Beyond Dollar

It's time for Asia to look beyond the dollar

Interview of Joseph Stiglitz by Siddharth Varadarajan

Both Thomas Friedman and you start your books in Bangalore but he discovers the world is flat while you discover the path to globalisation is full of potholes.

The amusing thing is that Friedman went to Bangalore and visited Infosys a month after I did. I heard exactly the same stories and we were both struck in some of the same ways. But I say that not only is the world not flat but in many ways it's getting less flat. Some countries are doing much better — India and China are growing at historically unprecedented rates, and this has a lot to do with globalisation — but Africa doesn't have either the education or resources to take advantage of these new technologies. As a result, disparities are actually increasing. The Uruguay trade agreement was so unfair it made the poorest countries in the world worse off.

In your book, you also argue that the rules of the game — the financial architecture, corporate domination, IPR regimes — are all making the world less flat, more unequal. Can you give us an example?

One manifestation is that for the first time we have a global monopoly in an industry that is the pivotal industry, IT — Microsoft, Intel. This may not be a permanent monopoly but clearly we have a dominant firm that is dominant for a considerable number of years and gained its dominance through anti-competitive practices. Judges in the U.S. and Europe have ruled it engaged in anti-competitive practices. In the case of Standard Oil, there was a monopoly, so they broke it up. Here, they don't know what to do, so they've allowed it to continue, and it has continued to engage in anti-competitive practices.

You mentioned India as a success. How sustainable is its current growth?

If you look at the sector where India has grown, it's been IT. And the success of IT is largely based on heavy government investments in the past on education, the IITs, science. These are investments made over 50-100 years that have started to pay fruit.

Course corrections


What about public investments in heavy industry — the fact that India was able to reach a critical level in manufacturing?

I haven't studied the Indian economy that thoroughly but my impression is that the real engine has been the IT sector and that's related to education and to the good fortune of the world changing in ways that suddenly gave new opportunities India was able to seize. There are many things which facilitated that — over-investment in fibre optics in the U.S., for example, brought down telecommunication costs. Some telecom policies of liberalisation meant the cost of communications were lower. And there were things the government could have done that would have messed things up. For example, in Mexico, the cost of telecommunications is very high because they have a monopoly provider and monopoly providers raise the price. They privatised, but not in the right way. So India did a number of things in the right way, some over a long period, some in the short run, and the world changed in a way that was just right for India.

There is a debate on the sustainability of India's growth rate without the manufacturing sector also playing a larger role. Economists are talking about the need for a course correction.

I think the view that you need to have a particular sectoral composition is wrong. The U.S., for example, is now two-thirds services, and manufacturing is down to 11 per cent.

But the share has come down after 100 years of growth. Recent research on employment elasticities suggests India's over-dependence on IT and services may not be the best strategy. Can a country of India's size develop without manufacturing being a major contributor?

The view that everybody has to go through the same historical sequence is wrong. The world today is different from what it was 50 years ago, there was no IT then, and there is no particular reason you have to go through the same sequence. It may be that for India it is appropriate to skip the manufacturing stage, that China may have a comparative advantage in manufacturing. I'm not saying that's true, but there is no a priori reason to stress manufacturing. We should ask what the comparative advantages are, and, from a global perspective, whether one can have sustained growth based on a service sector economy. The answer is clearly yes. Can you have heavy exports related to services? Again, the answer is yes. Creating jobs is an important issue, but it may be that, for instance, part of the strategy for creating jobs will involve expanding tourism, which is a very labour intensive service sector. The problem in manufacturing is that modern technology doesn't use much labour. Most modern technologies in manufacturing are very capital intensive.

India now has an employment guarantee scheme to provide income support for the poor. How do you rate such welfare schemes against the objection that they boost fiscal deficits?

I think they're absolutely necessary for long-term sustainable growth. Latin America has shown what happens with high degrees of inequality. You get political and social instability. You have high crime rates and an environment that's not good for investment. What's also very clear is that trickle-down economics doesn't work. It hasn't worked anywhere. It hasn't worked in the United States. Even though GDP is going up, most Americans are worse off today than they were six years ago.

In fact, a survey just came out here — the Focus report on the status of children under six — which shows that despite six per cent growth for nearly a decade, the nutritional status of Indian children hasn't improved.

Yes, I just saw that and these are very, very disturbing numbers. Nutrition is a more reliable indicator than income because it is a physically observed characteristic. Growth is not trickling down so doing something about this exclusion is absolutely necessary. Even if there was just a transfer of income, this would be a benefit. But if these schemes are well-designed, they can be used to create infrastructure in the rural sector as well.

Manmohan Singh has once again started talking about capital account convertibility for India. What would your advice to him be?

I share the sentiments of those who have very strong reservations. The overwhelming evidence is that convertibility doesn't bring faster economic growth. It brings more instability. You can't build factories with money that's going to come in and out overnight but this money can wreak havoc on an economy. You have to look at the balance of benefits and costs. The costs are clear and the evidence is strong, the benefits are weak and the evidence in favour of these benefits is very weak.

Privatisation & land acquisition


In India today, there is no political support for privatisation but many reform-oriented economists consider this a bad thing. How do you see this issue?

