and they fix cars and they write poetry.

And so what's interesting is that, you know, when most people go to, say, a social gathering, the question is, what do you do? What's that one thing you do? In Youngstown the question isn't what do you do, what's the one thing, it's what can you do. One of the four things, the five things. So what struck me as fascinating about Youngstown is that if this is a glimpse of the future and the pillar of work that was steel there collapses for more of us, will it be replaced with despondency or will it be replaced with something like resiliency.

ZAKARIA: Now the traditional answer to your question about -- to your puzzle about Youngstown would have been, yes, Derek, of course they're leaving and of course those people who stay behind for some reason sticky or, you know, having difficult lives but guess what, you're not looking at all those places in the southwest that are growing. There are new industries, there are new communities that are thriving and bubbling.

And that in the aggregate what has happened is new industries, new jobs have come along. But you say in the article that this time it may be different.

THOMPSON: There is no question that the grand narrative of technological change in economics is creative destruction with an emphasis on the adjective creative. We are doing jobs that we could not have done 200 years ago when we were an agrarian economy. Even 60 years ago, we were a manufacturing economy. Now we're a services economy and what comes next.

But you look at sort of the fleet of automated technologies, of software that exists right now, and it's rather frightening to me to think about how many jobs can be replaced by technologies that we understand to be right on the horizon. Two examples. The first example is driving. Driving is the most common occupation among American men.

ZAKARIA: You said that in the article. I was surprised by that. You mean, really cab drivers, limo drivers?

THOMPSON: Cab and truck drivers. As you take both those categories, you put them together, that is the single biggest thing that American men do. Now we're already talking right now about Google designing self-driving cars, about Uber taking all of these scientists from Carnegie Mellon to have their own self-driving cars. This is a serious threat to employment in the U.S. if you begin to have self- driving automobiles.

Then you look at the four most common occupations in the U.S. economy. They are, in order, retail salesperson, cashier, food and beverage worker, office clerk. All of these jobs, according to Oxford university, which has looked at the automatability (ph) of all of these occupations in the U.S., seem to them to be extremely automatable either with technology we have right -- better checkout kiosks, better checkout machines -- or with technology that's right on the horizon.

[10:40:15] So I do think that this time is different. We are not back in 1920 or 1950. This is a new horizon.

ZAKARIA: So then that comes back to the Youngstown model, which is this kind of collection of part-time jobs and some leisure, poetry and such. Is that good? Is that progress?

THOMPSON: This is perhaps the essential question of the piece. Do we need to work to be happy? And this is a very difficult question to answer because right now everybody -- most people need to work in order to have money, and they need money in order to buy the essentials of life. So it's sort of like asking like, would we be less anxious without gravity? It's very difficult to sort of find a control group for this question.

There is something about busyness, something about losing yourself in the flow of a job and the flow of a good challenge that does really feed the human soul. And so when I look at this piece, when I look at this future, I think leisure is a possibility. You could have a lot of people who just don't do anything. But I don't see that as even scraping utopia.

I hope that we can find ways to push people into jobs that are more creative, that allow for more of this flow, less of this anxiety, more of these positive feelings, and we can use technological change to allow people to perhaps find their passions.

ZAKARIA: Do you -- do you end up hopeful or worried?

THOMPSON: I am hopeful about people and extremely worried about government. I don't think that the government that we have today can enact a law like a universe basic income, a kind of Social Security for everyone, a government check for everybody, which I think is absolutely essential for people to use technological change, to use technological unemployment to push toward a better future.

I don't see that in the capacity of 2015s U.S. federal government. At the same time I think that people themselves are resilient and people want to be happy. And you can imagine all sorts of community solutions to this problem, even technological solutions to the problem of technological unemployment by which people can come together and do things that we can imagine right now which would make them feel more fulfilled.

ZAKARIA: Terrific stuff. Thank you, Derek.

Now that we know that we will all be working for at least a few more years, what would make us happiest at work? More pay probably. More empowerment. Well, watch the next segment. It turns out what's good for employees is also good for the bottom line for employers.

(COMMERCIAL BREAK)

[10:46:38] ZAKARIA: Do you want a raise? Would you like more benefits? Perhaps you'd like to be treated better at your work place. If you are among the 100 percent of workers surveyed who answered yes to any of these questions, you will want to listen to my next guest and tell your boss about her.

Zeynep Ton has a rather contrarian view of just what helps the bottom line. While many in corporate America like to use the axe to improve the balance sheet by cutting staff, salaries and benefits, she says they should do just the opposite.

Sounds good, right?

Zeynep Ton has come up with what she calls the "Good Jobs Strategy for Business Success." She is an adjunct associate professor at MIT's Sloan School of Management. And this theory doesn't come out of thin air. It's based on more than 10 years of research studying retail operations.

So welcome.

ZEYNEP TON, AUTHOR, "THE GOOD JOBS STRATEGY": Thank you.

ZAKARIA: What I am struck by is what you're describing is -- you know, it seems too good to be true because for so long the mantra has been that we are in this fierce global competition, companies are facing all this competition from all over the world. They have to cut costs, cut costs and cut costs, and as a result, you know, that's probably one of the forces that has kept median wages in America and in the Western world pretty flat.

You're saying that companies are actually making the wrong decision.

TON: Yes. So the conventional wisdom in business is that, if you want to offer the lowest prices to our customers, then we must pay our employees as little as possible and treat them as interchangeable parts. What I found in my research is that the tradeoff between low prices and good jobs is actually forced tradeoffs. If the companies run their operations well, they can have low prices, good jobs and great shareholders' returns at the same time.

