George P. Shultz' storied career in government, academia, and business includes four cabinet posts; appointments at the University of Chicago, MIT, and Stanford; and the presidency of Bechtel Corp. Now 92, the economist is the author of the new book, Issues on My Mind: Strategies for the Future, a guide to policymakers on how to govern more effectively in a wide range of areas. In an interview this summer with Stanford Business, Shultz discussed technology, U.S. relations with Russia and China, the environment, and how the United States can get its house in order. Excerpts follow:
In today's technological era there are few boundaries to communication, and yet traditional diplomacy is still done in many ways as it once was. How has this technological era impacted the way states interact?
I think the world is now awash in change, and the fundamental reason is that the world is very diverse. That diversity has been suppressed. And with the information and communication age and revolution, the diversity is expressing itself. Governments have to realize the problem is to govern over diversity, which means that you have to have a way of letting it express itself. The government of Turkey tried to take over a square in Istanbul and destroy it and put up a building. If the President of the United States came to San Francisco and decided to tear up Chinatown and the Golden Gate Park and build some federal structure, what would happen here? We'd throw him out. You can't do that. But people don't realize it.
So governments have been slow to come to terms with what these technological changes like social media mean for how they need to govern?
Exactly. In Egypt, people rebelled. The new man came in, Mohamed Morsi. What did he do? He tried to enforce his view of the world on everybody. And Egypt is a very diverse country, and it rebelled again. But they didn't used to be able to do that. It used to be that people could be dominated by central authority. You remember what happened with the end of the Cold War, and suddenly authority disappeared and all the diversity started to express itself? That was a chaotic period until it somehow settled out. That's what's going on.
So we are living in a period of chaos?
I wouldn't call it chaos, but it is close to it in many respects.
Can America maintain superpower status abroad when it has financial problems, like sequestration, at home?
Sequestration is a manufactured problem — at least as I understand it — because I haven't been there for a quarter of a century. But the problem isn't the amount of money. The problem is that they have deliberately structured it in a dumb way. The dumb way is to say you've got to cut everything across the board the same. Anybody who has ever run anything knows that that's a stupid, absolutely dumb way to manage anything.
Even if sequestration is a manufactured crisis, given our enormous debt and the deficit, we don't have a lot of money to throw around the world.
We consume more than we produce. We are overindulging. Nobody respects that. It's not managing our financial affairs. Finance is just the way of counting the fact that we consume more than we produce. We don't save. And the biggest dis-saver of all is the federal government.
So does this put us in a vulnerable position in foreign affairs?
I think that people respect you when you are obviously running a good show at home. [When Reagan took unpopular steps to curb inflation in the early 1980s] he took a short-term hit, knowingly, in order to get a long-term benefit for the economy. And people respect that. And then the air controllers struck, and people ran in and said, "Mr. President, it's very complicated." He said, "It's not complicated. They took an oath of office not to strike and they struck. They're out." He was lucky he had a real good secretary of transportation who knew the system, and he kept the planes flying. But it impressed people all over the world. Everybody has their air controllers, and everybody's scared to death of them. And he took them on, and he won. So all of a sudden you've got to take this guy seriously.
But there was also an American richness at that time.
Not when he took office.
He wanted to recreate a healthy American economy. And we could do that today. It's a piece of cake but we can't find the policies. I mean everybody knows that the personal income tax system is a mess, and we need a redo of the 1986 Tax [Reform] Act. Democrats know that. Republicans know that. Everybody knows that. The man on the street knows that. You do it on a revenue-neutral basis and the economy will respond, and you'll get more money. And the way to get more revenue is to have the economy expand.
So you are stunned they can't get this done?
I don't know. Maybe they will. I think that the problems are so obvious. The solutions are so obvious that sooner or later they'll get around to it. I've got to be an optimist.
One area you've taken personal action on is combatting global warming — you drive an all-electric Nissan Leaf and charge it with solar panels on your roof at home. Achieving international cooperation on this seems insurmountable.