It depends very critically on what is being privatised and how things are being privatised. When you privatise a natural monopoly before you put in a regulatory structure, the firm is more interested in raising prices. Second, based on Latin American evidence, privatisations do not, in general, lead to greater efficiency. It is true that if you artificially tie the hands of an industry by restricting investment — and IMF accounting often makes it difficult to engage in investment because it treats borrowing by the government for a public enterprise in the same manner as borrowing for social services or anything else — and then you privatise and release the artificially imposed investment constraint, privatisation can then sometimes increase efficiency. But the answer to that is to get rid of the artificial investment constraint. The benefits come from release of that constraint, not privatisation. Third, privatisation is very problematic in oil, mining sectors, etc., where the resources of a country have been turned over at bargain-basement prices.

In India, most of our privatisations involved serious valuation problems.

Revenue is an issue. One of the countries market fundamentalists often cite is Chile. I once asked the President of Chile his opinion and he said, "We were successful because we didn't follow the Washington Consensus." He went on to point out they only privatised half the copper mines. The government mines are just as efficient as the private ones but bring in 10 times more revenue for the government. So in terms of generating revenue that can be used for public purposes, privatisation was a big mistake. A lot depends on the pace and manner of privatisation but the evidence is that it is extraordinarily difficult to do it well. And there are some theoretical problems why this is so.

Agency problems?

Broadly speaking, yes. You talk about corruption and one of the arguments for privatisation is often that governments run things inefficiently and corruptly. But when you privatise, the incentives for corruption are even greater. The incentive is to try and get it at bargain-basement prices. Because you capitalise all future returns.

The rent seeking associated with the life of the asset being privatised is compressed at one moment in time.

Yes, and because it is compressed at one moment, the incentive to cheat becomes all the greater. The willingness to go beyond bounds of normal behaviour becomes all the greater. So privatisation doesn't solve the agency problem, and by compressing it, it may exacerbate it.

One of the paradoxes of market `reform' in India is that if you are a big company and are planning to set up a factory, you want a free market to buy equipment and hire workers but expect government intervention to acquire land. Can this be justified on the basis of first principles?

There is a general view that where there are large externalities — urban renewal programmes, for instance — there may be grounds for government to try and buy land and help renew a city or part of a city. But the dangers of doing this when there is a single firm without externalities are enormous. This is because the government often uses the right of eminent domain with compensation below market price.

So future rents are shared between the firm for whom land is acquired and the original land owners in a very unequal way...

That's right, exactly, and that's why these firms turn to the government. In general, there is a price at which people would sell their land. The reason these firms ask the government to do it is because they don't want to pay that market price. So once you get into that mindset, it becomes a very dangerous precedent.

The argument made in India is that land holdings are fragmented, that there is no land market. Is this valid?

You have a problem when land is fragmented, or there are land market inefficiencies, and difficulties in getting clear title. Markets might be so poorly developed that businesses can't acquire land and that becomes an impediment to development. But, of course, the right answer is to solve the problem of the land market and not to solve it for this particular person by taking over that particular piece of property!

Asia and the dollar's decline


One of the most interesting arguments in your book is where you talk about a new global reserve system. Given Washington's resistance to such ideas in the past, including to Japan's proposal for an Asian Monetary Fund, how feasible is this, especially since there's a link between the role of the dollar and the global power, the seigniorage, the U.S. derives from this?

The system of seigniorage to the U.S. is inequitable. The foreign aid from developing countries to the U.S. is greater than the foreign aid the U.S. gives and the system has a downward bias in aggregate demand. This is a very peculiar and unstable system where the only thing keeping global demand strong is if the richest country in the world consumes beyond its means. As the U.S. gets more and indebted, confidence in the dollar erodes, and it no longer is a good store of value.

Rather than holding dollars as reserves, countries should hold an internationally created `bancor' or global greenback — a `money' that's used in reserves and is convertible into ordinary currency. The idea is similar to special drawing rights but the SDR system is periodical and subject to veto by the U.S., which mistakenly thinks it gains from the system. I argue it doesn't. It gains seigniorage, but it loses stability. My proposal is for a regular rather than periodic system and one that is automatic and rule based.

And is this feasible, politically?

The current dollar system is fraying. We might go to a two-currency reserve system, which simply maintains the problem and divides it between the U.S. and Europe. This would be better than the current system but is not a good solution. As countries recognise the problem, there will be demand for change. There are two reasons why I think it is politically feasible, besides the fact that the current system is crumbling. First, the major source of savings in the world today is Asia and a lot of Asian countries are asking, "Why are we subsidising the U.S.?" This is a weird system! The Chiang Mai initiative was a framework of exchanging reserves, which is really basically the same idea. Rather than using the U.S. dollar as a reserve, we use each other, and all you have to say is that if we're using each other, we'll create a currency. One of the proposals I talk about in my book is to make this an open architecture. We'll have a cooperative agreement, and anybody who wants to join can do so, and there will be a rule that over time you have to put more and more of your reserves in the members of the club. That will put a strong incentive for countries outside the club to join, namely the U.S.

For this to work, Asia will have to take the lead.

Very much. That is the core thing. A new reserve system is not going to happen overnight but it's getting discussed.

Can Asian countries push the debate by pricing trade, especially natural resources like oil, in currencies other than dollars? Would that provide the critical mass for us to move in the direction of a new system?

It's already happening. The U.S. would like to keep the dollar as the reserve currency, and all the seigniorage. But as it realises it is fighting a losing battle — that people are moving out of the dollar — it will not be able to keep the dollar as the sole reserve currency. So the U.S. may realise that it would benefit from the greater stability that a new system would bring.

Is India Poor, Who Says? Ask Swiss Banks..