ZAKARIA: Give me an example of the kind of company that you think --

TON: And the types of companies that I studied are supermarkets, warehouse clubs, convenience stores with gas stations. So one of my --

ZAKARIA: So these are low-margin --

TON: These are low -- these companies are fighting in low-margin industries and they need their costs to be as low as possible. The way they do that is through investing in their workers and making some very smart choices. The thing is, when I looked at companies like Mercadona, Spain's largest supermarket chain, I found that they weren't just paying their people more, they were actually designing a whole system that improved people's productivity and enabled their employees to play a big role in the company's success.

ZAKARIA: So, you know, does -- one piece of this where you're saying that paying higher wages. What are they getting in return for these higher wages?

TON: Yes. We have to think about higher wages in the broader context of a company's strategy. Let me give you one example. The companies that I observed -- you know, if you go to a supermarket, and -- low- cost supermarket, chances are you won't be able to find people to be able to help you. Right? Because most of the companies see labor as a cost so they try to have as few people as possible on the selling floor.

The companies that I studied deliberately have more people than the expected workload. How can this be good for them, you might say. Well, this is great for them because when a store is understaffed there are lots of problems. The checkout lines are too long, products are in the wrong place, the prices are inaccurate. And these increase costs and lower service.

[10:50:01] So the companies that I studied recognize these, so they ensure that these costs are not observed and they realize that if they give people -- if they give their employees enough time, they could identify improvement opportunities so that they can reduce costs everywhere else in the system.

ZAKARIA: See, in a way, the western capitalist model seemed to be moving away from this because it used to be, you know, that when you made products, the human being was involved in making all parts of that product.

TON: Yes.

ZAKARIA: It was almost like a craft. And then you get the assembly line and Henry Ford says, no, I'm going to break these jobs up into very discreet tasks and you just have to turn the screw, and you just have to hit the hammer, and we're going to make it so that it -- you know, it becomes very mechanical. Are you saying we need to return to the 19th century artisanal model?

TON: I'm saying that after Henry Ford Toyota came along and said that model is not right. We want that standardization but we also want to empower the assembly line worker to identify problems and be part of improvements. And through investing in people Toyota showed us that it can lower costs and increase quality at the same time.

I'm saying that the type of revolution that we saw in the auto industry, the Toyota revolution, we can see it in industries like retail through a good jobs revolution.

ZAKARIA: And in a sense the Toyota example suggests that, even though your research is mostly in retail, it could be applicable everywhere.

TON: Absolutely. In fact, you know, I stand on the shoulders of other academics who have argued for a long time that investing in workers and making smart decisions drive great value for companies and their investors.

ZAKARIA: What does it say about capitalism that so many capitalists are doing this wrong? Is it a focus on short-term that's wrong? Is it -- I mean, how would you describe it, right? Because a certain way, you're saying all these companies are actually not understanding their own enlightened self-interest.

TON: Look, I'm a business school professor and I'm all for capitalism. But a lot of good jobs strategy requires a long-term view. And people are wired to emphasize the short term at the expense of the long term. People still smoke, they still don't exercise. We know that. In addition, good jobs strategy is a holistic strategy. It requires a systems view. It's not about just raising wages. It's not just about training.

And a lot of companies are stuck in silos. They work in silos. They don't see the whole picture. Achieving excellence is always harder than achieving mediocrity. And there are a lot of companies are stuck in mediocrity. They can still make money that way.

ZAKARIA: Fascinating stuff. Thank you so much. TON: My pleasure.

ZAKARIA: Next on GPS, has it been a hot summer where you are? Well, how about 165 degrees Fahrenheit? I'll tell you about real heat when we come back.

(COMMERCIAL BREAK)

[10:57:12] ZAKARIA: This week the libertarian Cato Institute released its index on human freedom which presents the state of human freedom in the world based on 76 indicators that measure civil, economic and personal freedom.

It brings me to my question of the week, what country does Cato rank as freer than the United States? Chile, Sweden, Canada, or Germany?

Stay tuned and we will tell you the correct answer. This week's book of the week is "The Magic of Reality: How We Know What's Really True" by Richard Dawkins. This was book given to my 16-year-old son but I got hooked reading it. Dawkins is the great scientist and writer sets out to explain very simply some of the fundamental realities of the world like who was the first person, why are there so many species, how and why did everything begin.

It is brilliantly conceived and lucidly written, one of the great books to make sense of the world around us. Everyone including my son should read it.

And now for the last look. It's not your imagination. It has been swelteringly hot out there. According to NOAA, the first half of 2015 ranked as the warmest period on record. Additionally, NASA found this July was the hottest ever recorded on planet earth. Records were broken all over the planet, but none as extreme as the Middle East.

In the city of Bandar Mahshahr, Iran the heat index neared a world record reaching 165 degrees Fahrenheit. In neighboring Iraq, the "New York Times has reported that the heat has even eclipsed war with the Islamic State as the crisis du jour. And protests about the lack of reliable electricity and thus air-conditioning have brought something miraculous from the government in Baghdad. Responsiveness.

As Tom Friedman pointed out, officials have been fired and as we discussed on last week's show, major reforms have been proposed. The leaders of the world would be wise to witness and pay heed what happened in Iraq. If they don't do something to mitigate the effects of climate change now, protests will be coming to their capitals soon enough.

The correct answer to our GPS challenge question is a bit of a trick. Chile, Canada, Sweden and Germany all rank higher than the United States in terms of human freedom according to the libertarian Cato Institute. The United States which Cato ranked as the 17th most free country in 2008, found its ranking dropped three spots to the 20th most free country in the world now.

The report's author says the main factors for the U.S.'s low ranking included long-term declines in economic freedom and a drop in rule of law indicators as a result of the war on terror and drugs. Perhaps such rankings will be a nudge for leaders of the land of the free.

[11:00:02] Thanks to all of you for being part of my program this week. I will see you next week.