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Fareed Zakaria GPS

Iraq Holds Elections; Davos Recap

Aired February 08, 2009 - 13:00   ET


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.

We have a great show today. We're going to start with Iraq, who just held elections that were peaceful and successful.

Now, Americans have already tired of hearing about Iraq. But let me tell you why you should pay attention to these elections.

Back when all this began, when the U.S. first invaded Iraq, I supported the idea. I supported the overthrow of Saddam Hussein's regime, because I thought that to have a democracy in the heart of the Arab world could change the politics of that region. But dictatorships have bred extreme and religious opposition movements, like al Qaeda.

It was a good idea. But it wasn't long before I despaired. We all remember the horror wrought by the poor planning, Iraq in the grip of bloody and uncontrolled violence, the catastrophic way the Bush administration handled the occupation -- all of which said to me the costs simply became too high to justify.

But I continued to hope that an Iraq that handled its politics through debate, negotiations and participation would mark a sea change in the Arab world.

Think about it. Of the 22 Arab countries, this is the only one to have held real elections.

Now, on the show today, after Iraq, we have a provocative environmental debate -- is global warming as dangerous as we think -- two experts. And also, we're going to talk about the economic catastrophe with some of the world's most important economic policymakers, who have real, concrete ideas about what we should be doing right now.

So, stick around.


ZAKARIA: So let's get started with our Iraq discussion.

Joining me from Sulaimaniyah, Iraq, is the deputy prime minister of Iraq, Barham Salih. In Atlanta, Martin Indyk, the director of the Saban Center at the Brookings Institution, former assistant secretary of state for Near Eastern affairs, and the author of "Innocent Abroad," a wonderful book chronicling his adventures in Middle East diplomacy.

And here in New York, our own Baghdad correspondent, Michael Ware, who has traveled the globe, but spent many, many years in Iraq.


ZAKARIA: Welcome.

Barham, Mr. Deputy Prime Minister, let me ask you first, what is the significance of these elections? These are provincial elections. These are not the national parliamentary elections. How important are these?

BARHAM SALIH, IRAQI DEPUTY PRIME MINISTER: This is monumental. People should not lose sight of what has taken place here. This is messy, confusing sometimes, but it is politics.

People are moving away from the bullet to the ballot box. And I think this a good day for the type of hopes that we have for Iraq, still fraught with challenges and difficulties, but it can be done. The distance that we have traveled is amazing...

ZAKARIA: I agree. I agree.

SALIH: And it is a testament to the resilience of the people of Iraq, and also a testament to the commitment of the United States to this process.

ZAKARIA: Michael Ware, you were pretty pessimistic about how things would work out in Iraq. Do you feel like you're seeing some glimmers of hope? Are you more optimistic now?

WARE: Yes, I am, although I am still very much holding my breath, obviously, because I can see the grand dynamics still at play. And despite whatever political progress or talk of reconciliation that there's been, really, these fundamentals have not been resolved -- far from it -- as the deputy prime minister points out. So, I'm still waiting to see how it plays.

And in terms of U.S. interests, America is holding the live grenade in its hand of Iraq. And the pin is still pulled. That pin has not been put back in.

America can not yet release its grip, so to speak, because there's so many flashpoints that still persist, and they're tremendously serious. And the 800-pound gorilla in this room, for example, is -- beyond Sunni-Shia reconciliation, beyond Iran, beyond militias coming into the political process -- there's the Arab-Kurd divide.

These huge issues have not been resolved, so this is no time to be walking away. ZAKARIA: Martin Indyk, let me ask you. Do you think that people around the Arab World are looking at the Iraqi elections and now saying, you know what? The Sunnis are getting a fair shake, they are not being persecuted by the majority, which is a kind of Kurdish-Shia clique.

MARTIN INDYK, DIRECTOR, SABAN CENTER FOR MIDDLE EAST POLICY, BROOKINGS INSTITUTION: I think there is still a good deal of skepticism about the Iraqi experiment. And the Arab world generally sees it through the lens of the incredible destruction and violence that has taken place, and the sectarian warfare that has opened up a divide, a Sunni-Shia divide, across the region.

And so, yes, there will be those small liberal voices in the Arab world who will take heart at the way in which the election process appears to be helping reconciliation between Sunnis and Shias. But I think the general response, for the time being, is that they'll suspend judgment, at best, rather than decide to embrace this approach.