I am posting that article(from merinews.com by Ramesh C M) for you guys…

With personal account deposit bank of $1500 billion in foreign reserve which have been misappropriated, an amount 13 times larger than the country's foreign debt, one needs to rethink if India is a poor country?

Dishonest industrialists, scandalous politicians and corrupt IAS, IRS, IPS officers have deposited in foreign banks in their illegal personal accounts a sum of about $ 1500 billion, which have been misappropriated by them. This amount is about 13 times larger than the country's foreign debt. With this amount 45 crore poor people can get Rs 100000 each. This huge amount has been appropriated from the people of India by exploiting and betraying them.

Once this huge amount of black money and property comes back to India, the entire foreign debt can be repaid in 24 hours. After paying the entire foreign debt, we will have surplus amount, almost 12 times larger than the foreign debt. If this surplus amount is invested in earning interest, the amount of interest will be more than the annual budget of the Central government. So even if all the taxes are abolished, then also the Central government will be able to maintain the country very comfortably.

Some 80,000 people travel to Switzerland every year, of whom 25,000 travel very frequently. "Obviously, these people won't be tourists. They must be traveling there for some other reason," believes an official involved in tracking illegal money. And, clearly, he isn't referring to the commerce ministry bureaucrats who've been flitting in and out of Geneva ever since the World Trade Organization (WTO) negotiations went into a tailspin!

Just read the following details and note how these dishonest industrialists, scandalous politicians, corrupt officers, cricketers, film actors, illegal sex trade and protected wildlife operators, to name just a few, sucked this country's wealth and prosperity. This may be the picture of deposits in Swiss banks only. What about other international banks?

Black money in Swiss banks -- Swiss Banking Association report, 2006 details bank deposits in the territory of Switzerland by nationals of following countries:

Top five

India---- $1456 billion
Russia---$ 470 billion
UK-------$390 billion
Ukraine- $100 billion
China-----$ 96 billion

Now do the maths - India with $1456 billion or $1.4 trillion has more money in Swiss banks than rest of the world combined. Public loot since 1947: Can we bring back our money? It is one of the biggest loots witnessed by mankind -- the loot of the Aam Aadmi (common man) since 1947, by his brethren occupying public office. It has been orchestrated by politicians, bureaucrats and some businessmen. The list is almost all-encompassing. No wonder, everyone in India loots with impunity and without any fear.

What is even more depressing in that this ill-gotten wealth of ours has been stashed away abroad into secret bank accounts located in some of the world's best known tax havens. And to that extent the Indian economy has been stripped of its wealth. Ordinary Indians may not be exactly aware of how such secret accounts operate and what are the rules and regulations that go on to govern such tax havens. However, one may well be aware of 'Swiss bank accounts,' the shorthand for murky dealings, secrecy and of course pilferage from developing countries into rich developed ones.

In fact, some finance experts and economists believe tax havens to be a conspiracy of the western world against the poor countries. By allowing the proliferation of tax havens in the twentieth century, the western world explicitly encourages the movement of scarce capital from the developing countries to the rich.

In March 2005, the Tax Justice Network (TJN) published a research finding demonstrating that $11.5 trillion of personal wealth was held offshore by rich individuals across the globe. The findings estimated that a large proportion of this wealth was managed from some 70 tax havens.

Further, augmenting these studies of TJN, Raymond Baker -- in his widely celebrated book titled 'Capitalism's Achilles Heel: Dirty Money and How to Renew the Free Market System' -- estimates that at least $5 trillion have been shifted out of poorer countries to the West since the mid-1970. It is further estimated by experts that one per cent of the world's population holds more than 57 per cent of total global wealth, routing it invariably through these tax havens. How much of this is from India is anybody's guess.

What is to be noted here is that most of the wealth of Indians parked in these tax havens is illegitimate money acquired through corrupt means. Naturally, the secrecy associated with the bank accounts in such places is central to the issue, not their low tax rates as the term 'tax havens' suggests. Remember Bofors and how India could not trace the ultimate beneficiary of those transactions because of the secrecy associated with these bank accounts?

IS THERE ANY ONE WHO WOULD SAVE INDIA ?

God... No No No, even he can't..........!!

Awesome Resume !

CAN U BEAT THIS RESUME!!!!!! !!!!!!!

RESUME

EDUCATION /Qualification:

1950: Stood first in BA (Hons), Economics, Punjab University , Chandigarh ,
1952; Stood first in MA (Economics), Punjab University , Chandigarh ,
1954; Wright's Prize for distinguished performance at St John's College , Cambridge ,
1955 and 1957; Wrenbury scholar, University of Cambridge ,
1957; DPhil ( Oxford ), DLitt (Honoris Causa); PhD thesis on India 's export competitiveness

OCCUPATION /Teaching Experience :

Professor (Senior lecturer, Economics, 1957-59;
Reader, Economics, 1959-63;
Professor, Economics, Punjab University , Chandigarh , 1963-65;
Professor,Internati onal Trade, Delhi School of Economics ,University of Delhi,1969-71 ;
Honorary professor, Jawaharlal Nehru University ,New Delhi,1976 and Delhi School of Economics, University of Delhi ,1996 and Civil Servant

Working Experience/ POSITIONS :

1971-72: Economic advisor, ministry of foreign trade
1972-76: Chief economic advisor, ministry of finance

1976-80: Director, Reserve Bank of India;
Director, Industrial Development Bank of India ;
Alternate governor for India, Board of governors, Asian Development Bank;
Alternate governor for India, Board of governors, IBRD

November 1976 - April 1980: Secretary, ministry of finance (Department of economic affairs);
Member, finance, Atomic Energy Commission; Member,finance, Space Commission

April 1980 - September 15, 1982 : Member-secretary, Planning Commission

1980-83: Chairman , India Committee of the Indo-Japan joint study committee

September 16, 1982 - January 14, 1985 : Governor, Reserve Bank of India ...