I think the science is pretty persuasive. But I say never mind the science. Use your eyes. There's a new ocean being created. That hasn't happened since the Ice Age. How come? What do you think the explanation is? There isn't any conceivable explanation except it's getting warmer.
So what blocks leaders from taking this up internationally and coming up with serious policy solutions?
I think they've sort of forgotten how to get things done. I remember back when I was in office there were a lot of scientists who thought the ozone layer was depleting. There were doubters. They all agreed that if it happened it would be a catastrophe. So I had twice-a-week meetings with President Reagan and we discussed it. And he said, "You know, we'd better take out an insurance policy." In other words you don't go and wrestle with the people who are doubters and make them villains. You say, "Look, you have your opinion, but in the back of your mind there must be a little bell that rings — you know, I could be wrong. And you've agreed that if it happens it's a catastrophe, so let's take out an insurance policy." So people kind of agreed. And when it became clear that this was going to be a serious issue the entrepreneurial juices in the American economy kicked in. DuPont Company came up with an idea that we could get people to agree to do, as distinct from an objective, something to actually do. And you take that and then you go to key places, and you get them to agree, and then you build out. And only after the fix is in do you have the big meeting — what was done in Montreal called the Montreal Protocol. As it turned out, the scientists who were worried were right, and the Montreal Protocol came along just in time.
Personally, I think the insurance policy concept is a good concept because you can say to people who are skeptical: I'm not trying to tell you that you are wrong. I think you're wrong. But I'm not looking for a policy that suppresses your opinion. But what about an insurance policy — just in case? Politics is the art of inclusion. Campaigning is the art of division. But when you've got through campaigning you've got to govern. That's a different order of magnitude entirely. Governing is a matter of reaching out to people and including them in things and not dividing things. We seem to have a governmental structure now that everybody is looking for: How do you arrange things so I can blame the other guy for whatever problem there is?
What are the barriers to cooperation with Russia?
Say: First of all let's be realistic. No rose-colored glasses. No missed opportunities. But let's base everything we do on being determinedly realistic. So, Russia today has a demographic catastrophe on its hands. A lot of its talented young people are here in Silicon Valley. They're leaving. They had practically an open rebellion in the Caucauses. They have a long border with China that's about completely undefended. They have an economy that's very dependent on high prices of raw materials, particularly oil and gas. They have problems. So that's part of the reality. They are trying to govern by authoritarianism. So they're getting protests. They also have a lot of nuclear weapons. If they released them all on us they would wipe us out. That's got to sober you up a little. So part of the reality is they need us.
What you do is you go and you meet. And you say what's your agenda, what's my agenda. For me, look at these things and make an agenda work out of it with the Russians, with the Chinese. We work our way through an agenda, and it isn't we're saying we're getting along fine. We're working our way through an agenda. It's problem solving. We'll find some things we can work out. We'll find some things where we have a difference of opinion.
The same could be done with China?
I found when we took office our relations with China were kind of rocky, and I tried to figure out why. And I decided, rightly or wrongly, that it was because it was in the hands of the old China hands. And they were really concerned about the relationship, nourishing the relationship. And the Chinese are smart. They understood that. So if we tried to do something we wanted to do they'd say, "You'd better not do that; you'll destroy the relationship." And so on.
I said I've seen this movie before. When I was a young professor at MIT, right after World War II, our country was full of strikes and people were writing all the time about why there are strikes. But there are some places where the union and the management got along. There was a program of studying the causes of industrial peace under collective bargaining, and I wrote two of the case studies. And then, looking back two or three years later, things had gone bad. And you say: Why? Well, I'm a guy on labor's production line. And I've got a grievance and the shop's [foreman] says, "Hey, cool it. We've got a great thing going here. Don't rock the boat." And same thing on the other side. And pretty soon the desire to preserve the relationship is not serving the interests of the people in the relationship, and it explodes.
So I said to the Chinese, "Whether we have a good relationship or not is going to depend on whether we can resolve problems and deal with our difficulties," and so on. It worked pretty well.