ZAKARIA: Barham, the one Arab country that vociferously denounced Israel was of course the Iraqi government. The prime minister made some very strong statements about Israel. Ayatollah Sistani, the leader of the Shia marjaljt (ph) made -- issued a fatwa, actually, denouncing Israel.

Presumably, the prime minister is, of course, sensitive to the views of the majority of Iraqis, and particularly the majority of Sunnis and Shias.

Should we expect a democratic Iraq to be more radical and pro- Palestinian on the Israeli-Palestinian issue, because it will reflect the views of its people?

SALIH: Iraq is a member of the Arab League, and is committed to the Arab peace plan. And we are no longer a rejectionist state the way Saddam Hussein was.

To us the priority is Iraq and Iraq's recovery. We want to be supportive of the Palestinian plight, and we support the legitimate Palestinian leadership.

But certainly, there was a lot of sympathy with the plight of the Palestinian civilians, who have suffered as a result of this episode of conflict.

ZAKARIA: Rejectionist, of course, refers to the rejection of Israel's existence.

The way I decode that very elegant answer, Michael, is that the deputy prime minister of Iraq is saying, our priorities are Iraq.

And this may be the promise of democracy, that there is less blaming external enemies, external foes and a much greater interest in your own country. People are going to vote for these parties on Iraq not on their romantic stands on the Palestinian issue, but on whether or not they can actually clean up Basra, Mosul, et cetera.

WARE: Absolutely. I don't think there would be any Iraqis who are casting their ballots according to a politician's stand on Palestine.

And let's not forget here, the U.S., the previous U.S. administration, grossly underrated from the beginning the sense of Iraqi nationalism. Indeed, that's what fueled a lot of the Sunni insurgency. That's what we've seen help propel Muqtada al Sadr to his position of prominence.

So, you cannot underrate Iraqi self-identity as it exists, and Iraqi pride in their nation, and their willingness to defend that as they see it.

ZAKARIA: Martin Indyk, what happens to the American drawdown? Does this good news mean that the United States can proceed with the Obama plan, which some might of course call the Obama-Maliki plan, since the prime minister seems to essentially endorse the timetable that Barack Obama has put forward?

INDYK: I do think that, while the situation is still fragile, and it will still be important for American forces to kind of hold the ring as this political reconciliation process goes ahead -- particularly to national elections that will take place next year -- nevertheless, it is good news in terms of the need, as well as the desire, to draw down the forces pretty much on the timetable as Prime Minister Maliki had agreed on with President Bush.

And that is good news more broadly, because the situation in Afghanistan is deteriorating. The president has made clear that he wants to send more forces there.

We don't have the capabilities to do that unless we can draw down effectively in Iraq. But the last thing he wants to do is draw down there and have the whole situation erupt again.

And so, therefore, I think, with so many other things going wrong, particularly in the Middle East, Barack Obama must be relieved today that the political process is moving forward in a positive way. And that will advantage the effort to draw down the troops and free them up for uses elsewhere.

ZAKARIA: Barham Salih, this is the big question that Americans will be wanting to hear from you. If we draw down, do you promise to keep the peace?

SALIH: Well, I can tell you the progress is undeniable, is tangible, and should be recognized and should be celebrated. However, it is still fragile, and it's still precarious. Without active American engagement and support, the security gains and the political gains could unravel.

There are key issues of power sharing, oil and revenue sharing, disputed territories in Kirkuk and other areas. Some of these fundamental issues are yet to be resolved. ZAKARIA: How do you do this? You say the support of the international community. What is it that it would take?

Because you're right. There still is not a political deal on the core issues of -- whether it's oil, the sharing of power, exactly how much will be held in the center and how much will be held at the state level.

And many of us worry that that means that, when the Americans leave, you guys are going to start fighting about these things and fighting about them using actual weapons.

SALIH: At the end of the day, politics is breaking out in Iraq.

Yes, this is not your Western democracy yet. But what has happened is also a very profound statement that this political process is working. People are taking part in it. ISCI, Dawa, Kurds, Arabs, Shias and Sunnis all are playing within the rules.

WARE: Who really has renounced violence in Iraq? I mean, the underlying, fundamental building blocks of the Iraqi political process, unfortunately, still remains how many men-at-arms you command.

There is no key faction within the government that does not have its own militia or paramilitary force. That's just the nature of the beast right now.

ZAKARIA: Wait. Isn't it true that the prime minister's party actually is the one party that didn't have a militia, and..