1982-85: Alternate Governor for India, Board of governors, International Monetary Fund

1983-84: Member, economic advisory council to the Prime Minister

1985: President, Indian Economic Association

January 15, 1985 - July 31, 1987 : Deputy Chairman, Planning Commission

August 1, 1987 - November 10, 19! 90: Secretary-general and commissioner,
south commission, Geneva

December 10, 1990 - March 14, 1991 : Advisor to the Prime Minister on economic affairs

March 15, 1991 - June 20, 1991 : Chairman, UGC

June 21, 1991 - May 15, 1996 : Union finance minister

October 1991: Elected to Rajya Sabha from Assam on Congress ticket

June 1995: Re-elected to Rajya Sabha

1996 onwards: Member, Consultative Committee for the ministry of finance

August 1, 1996 - December 4, 1997: Chairman, Parliamentary standing committee on commerce

March 21, 1998 onwards: Leader of the Opposition, Rajya Sabha

June 5, 1998 onwards: Member, committee on finance

August 13, 1998 onwards: Member, committee on rules

Aug 1998-2001: Member, committee of privileges 2000 onwards: Member, executive committee, Indian parliamentary group

June 2001: Re-elected to Rajya Sabha

Aug 2001 onwards: Member, general purposes committee

BOOKS:

India 's Export Trends and Prospects for Self-Sustained Growth -
Clarendon Press, Oxford University , 1964; also published a large number of articles in various economic journals.

OTHER ACCOMPLISHMENTS:

Adam Smith Prize, University of Cambridge , 1956

Padma Vibhushan, 1987

Euro money Award, Finance Minister of the Year, 1993;

Asia money Award, Finance Minister of the Year for Asia , 1993 and 1994

INTERNATIONAL ASSIGNMENTS:

1966: Economic Affairs Officer

1966-69: Chief, financing for trade section, UNCTAD

1972-74: Deputy for India in IMF Committee of Twenty on
International Monetary Reform

1977-79: Indian delegation to Aid-India Consortium Meetings

1980-82: Indo-Soviet joint planning group meeting

1982: Indo-Soviet monitoring group meeting

1993: Commonwealth Heads of Government Meeting Cyprus 1993: Human Rights World Conference , Vienna

RECREATION :

Gymkhana Club, New Delhi ; Life Member, India International Centre,
New Delhi

PERSONAL DETAIL:

Name: Dr Manmohan Singh

DOB: September 26, 1932

Place of Birth: Gah ( West Punjab )

Father: S. Gurmukh Singh

Mother: Mrs Amrit Kaur

Married on: September 14, 1958

Wife: Mrs Gursharan Kaur

Children: Three daughters

INDIAN Prime Minister seems to be the most qualified PM all over the world.

Thomas Friedman and Fareed Zakaria: Author One-to-One

Fareed Zakaria: Your book is about two things, the climate crisis and also about an American crisis. Why do you link the two?

Thomas Friedman: You're absolutely right--it is about two things. The book says, America has a problemFriedman_3 and the world has a problem. The world's problem is that it's getting hot, flat and crowded and that convergence--that perfect storm--is driving a lot of negative trends. America's problem is that we've lost our way--we've lost our groove as a country. And the basic argument of the book is that we can solve our problem by taking the lead in solving the world's problem.

Zakaria: Explain what you mean by "hot, flat and crowded."

Friedman: There is a convergence of basically three large forces: one is global warming, which has been going on at a very slow pace since the industrial revolution; the second--what I call the flattening of the world--is a metaphor for the rise of middle-class citizens, from China to India to Brazil to Russia to Eastern Europe, who are beginning to consume like Americans. That's a blessing in so many ways--it's a blessing for global stability and for global growth. But it has enormous resource complications, if all these people--whom you've written about in your book, The Post American World--begin to consume like Americans. And lastly, global population growth simply refers to the steady growth of population in general, but at the same time the growth of more and more people able to live this middle-class lifestyle. Between now and 2020, the world's going to add another billion people. And their resource demands--at every level--are going to be enormous. I tell the story in the book how, if we give each one of the next billion people on the planet just one sixty-watt incandescent light bulb, what it will mean: the answer is that it will require about 20 new 500-megawatt coal-burning power plants. That's so they can each turn on just one light bulb!

Zakaria: In my book I talk about the "rise of the rest" and about the reality of how this rise of new powerful economic nations is completely changing the way the world works. Most everyone's efforts have been devoted to Kyoto-like solutions, with the idea of getting western countries to reduce their carbon dioxide emissions. But I grew to realize that the West was a sideshow. India and China will build hundreds of coal-fire power plants in the next ten years and the combined carbon dioxide emissions of those new plants alone are five times larger than the savings mandated by the Kyoto accords. What do you do with the Indias and Chinas of the world?

Friedman: I think there are two approaches. There has to be more understanding of the basic unfairness they feel. They feel like we sat down, had the hors d'oeuvres, ate the entrée, pretty much finished off the dessert, invited them for tea and coffee and then said, "Let's split the bill." So I understand the big sense of unfairness--they feel that now that they have a chance to grow and reach with large numbers a whole new standard of living, we're basically telling them, "Your growth, and all the emissions it would add, is threatening the world's climate." At the same time, what I say to them--what I said to young Chinese most recently when I was just in China is this: Every time I come to China, young Chinese say to me, "Mr. Friedman, your country grew dirty for 150 years. Now it's our turn." And I say to them, "Yes, you're absolutely right, it's your turn. Grow as dirty as you want. Take your time. Because I think we probably just need about five years to invent all the new clean power technologies you're going to need as you choke to death, and we're going to come and sell them to you. And we're going to clean your clock in the next great global industry. So please, take your time. If you want to give us a five-year lead in the next great global industry, I will take five. If you want to give us ten, that would be even better. In other words, I know this is unfair, but I am here to tell you that in a world that's hot, flat and crowded, ET--energy technology--is going to be as big an industry as IT--information technology. Maybe even bigger. And who claims that industry--whose country and whose companies dominate that industry--I think is going to enjoy more national security, more economic security, more economic growth, a healthier population, and greater global respect, for that matter, as well. So you can sit back and say, it's not fair that we have to compete in this new industry, that we should get to grow dirty for a while, or you can do what you did in telecommunications, and that is try to leap-frog us. And that's really what I'm saying to them: this is a great economic opportunity. The game is still open. I want my country to win it--I'm not sure it will.

Zakaria: I'm struck by the point you make about energy technology. In my book I'm pretty optimistic about the United States. But the one area where I'm worried is actually ET. We do fantastically in biotech, we're doing fantastically in nanotechnology. But none of these new technologies have the kind of system-wide effect that information technology did. Energy does. If you want to find the next technological revolution you need to find an industry that transforms everything you do. Biotechnology affects one critical aspect of your day-to-day life, health, but not all of it. But energy--the consumption of energy--affects every human activity in the modern world. Now, my fear is that, of all the industries in the future, that's the one where we're not ahead of the pack. Are we going to run second in this race?

Friedman: Well, I want to ask you that, Fareed. Why do you think we haven't led this industry, which itself has huge technological implications? We have all the secret sauce, all the technological prowess, to lead this industry. Why do you think this is the one area--and it's enormous, it's actually going to dwarf all the others--where we haven't been at the real cutting edge?

Zakaria: I think it's not about our economic system but our political system. The rhetoric we hear is that the market should produce new energy technologies. But the problem is, the use of current forms of energy has an existing infrastructure with very powerful interests that has ensured that the government tilt the playing field in their favor, with subsidies, tax breaks, infrastructure spending, etc. This is one area where the Europeans have actually been very far-sighted and have pushed their economies toward the future.



Friedman: I would say that's exactly right. It's the Europeans--and the Japanese as well--who've done it,Zakaria_jkt_4 and they've done it because of the government mechanisms you've highlighted. They have understood that, if you just say the market alone will deliver the green revolution we need, basically three things happen and none of them are good: First, the market will drive up the price to whatever level demand dictates. We saw oil hit $145 a barrel, and when that happens the oil-producing countries capture most of the profit, 90% of it. So, some of the worst regimes in the world enjoy the biggest benefits from the market run-up. The second thing that happens is that the legacy oil, gas and coal companies get the other ten percent of the profit--so companies which have no interest in changing the system get stronger. And the third thing that happens is something that doesn't happen: because you're letting the market alone shape the prices, the market price can go up and down very quickly. So, those who want to invest in the alternatives really have to worry that if they make big investments, the market price for oil may fall back on them before their industry has had a chance to move down the learning curve and make renewable energies competitive with oil. Sure, the market can drive oil to $145 a barrel and at that level wind or solar may be very competitive. But what if two months later oil is at $110 a barrel? Because of that uncertainty, because we have not put a floor price under oil, you have the worst of all worlds, which is a high price of dirty fuels--what I call in the book fuels from hell--and low investment in new clean fuels, the fuels from heaven. Yes, some people are investing in the alternatives, but not as many or as much as you think, because they are worried that without a floor price for crude oil, their investments in the alternatives could get wiped out, which is exactly what happened in the 1980s after the first oil shock. That's why you need the government to come in a reshape the market to make the cost of dirty fuels more expensive and subsidize the price of clean fuels until they can become competitive.

Right now we are doing just the opposite. Bush and Cheney may say the oil market is “free,” but that is a joke. It's dominated by the world's biggest cartel, OPEC, and America's biggest energy companies, and they've shaped this market to serve their interests. Unless government comes in and reshapes it, we're never going to launch this industry. Which is one of the reasons I argue in the book, "Change your leaders, not your light bulbs." Because leaders write rules, rules shape markets, markets give you scale. Without scale, without being able to generate renewable energy at scale, you have nothing. All you have is a hobby. Everything we've doing up to now is pretty much a hobby. I like hobbies--I used to build model airplanes as a kid. But I don't try to change the world as a hobby. And that's basically what we're trying to do.

Zakaria: But aren't we in the midst of a green revolution? Every magazine I pick up tells me ten different ways to get more green. Hybrids are doing very well...

Friedman: What I always say to people when they say to me, "We're having a green revolution" is, "Really? A green revolution! Have you ever been to a revolution where no one got hurt? That's the green revolution." In the green revolution, everyone's a winner: BP's green, Exxon's green, GM's green. When everyone's a winner, that's not a revolution--actually, that's a party. We're having a green party. And it's very fun--you and I get invited to all the parties. But it has no connection whatsoever with a real revolution. You'll know it's a revolution when somebody gets hurt. And I don't mean physically hurt. But the IT revolution was a real revolution. In the IT revolution, companies either had to change or die. So you'll know the green revolution is happening when you see some bodies--corporate bodies--along the side of the road: companies that didn't change and therefore died. Right now we don't have that kind of market, that kind of change-or-die situation. Right now companies feel like they can just change their brand, not actually how they do business, and that will be enough to survive. That's why we're really having more of a green party than a green revolution.