WARE: This is -- this is where we come. And this is what we see lately.

The prime minister has been copping flak, because it's been argued that, by default, he's been attempting to pull together some kind of political alliances that effectively give him a militia base.

As the deputy prime minister would know, for some time over the last year, there's been lots of tension out there with threats from the Awakening Councils and the tribes to rise up and essentially overthrow the Iraqi Islamic Party.

So has violence completely left the Iraqi political process? We hope so. But that's still what potentially underwrites the entire system.

SALIH: I want to dissent from what Michael Ware was saying.

I am not saying that Iraq is a perfect democracy and that we - everybody is living by the rule of law. Yes, there are still militias, people under arms. But there is a significant departure from the days when we had militias rule this country.

Two years ago or so, people were willing to concede defeat in Anbar to al Qaeda. Al Qaeda was ruling in Anbar. Now, Anbar is under the government control.

The militias that helped push out al Qaeda are taking part in the electoral process. That is success. That must be seen for what it is. This is a major, major victory for the political process in Iraq.

ZAKARIA: I agree. It is many problems. But there is no question, good news from Iraq, a good week for Iraq.

And we will be right back.

Deputy prime minister, thank you so much. Martin Indyk, Michael Ware, thank you.

And we will be back.


ZAKARIA: In economic hard times, it often appears that one of the casualties is going to be the green movement, environmentalism.

We're going to talk about all this with two people with distinctly different approaches to some of these issues.

The first is Bjorn Lomborg. His book, titled "Cool It: The Skeptical Environmentalist's Guide to Global Warming," pretty much tells us his opinion.

Jeff Sachs is one of the world's leading economists, and a strong voice on combining economic development with environmental sustainability. He's the director of the Earth Institute at Columbia University.

Gentlemen, welcome.

Bjorn, when you look at the Obama plan -- a massive green stimulus, funding lots of green industries -- you seem somewhat skeptical. This is a -- this is a word that's going to live with you forever, I think.

BJORN LOMBORG, AUTHOR, "COOL IT: THE SKEPTICAL ENVIRONMENTALIST'S GUIDE TO GLOBAL WARMING": Well, and that's good. The main issue, of course, is to say, how do we tackle global warming.

Global warming is happening. It is manmade. It's a problem that we need to tackle. But we also need to tackle it smartly.

A lot of people want to cut carbon emissions right now, which turns out to be fairly expensive, and actually do fairly little good for the environment, even in 100 years.

So, I want to make sure that people focus much more on investing in research and development, make cheaper opportunities for the future -- basically, make solar panels and wind turbines and many other things cheaper.

ZAKARIA: So, you like that part of that Obama plan.

LOMBORG: Absolutely. So, my question is simply, to what extent is Obama going to spend money on getting better technologies for everyone, including the Chinese and the Indians, which is a great idea.

I simply want to make sure that he spends the money a smart way.

ZAKARIA: And no carbon tax.

LOMBORG: Well, we should have a low carbon tax, I think. Every economist would argue CO2 is a pollutant. It causes damage. We should internalize that by having a carbon tax.

But the correct carbon tax is probably in the order of $6 or $7 per ton of CO2, which is, you know, six or seven cents on the gallon of gasoline. And let's be honest. That's not what's going to solve climate change.

So, yes, we should have it, but it's not the majority of the solution.


JEFFREY SACHS, DIRECTOR, THE EARTH INSTITUTE, COLUMBIA UNIVERSITY: Well, I -- Bjorn's moving in the right direction. And this is -- this is good. You know, I think there's a lot of progress in Bjorn's view.

The problem is real. It needs to be solved. It needs to be addressed. Big technological change is a very important part of it. And I think all of that is the right message.

I wish he had been more clear about that message for many years, but I'm happy to hear what he's saying right now.

There's no doubt that we need to invest heavily in good and new technologies, a new power grid, new renewable energy sources. I think where the differences are is how much to invest, how to describe the urgency of this, and, therefore, some very practical questions.

ZAKARIA: What do you say to the charge that you have changed your views?

Or -- you know, you did give the impression to many people that you thought, as I said, you know, that some people will die of heat in global warming, but lots fewer will die of cold. The polar bears are doing just fine. The Arctic ice cap is actually not melting.

All of that was surely a way of saying, this is not as big a problem as people think it is.

LOMBORG: And it isn't. So it also...