Zakaria: One of your chapters is called "Outgreening Al-Qaeda." Explain what you mean.

Friedman: The chapter is built around the green hawks in the Pentagon. They began with a marine general in Iraq, who basically cabled back one day and said, I need renewable power here. Things like solar energy. And the reaction of the Pentagon was, "Hey, general, you getting a little green out there? You're not going sissy on us are you? Too much sun?" And he basically said, "No, don't you guys get it? I have to provision outposts along the Syrian border. They are off the grid. They run on generators with diesel fuel. I have to truck diesel fuel from Kuwait to the Syrian border at $20 a gallon delivered cost. And that's if my trucks don't get blown up by insurgents along the way. If I had solar power, I wouldn't have to truck all this fuel. I could—this is my term, not his—‘outgreen' Al-Qaeda."

I argue in the chapter that "outgreening"--the ability to deploy, expand, innovate and grow renewable energy and clean power--is going to become one of the most important, if not the most important, sources of competitive advantage for a company, for a country, for a military. You're going to know the cost of your fuel, it's going to be so much more distributed, you will be so much more flexible, and--this is quite important, Fareed--you will also become so much more respected. I hear from law firms today: one law firm has a green transport initiative going for its staff--they only use hybrid cars--another one doesn't. If some law student out of Harvard or Yale is weighing which law firm to join--many will say today: "I think I'll go with the green one." So there are a lot of ways in which you can outgreen your competition. I think "outgreening" is going to become an important verb in the dictionary - between "outfox" and "outmaneuver."

Zakaria: Finally, let me ask you--in that context--what would this do to America's image, if we were to take on this challenge? Do you really think it could change the way America is perceived in the world?

Friedman: I have no doubt about it, which is why I say in the book: I'm not against Kyoto; if you can get 190 countries all to agree on verifiable limits on their carbon, God bless you. But at the end of the day, I really still believe--and I know you do too--in America as a model. Your book stresses this--that even in a post-American world we still are looked at by others around the world as a role model. I firmly believe that if we go green--if we prove that we can become healthy, secure, respected, entrepreneurial, richer and more innovative by greening our economy, many more people will follow us voluntarily than would do so by compulsion of a treaty. Does that mean Russia and Iran will? No. Geopolitics won't disappear. But I think it will, speaking broadly, definitely reposition us in the world with more people in more places. I look at making America the greenest country in the world like running the Olympic triathlon: if you make it to the Olympics and you run the race, maybe you win--but even if you don't win, you're fitter, healthier, more secure, more respected, more competitive and entrepreneurial, because you have given birth to a whole new clean power industry--which has to be the next great global industry--and put your economy on a much more sustainable footing. So to me, this is a win-win-win-win race, and that's why I believe we, America, need to take the lead in it. In the Cold War we had the space race with Russia to see who could be the first to put a man on the moon. Today we need an earth race with Japan, Europe, China and India--to see who can be the first to invent the clean power technologies that will allow man to live safely and sustainably on earth.

WHY THEY CALLED MY CEO AND SAID I WAS A JERK

I am not real proud of this one.

But this story needs to be told.

The prospect called the CEO and VP of Sales of my company he
was so pissed off.

The customer's offices were in Colorado Springs. I was
living and working out of Seattle at the time.

I had committed to fly out and give a demonstration of our
accounting software to this company. They had planned on
bringing a few people in from their offices in other cities.

Plane flights were required for them, from where I can't
exactly remember.

In fact I can't even remember the name of this prospect. I
guess that's selective memory loss.

But one week before I was to fly 3 states away and give my
all afternoon sales presentation I made a decision.

I had this sinking feeling in my gut that this sale wasn't
for me.

I had been in sales for nearly 6 years, and one thing I had
started to notice was that I was developing an intuition
about my deals.

Every deal I had ever won felt right from the start. And
similarly every deal I had lost felt bad from the start.

So a little late, I decided to trust my intuition.

I say a little late because I should've never committed to
going out and visiting onsite. And I shouldn't have waited
till just a week before to cancel.

I should have said no right up-front when I did my
qualifying, and I could see by the business requirements
that were driving the deal that it wasn't the best fit for
me.

But I didn't.

And I called and canceled my visit.

And this prospect chewed me out. He threatened me that he
would call my company and tell them. Then he made good on
his threat and called my VP of Sales and my CEO and told
them how unprofessional I was.

At the time I felt both good and bad about my decision.

I felt good because I knew that I had made the right
decision for me, and for my company.

I felt bad because I had broken a commitment and probably
cost some other people some bux due to my inexperience and
inability to be decisive up-front.

When I spoke to my VP of Sales, he wanted to know why I
backed out of the deal.

I explained why this was not a good deal for us to be in, he
agreed with me and said he would tell the CEO that and back
me up. He just wished I hadn't pissed off the prospect.

You gotta have a thick skin in sales. You gotta do the right
thing for you and your company.

Sometimes that means breaking a commitment if it's one you
shouldn't have made.

Sometimes that means disappointing or even angering someone.