ZAKARIA: So, explain, explain. LOMBORG: No, but there are several discussions...

ZAKARIA: So, now we're getting...

LOMBORG: ... that we...

ZAKARIA: Now we're getting -- yes.

LOMBORG: ... we need to counter here. The question is, so, what should we be spending each year in budgets? This is a marginal question. Should we cut an extra ton of CO2, or should we not?

Should we invest an extra dollar, an extra $1 billion in research in those...

ZAKARIA: Explain what marginal means in this context.

LOMBORG: Well, basically, should we move ahead and say we're going to increase the taxation a little bit, so we cut a little bit more? Or should we increase the research and development rate for the U.S. government, or for whichever government, and spend a little more in research and development in renewable energy technologies?

Those are all marginal questions. Those are questions that you reasonably can ask and say, how much more do you get for your dollar?

Now, I'm all fine with saying that some people want to spend much more. I know that one of your standard things is to say we should be spending much more than three cents per $100. But...

SACHS: And we've promised to do so by the way, Bjorn.

LOMBORG: Oh, absolutely. And it...

SACHS: So, it's also interesting that...


SACHS: ... you've set such a limited agenda.

LOMBORG: No, but listen. The point is, we have promised this since 1971.

SACHS: Yes, but you should be out...


SACHS: And we have a (ph) sign (ph) that is saying follow through on the promises, not...

LOMBORG: No, no, no.

SACHS: ... on constricting...

LOMBORG: No. No, Jeff...

SACHS: ... our discussion to such a low level.

LOMBORG: Jeff, the point that I try to make is to say, I'm all for an activist agenda and that you go out and say we should have more money. And I support you definitely in that.

SACHS: Say it again.

LOMBORG: But I -- we should definitely have more money for all of the world's problems. But I think it's crucial that we also be honest academically and say, where can we do the most good with the money that we are going to be spending.

That's also one of the ways that you will get people to spend that extra money, by saying we're going to spend it well and not poorly.

SACHS: But Bjorn...

LOMBORG: And that's exactly the point where it seems to me that you're making the argument we should be spending this money on all different areas. No. If you can spend the dollar and do $20 worth of good, or you can spend a dollar and do four cents worth of good, I would say we should first spend it on $20.

SACHS: But that's not the issue. And...

LOMBORG: It is...


SACHS: No, it's obviously not the issue. Maybe we should understand how you're heard here. For example, Obama is talking about $15 billion per year for R&D for sustainable energy.

People quote you all the time as saying, that's a low priority area to invest in. Climate change, what's that about?

But -- and that would be your full Copenhagen Consensus money, by the way. But of course he should spend $15 billion a year for R&D, in the U.S. alone.

LOMBORG: If it's R&D...

SACHS: Of course.

LOMBORG: ... yes. But it's -- you know, it's very unclear whether it's going to be actual inefficient technologies, or whether it's going to be R&D.

SACHS: Well, but let's also be clear...

ZAKARIA: Wait. Wait a minute.

We're going to be right back. We'll talk more about this. Thank you.


ZAKARIA: And we are back with Jeffrey Sachs and Bjorn Lomborg.

The argument is -- as I think, you know, Bjorn puts it -- spending money on global warming, that phrase really is about putting in vast amounts of investments to try to slow down the rate of increases in carbon emissions, or actually to cut carbon emissions.

LOMBORG: That's correct.

ZAKARIA: And that this is very inefficient. What we should do is really adapt as much as we can to the reality that the climate is changing.

SACHS: I think it is a wrong-headed view, wrong on all counts. First, the costs of heading off massive climate change are much less than might be supposed, under one percent of world income per year.

Second, the costs of a business-as-usual trajectory threaten the planet on a gamble much bigger than Alan Greenspan's gamble.

I don't want a president to say in 40 or 50 years, oh, I detected a flaw in the logic. We have lost the Earth. We've lost the ecosystems. We've moved to a range of temperature, water, disease and other shocks to the one earth that we have, which are devastating.

LOMBORG: The real point here is to realize, you are going to talk about spending.

If you look at the Lieberman-Warner bill in the U.S., the European 2020 decision, those are real political decisions. We're going to be spending $200, $300 billion a year for the next half century, the net effect which will be less than half a degree centigrade -- reduction in temperatures in Fahrenheit, much less in centigrade. We'll have no impact.

SACHS: Let me talk about the process and then the substance.