Better to make the right decision the first time. But part
of life is making mistakes and learning from them. The
sooner you can recognize and correct a mistake the better.

You gotta be yourself if you're gonna have a chance at
connecting with people and doing well in sales. And to be
yourself you gotta dump the baggage that we all got loaded
up with before going into selling.

THE DAY I BECAME A PAIN-JUNKIE

I remember the day I became a pain-junkie.

It was pretty damned exciting.

I don't mean self-inflicted pain.

No.

I am talking about my prospect's pain.

I remember it well.

I had my questions all planned in advance.

I knew what I was going to ask to find the pain. And I knew
what I was going to ask to stick the knife, twist it around,
and make it hurt.

All I needed was a prospect.

And then the phone rang.

My lead generation efforts had paid off.

Someone was calling me wanting to find out about my
services.

As I picked up the phone, I put myself into high "On" mode.

I used all the rapport techniques I had studied, practiced,
and mastered.

I started asking the pain questions, used my control
questioning technique to keep control of sales call, found
the pain, and magnified it with more questions.

I leverage that pain into a commitment. A commitment by my
prospect to make a decision, yes or no, then and there with
me while we were both on the phone.

Commitment secured, I finally "presented". I discussed how
my service worked, what my prospect could expect to get from
it, what my qualifications were, and what the prices of the
package options were.

We discussed it a bit, and he made a decision. Just like he
committed to doing.

I had a new customer.

And I got paid.

I was so ecstatic, I had to hold back from laughing out
loud!

I mean, I knew exactly what I was doing every step of the
way. Once I had found pain that I knew I could do an
excellent job of solving, I knew I had about 60-70% chance
of closing this prospect.

And when I got the commitment that he would make a decision,
I knew that my chance of closing had just risen to about
80-90%.

I wanted to laugh, because for the first time in years, I
felt fully in control of the sale.

My transformation was complete.

I had become addicted to pain.

I had become a pain-junkie.

Selling hasn't been the same for me ever since. It's sooo
much more fun now.

Bhutto and the Future of Islam

RECONCILIATION: Islam, Democracy, and the West
By Benazir Bhutto. 328 pp. New York: Harper/Harper Collins. $27.95

Picture the moment. It is Dec. 2, 1988. A beautiful woman, 35 years old, walks into the presidential palace in Islamabad, Pakistan's capital, flanked by liveried and turbaned honor guards. She is wearing a green silk tunic and a white gauzy shawl that barely covers her hair. She speaks flawless Urdu and English, her English perfected as an undergraduate at Radcliffe and then as a student at Oxford, where she was president of the Oxford Union. She is intelligent, erudite and intensely charismatic. And she is about to take the oath of office to become the first woman in history to lead a modern Muslim country.

The idea of Benazir Bhutto has always been more powerful than the reality. Bhutto, who was assassinated last December while campaigning in Rawalpindi, seemed to many of her admirers in the West to be the consummate liberal. But she was also the descendant of one of the oldest and most thoroughly feudal families in the Sind province. The size of her family's landholdings had stunned the British general Charles Napier, who conquered the province for Queen Victoria in 1843. She inherited the leadership of the Pakistan People's Party from her father, Zulfikar Ali Bhutto, Pakistan's first elected prime minister, and ran it like a personal fiefdom. She was president-for-life, allowed no internal party elections and in her will bequeathed her party to her 19-year-old son, Bilawal, who has spent most of his life outside Pakistan.

Benazir Bhutto spent only 20 months as prime minister the first time she was elected. Pakistan's president dismissed her government over charges of dysfunction and corruption. She had few legislative accomplishments during those years, and her second term in office, from 1993 to 1996, was also largely unsuccessful. There are explanations for her lack of achievement—the military establishment gave her little room and maneuvered against her constantly—but still one cannot help but notice the gap between ambition and action that haunted Bhutto for most of her public life.

With the publication of "Reconciliation," Bhutto has—alas, posthumously—closed that gap. Written while she was preparing to re-enter political life, it is a book of enormous intelligence, courage and clarity. It contains the best-written and most persuasive modern interpretation of Islam I have read. Part of what makes it compelling, of course, is the identity of its author. People have often asked when respected Muslim leaders would denounce Islamic extremism and articulate a forward-looking and tolerant view of their religion. Well, Bhutto has done it in full measure. And as the most popular political figure in the world of Islam—for three decades she led the largest political party in the second largest Muslim country—she had much greater standing than the collection of reactionary mullahs, second-rate academics and unelected monarchs who opine on these topics routinely, and are accorded far too much attention in the West. In fact, Washington should arrange to have the portions of the book about Islam republished as a separate volume and translated into several languages. It would do more to win the battle of ideas within Islam than anything an American president could ever say.

In praising "Reconciliation," I am really recommending its largest part, which concerns the future of Islam. There is a second section, about Pakistan and Benazir Bhutto, which takes up about a fifth of the whole. Some of it is fascinating—one cannot help being riveted by the book's opening pages, in which she recounts arriving in Pakistan on Oct. 18, 2007, to tumultuous crowds and then being hit by a bomb blast, the first terrorist attack on her (the second would prove fatal). But beyond that, the sections on Pakistan are a mixture of potted history and justifications of her reign and that of her father. There is little introspection and much spin. For example, she implies that she was always opposed to the Taliban during her term in office and points out that it took over Kabul as her government was about to be dismissed. But the final takeover, in 1996, came after several years of battle during which Pakistan supported the movement—under Bhutto's second prime ministership. It is quite possible that she was not in charge of these matters—the military ran most of the foreign and defense policy during her years—but she chooses not to admit that either.

So these pages are neither fresh nor frank. In their lack of candor, these sections resemble the memoirs of most politicians. But never mind. The other, larger part of the book is stirring and important—and takes up most of the first three chapters. If the reader loses interest by the time he gets to Pakistan, that's just fine.

Bhutto begins the book by saying frankly and unhesitatingly that the Muslim world has many problems and that it has refused to look at them with much honesty. "It is so much easier to blame others,' she writes, 'than to accept responsibility ourselves." She takes on issues that most Muslim leaders have preferred to ignore or avoid, like the sectarian war within Islam. "One billion Muslims around the world seemed united in their outrage at the war in Iraq ... but there is deadly silence when they are confronted with Muslim-on-Muslim violence. ... Even regarding Darfur, where there is an actual genocide being committed against a Muslim population, there has been a remarkable absence of protests."

Bhutto addresses the most backward-seeming traditions in the Muslim world with a knowledge of both theology and history. She points out, for instance, that in many Muslim countries it is assumed that the Koran requires that women be wrapped head to foot in chadors. Actually, the key passage in the holy book merely states: "Say to the believing men that they cast down their looks and guard their private parts; that is purer for them. ... And say to the believing women that they should lower their gaze and guard their modesty." "The passage does call for modest dress," Bhutto concludes, "but for both sexes." It's a clever and progressive reading that achieves an equality between the sexes without denying the divinity of the text. It is a far more effective way to win over a religious community than to denounce the religion as sexist or backward.

Bhutto asks that Muslim societies learn to tolerate differences in faith. "It is my firm belief that until Muslims revert to the traditional interpretation of Islam—in which 'you shall have your religion, and I shall have mine' is respected and adhered to—the factional strife within Muslim countries will continue. ... Those who teach the killing of adherents of other sects or religions are damaging Muslim societies as well as threatening non-Muslim societies." Here again, Bhutto combines theological and practical smarts. She links the need for Sunni-Shiite harmony with the broader need for respect for other religions.

Considering that this book was written while Bhutto was hoping to return to office, perhaps its boldest sections are its accounts of other Muslim countries and their practices. She does not accept some of the conventional wisdom about the roots of Islamic terrorism. She discusses the Palestinian cause and acknowledges its importance but does not claim that it is the source of all Muslim ill will toward the West. She is unsparing in her description of Wahhabi Islam and its home, Saudi Arabia. She recounts the history of Wahhabism, with its repeated destruction of the mosques, monuments and lives of other Sunni sects, as well as its war on Shiites. Given that Saudi Arabia has been a generous patron to Pakistan, it is striking that Bhutto was willing to write things that would surely have caused her difficulty had she become prime minister.

Throughout, Bhutto is responding to the argument of Samuel P. Huntington's Foreign Affairs essay "The Clash of Civilizations?" that the Islamic and Western worlds are unalterably opposed to each other. She is extremely attentive to Huntington, marshals evidence against him and cites almost all the best critiques. In fact she has devoted her book in large part to dissuading Muslims from seeing the world as one in which a clash of civilizations is necessary or inevitable.

Bhutto is a child of both East and West, and it shows. She is imbued with rationalism, tolerance, progressivism. But she also writes persuasively about Iran, Algeria and, of course, Pakistan, from a non-Western point of view, accurately describing the corrosive role of the West in many of these countries and arguing that the pervasive interference, often to support unpopular dictatorships, has left bitter memories in these lands. Her discussion of Pakistan, however, is almost obsessive in its insistence that United States policy has been responsible for propping up dictatorship and undermining democracy there. While there is certainly some truth to these claims, it is worth bearing in mind that Pakistan has developed poorly along many dimensions—social, economic and political—from its birth, and that it usually lapsed into dictatorship without much prodding from Washington. General Pervez Musharraf's coup, for example, was neither engineered nor approved of by the Clinton administration. If Muslims must accept that they are the authors of their own fate and stop blaming outsiders, is it not fair to ask that of Pakistan's leaders, military and civilian?

On the most pressing issue at hand, the rise of terrorism in Pakistan, Bhutto is sure that it is a consequence of the country's military dictatorship. Democracy, she writes over and over again, will rescue Pakistan from its dangerous path. This is, of course, the argument that George W. Bush has often made to explain his support for democracy in the Muslim world. It is a matter of extreme irony—to say the least—that in the most important real-world application of the Bush doctrine, the president ignores his own words, siding with a military dictator rather than with the elected democrat.

Actually, life is more complex than Bhutto's or Bush's rhetoric. Pakistan's terrorism problem is not simply related to its lack of democracy. It has to do as well with recent history: the Afghan war against Soviet occupation, the American use of Pakistan as a conduit for arms to the Afghan insurgents, Pakistan's decision to train jihadis to destabilize both Afghanistan and India, and the broader rise of militant Islam throughout the Muslim world. It also has to do with Pakistan's more fundamental challenge of being, since inception, an Islamic state, and thus vulnerable to religious radicalism.

In any event, over the next few years, Bhutto's theory may well be given a chance to work. The new democratic government in Pakistan might endure and will then have to tackle its country's terrorism problem. One can only hope, for the sake of Pakistan, Islam and the world at large, that it succeeds, and that Benazir Bhutto will be vindicated in death in a way she was not in life.

By Fareed Zakaria

Fareed Zakaria is the editor of Newsweek International. His new book, "The Post-American World," will be published next month.