ZAKARIA: But talk about the specific issue, which is, for the money...

SACHS: I will.

ZAKARIA: ... what kind of effect will we get?

SACHS: But first, you can't let this run wild. And you've just -- maybe we've agreed on that now. I'm happy to hear you say it again, that the question is only one of timing. Now -- and that it's going to be very large investments, but it's getting the timing right.


ZAKARIA: But he doesn't agree that you -- that you can't let this run wild, because you're saying, as I understand it, dramatic and expensive efforts to cut carbon emissions will reduce the temperature only by a half degree, and it's not worth it. LOMBORG: If we do it now. And that's the main problem. That's how all the policy arguments are being framed.

SACHS: Should this be allowed to...

LOMBORG: This is...

SACHS: ... run on a business-as-usual?


SACHS: And should we stabilize greenhouse gases, Bjorn?

LOMBORG: There's two things you need to realize, and which are sort of dug in, in this whole debate.

One is to say, your proposals will actually end up doing fairly little good at very high cost. If we are going to cut...

SACHS: You (ph) don't know what the proposals are.

LOMBORG: ... carbon emissions, we need to have cuts that work, because cutting carbon emissions became cheaper than fossil fuels by, you know, investing in research and development, that we actually got solar panels that will work cheaper, rather than needing a lot of subsidies. That's the long-term solution.

But likewise, you also need to fess up to the argument and saying, sure, if we let climate change run unlimited for 100 years, there's going to be a big problem. But if we let all the other problems run, there's also going to be problems.

And so, you have to come back to asking, what is going to be the priorities? Where should we be spending our money to do the most good?

ZAKARIA: You get the last word here.

SACHS: I've shown that for about two percent of national income, we can address all of these, that the idea that you have to do one or the other is a false choice, Bjorn. That's the basic point.

And the other point is, it's not as if all technologies are in the future. We agree on the need for massive R&D. I've been saying it for many years.

But McKinsey has a wonderful study, which shows what's available right now at negative cost -- in other words, saving, by purely getting saving, maybe that's not properly recognized or built into building codes or other regulatory standards right now...

ZAKARIA: Better insulation, that kind of thing, yes.

SACHS: Exactly. Where they point out correctly that the returns on better insulation are lower energy use and vast savings over the life of a building. But the building codes don't have that properly embedded right now in the United States.

And so, what McKinsey shows is certain things are available right now. Certain things will be available in the future.

Bjorn and I no doubt agree, we shouldn't do today what only is going to be available in the future. And we should invest very hard to get the new choices for the future, because we don't have today, yet, the technologies we're going to need for the full-scale transformation.

But it's not all waiting for the future, because many things are available today, and many things will be needed in the future. And this is a big problem that threatens the entire planet, and we should be willing to invest more than three cents per $100 to address it.

LOMBORG: Oh, but Jeff is willing to spend $2 per $100.

SACHS: That's correct.

LOMBORG: That's great. But we haven't even been able to get those three or those -- well, at least 50 cents -- we haven't even been able to get those. So I would say, why is it we're willing to say, let's spend $1 really, really great out of the 100, and $1 pretty poorly?

As long as we haven't even gotten the first dollar, I would say, let's just try...

SACHS: Not willing to...

LOMBORG: ... to aim for the first dollar that actually does a lot of good.

SACHS: Not willing to say -- to spend anything poorly, Bjorn, but trying my best to explain why we should be spending $2 for $100, to look after a future that is at risk, not settling for where we are, but explaining that it's not going to break the bank. The banks broke themselves.

It's going to be saving the world for our children and our children's children, and not at a huge cost, but at more than we're spending.

People are confused. When you tell them it's not important, they're even more confused.

LOMBORG: No. I'm telling you we should be spending our money wisely. And the one percent that you want to spend on climate change, I've just pointed out to you, the actual political impacts are at least half a percent -- probably more likely to be one percent -- and will do virtually nothing.

Now, I agree that we could make them more efficient.

SACHS: Well, sure.

LOMBORG: But even the ones that you're talking about are not very efficient. And therefore, if we want to make a better future...

SACHS: What do you mean, the ones I'm talking about? Which ones am I talking about?

LOMBORG: You're talking about making grand cuts already pretty soon, in 2020...

SACHS: Where?

LOMBORG: In your book.

ZAKARIA: Carbon emissions.

SACHS: I'm talking about using the available technologies that we have...


SACHS: ... the best available technologies that we have. And as you know, I stress, as much as anyone has for the last 20 years, the need to invest heavily to improve these technologies.


LOMBORG: That we agree on.

SACHS: Right. And so, I'm...

ZAKARIA: On this moment of agreement...

SACHS: Yes, OK. Good.


ZAKARIA: ... Bjorn Lomborg, Jeffrey Sachs, thank you very much.

And we will be right back.


ZAKARIA: So, last week, I was in Davos, Switzerland, for the World Economic Forum. It's that yearly gathering of world leaders, CEOs and bankers -- well, fewer bankers this year.

In the midst of a global economic catastrophe, you'd think it would have far greater importance than ever before. Someone among all of the brilliant people gathered in the Alps must have some kind of solution to get us out of this gigantic mess.

And there was a lot of talk -- days of it -- about what to do, much of it fascinating. The problem was, few people were offering specifics -- concrete ideas that might make a real difference.

Until the final day of the conference, the final session, four of the world's major economic players gave me their closing thoughts. And for the first time, we heard important ideas that might actually get us out of this mess.

So, listen to what they had to say.


ZAKARIA: We have with us Christine Lagarde, the finance minister of France; Jeroen van der Veer, the CEO of Royal Dutch Shell; Uday Kotak, the CEO of Kotak Mahindra, the fourth-largest private bank in India; and Rachid Mohamed Rachid, the trade minister of Egypt.

Let me begin with you, Christine Lagarde.

Your president came into office calling -- being proud to be called the American, as a sign that he was a reformer and wanted to liberalize the French economy.

You came in with similar labels. You were telling me that when people want to make fun of you on French television, the way they do it is, they throw in English words to suggest that you are a closet American.


Is it now a very unpopular place to be, to be a closet American in France?

CHRISTINE LAGARDE, FINANCE MINISTER OF FRANCE: No. And I think there is nothing wrong with being friend with the Americans, and there is nothing wrong with being American as such. I think we should get away from finger-pointing and associating what is wrong at the moment with either one country or one set of institutions.

ZAKARIA: Let's talk for a moment about the bank rescues -- the one you did in France. You fired the top management in 48 hours.

LAGARDE: Two days.

ZAKARIA: Two days.

LAGARDE: Yes. We only rescued one bank. The other banks are solid and fine. That one was a Belgium-Luxembourg-French bank, and wrong business model, wrong management, wrong approach.

We injected capital, took over, fired the management, asked the new strategy and stopped loss -- moved in place to stop loss guarantee. But we took immediate and decisive action, and we told the management to just get out.

ZAKARIA: When you saw the news that American banks had paid $18.5 billion in bonuses, did you share President Obama's feeling that this was shameful?

LAGARDE: I was appalled. I was appalled.

And frankly, I have a proposal, actually, that those people who have had the benefit of years where they operated in a strange fashion, to say the least, now, why don't they just volunteer a bit of their brainpower, a bit of their skills -- and I'm thinking of a few individuals in particular who have been kept out of the system now -- but they're certainly unemployed.


And I'm not proposing to pay them any salary. But if they can volunteer their brainpower and their skills to help us, and their friends in the community, and all of us, a system that will avoid the pitfalls and the wrong incentive systems that have been in place, I think that would do some good to the community. Just like the hackers were hired by computers company, just in the same way we can take those guys and use their skills.



ZAKARIA: So, for any laid-off investment banker watching this show, please remember...


... apply to Christine Lagarde for a job.

LAGARDE: Low-paid.

ZAKARIA: Uday, I want to ask you about what a good bank would look like.

UDAY S. KOTAK, VICE-CHAIRMAN AND MANAGING DIRECTOR, KOTAK MAHINDRA BANK: In my view, Fareed, there are three principles on which a good bank can be built. Number one, control leverage. Number two, humility versus arrogance. And number three, avoid disruptive creativity.

ZAKARIA: You just eliminated every Western bank.


KOTAK: Keep these three up (ph), and you have a good bank.

ZAKARIA: So, you don't think, in a sense -- because this is a very fundamental issue going forward -- that the Western model is broken, or capitalism is broken. This is a case where you needed more shock absorbers, and frankly, the kind of shock absorbers that existed only 20 years ago.

KOTAK: Absolutely.

And Fareed, if you go back to traditional history of the financial system, it was the saver and the borrower. And the bank was intermediating in the middle. And the banker knew the borrower personally. We tried to replace this system.

These institutions of trust have not performed the way they should have. Trust has to be built more on a personal level in view of the failure of institutionalization of trust.

ZAKARIA: So, the bank really needs to know the person in a way, or the institution to which...

KOTAK: Absolutely.

ZAKARIA: ... he is making the loan.

KOTAK: Absolutely.

ZAKARIA: Jeroen, when you hear this, do you think that there will be a backlash against capitalism, a broader backlash?

JEROEN VAN DER VEER, CHIEF EXECUTIVE, ROYAL DUTCH SHELL: There's not only a banking crisis, as we just described, it is a crisis of trust. It is a crisis which is between your ears.

And if people feel that there is good cooperation, not only between governments internationally, there is good cooperation between governments and companies, that they try to be responsible in the crisis and they communicate well about that, that will help to regain the trust of the consumer.

Of course you need leadership in companies. But the public likes to see the emphasis on servant leadership. And you should not only serve the shareholders. We have to make clear that the company has more stakeholders than just shareholders.

And then I think that all helps to bring back the trust in the system.

ZAKARIA: Rachid, when you look at this from Egypt, you have a reputation -- your government, the prime minister, the finance minister, you -- of having been reformers, of trying to liberalize the Egyptian economy, one of the most closed and quasi-socialist economies in the world for many, many decades.

Does this make your life more difficult? Does it make it harder for you to make the case for liberalization?


And not only Egypt. I know from many of my colleagues around the world that, of course, now, people are saying, well, where is the model?

There have been certain countries who have benefited in the last few years, but there still remain billions of people quite in a poor status in the world.

And the question now, are all the solution and remedies put in place is going to make these poor people even poorer. Because yes, you know, commodity prices are dropping. Financial institutions are not having enough money to finance projects in Africa and poor countries. There is a big concern at the moment. And that is the reason why we need a global position.

I would even doubt that the G-20 alone will be able to do it, I mean, because G-20 represent the biggest, probably, 20 economies in the world. We don't want just a solution for the biggest 20 economies in the world. We want a solution that will take care more about the poor people than just the rich people.


ZAKARIA: Rachid Mohamed Rachid, you have just come out of a trade ministers meeting. One of the things that I think many people listening to these kind of conversations must wonder is, what does it mean to talk about cooperation?

What do you -- what concretely do you want governments to do together? What difference will it make?

RACHID: Well, of course, the biggest concern we are having around the world today is the tendency that started already of nationalism and protectionism. And it has started actually to happen, day after (ph) day -- today.

Well, we know that the problem, financial problem, have been in the U.S. and Europe. But if you look at the rest of the world, the world outside of the centers, many people look around and say, "Why are we in trouble?"

They cannot understand why all of a sudden the world is falling apart, because a problem had started somewhere in the middle of the U.S. or in the middle of Europe. And it touches the life of all the people around.

All these big bailout projects, and we keep hearing they are going to be financed by taxpayers. And obviously, the taxpayer will say, "If I'm going to put money in this, I want to make sure that I will be benefited, not people in Egypt or in China, or in France or elsewhere."

And that is driving very quickly now the sentiments of protectionism.

ZAKARIA: But you are saying that we are no longer talking about the danger of protectionism. You are already seeing protectionism.

RACHID: Yes, definitely. You know, Europe today have increased subsidies on some of their agricultural products. It happened in the last few weeks.

And immediately, it had an impact on us in Egypt. So, dairy products -- all of a sudden, people started to slaughter cows in Egypt, because Europe decided it was in their legitimate boundaries to increase subsidy.

ZAKARIA: When one thinks of agricultural subsidies, Madame Lagarde, one has to ask about France.


RACHID: Well, this was not the intention.


ZAKARIA: Is it not true, though, it's not just France? The American stimulus package has a "buy American" clause in it. Gordon Brown says the British banks must lend to Britons. Your president has said similar things.

Isn't this in -- isn't this contrary to the spirit of free trade?

LAGARDE: I think we have a huge imperative. And that's driven by time.

But it remains true that, when you engage taxpayers' money into rescuing national companies, the return is expected locally. That's the first part of the dilemma. And it's a huge challenge.

In my view, the only response to that is, certainly, communicating on that vein. But more importantly, move extremely fast in restoring confidence -- restoring confidence amongst the financial institutions, so that they can work together, they can resume lending, as Gordon Brown said yesterday.

Certainly, France and President Sarkozy are determined to have an April 2nd meeting of the G-20 countries, which will actually try to restore confidence by giving clear signals that things are going to change. Not just with words, not just with good speeches, but with actions that will be taken back home, and with a solid, empowered institution that will be independent, yet accountable.

ZAKARIA: But Madame Lagarde, could you imagine a body of 30, 40 countries being able to quickly and in a crisis situation actually write rules? I mean, this sounds like a...

LAGARDE: Well, I'll tell you...

ZAKARIA: ... a recipe for committee hell.

LAGARDE: I'll tell you something. When we faced the banking imminent crisis in October 2008, the 27 ministers of finance of Europe got together. And we, in a matter of a day, and with the assistance of the European Central Bank, we formed a doctrine.

We determined how we were going to address it, what kind of recapitalization, what kind of guarantee schemes and what toolbox we were going to use, and with a view to hurting the equity holders first and protecting the depositors.

So, it's doable when there is the energy and the drive to do so.

But we need to give very quickly signals that we are hitting in the right direction, and that on certain points we are actually going to act, not just, you know, talk the talk.

ZAKARIA: Jeroen, you wanted to...

VAN DER VEER: If you think, we go from six to nine billion people in the coming 40 years. All persons on earth like to have access to electricity and to transport themselves.

A lot of our energy system is pretty old, so we have to replace how we make electricity as well.

We have a huge problem to build an energy system for all people in the world. And of course, government can (ph) subsidize that, but they can enable the frameworks to accelerate this development. And that in itself helps to restart the machine.

ZAKARIA: Where do you think in this picture, where will oil be 20 years from now? Will oil be used as a transportation fuel? Will cars be mostly driven using electricity and batteries?

VAN DER VEER: We have now horses and trains and freight trucks. And then, we have still gasoline cars and diesel cars and hybrids. Probably we have hydrogen cars, electrical cars. And they have -- all find a place in the game.

ZAKARIA: And the price of oil in 20 years?


VAN DER VEER: I think good enough for Shell to make a good living.


ZAKARIA: All right.

On that note, we have the privilege of having the man, who 39 years ago founded the World Economic Forum, in our midst, and ask Klaus Schwab.

Klaus, what would be your sense of what is the most urgent task?

If you had to prioritize, if you were...

KLAUS SCHWAB, FOUNDER AND EXECUTIVE CHAIRMAN, WORLD ECONOMIC FORUM: Of course, when you are in the intensive care unit, the most intensive task is to bring you out of the unit. I think the crisis management is the key.

ZAKARIA: You've seen 39 of these. There are people here who say that this is the gloomiest Davos they have been to. Is that because people have short memories? And you were there in the middle '70s. Or does this really leave you feeling pessimistic?

SCHWAB: From an economic point of view, certainly, it's the gloomiest meeting we ever had. But the key for it is global cooperation. I think this was very clear in the discussion until now. And of course, as the chairman of the World Economic Forum, I would say it's global cooperation, not only among governments, but global cooperation between the stakeholders of our global society.

So, everybody is challenged, and everybody should have sufficient self-confidence that we can come out, if we show the necessary spirit.

ZAKARIA: All right. On that note, the message I'm getting from Klaus Schwab and from the World Economic Forum is -- "Yes We Can."


Thank you all very much.


Thank you. A pleasure.


ZAKARIA: And now for the question of the week.

Given the corruption and fall of once-famous business leaders, such as Bernie Madoff, the heads of Wall Street, is there anyone in the private sector you still look up to? Are there any heroes of American business?

Send me an e-mail with their names.

Last week, I asked you where you thought the global economic crisis might be in a year. Probably not my best question, because the truth is, no one knows. And you, the viewers were smart enough to tell me that.

Some of you thought it might over. Some said far from over. But most of you said, who the hell knows.

Also, I'd like to recommend a book. It's called "Outliers" -- it's the number one book on the Times bestseller list -- by Malcolm Gladwell.

You remember his other bestsellers, "Blink" and "The Tipping Point." I actually liked "Outliers" the best.

The book asks a provocative question: Why do people succeed?

And the answers are surprising, and they will make you think. Very well written, and a fascinating read.

As always, don't forget to check out our Web site,, for highlights from this program, the weekly podcast and some conversations exclusive to the Web site. You can e-mail me at

Thank you, and have a great week.