The following article is adapted from a talk presented on March 9, 1999 as the Thirty-second Annual William K. McInally Memorial Lecture at the U-M Business School. Kenneth G. Lieberthal is William Davidson Professor of Business Administration and currently serves as special assistant to the President of the United States and senior director for Asian affairs on the National Security Council.

    In discussing American foreign policy in Asia, I am not going to try to tell you what we're doing with each country in Asia, which would probably bore you and probably not be very valuable. Rather, I want to identify four fundamental challenges to effective policy-making toward Asia and then give you the four and one-half things we are trying to do in Asia. In this way you will be able to see why it is difficult to accomplish what we want to accomplish and at the same time you will have some sense of what we hope to accomplish. I hope that by describing both difficulties and aspirations, I will lay the groundwork for questions across the full breadth of the region.

    Global interdependence

    This is already a reality. Global interdependence means that key issues in the region are inherently transnational. Every day $1.5 trillion crosses national borders outside of government hands, more than enough to swamp the foreign exchange holdings of any individual country in the world. Global communications, whether it be satellite television, e-mail, or the World Wide Web, are so advanced now that, for the first time in history, no authoritarian government can be confident of controlling the information and viewpoints available to its own citizens, especially to its opinion makers and elites. I would argue that one can not understand the fall of Suharto in Indonesia without understanding the role the World Wide Web played. You cannot understand the events in China without understanding the impact of the World Wide Web and satellite television in China.

    Multinational corporations affect local economies everywhere, although their actions typically are not driven primarily by the needs of the local economy itself. That creates types of strains such as social dislocations that become political factors throughout the region. As a result, there is a real tension in that the problems are not contained within individual countries but are inherently cross-national. Thus, the governments are, for many of these issues, the wrong-size unit to have to work with but generally the major unit through which we have to operate. That makes policy-making challenging and it builds in tensions and frustrations.

    The Asian financial crisis

    This crisis has produced profound social changes throughout the region and profound political changes in many of the key states in the region. Social changes include, among other things, the rapid decline of an Asian middle class, primarily the urban middle class, that had been built up over a period of decades. The key agents of modern change have been knocked back a generation in a matter of a year. Politically, the governments in Thailand, Malaysia, Indonesia, Korea and Japan have all changed substantially as a direct result of the Asian financial crisis. What are the repercussions for Asian policy-making? First of all this has made everyone less cooperative. When people become poorer, they rarely become more altruistic and more ambitious about transnational cooperation. Secondly, nobody truly understands the contagion that we have seen around the region and beyond the region. It is very hard to fix what you don't understand.

    The unexpected effects of the post Cold War era

    The end of the Cold War brought us a lot of good things but it deprived us of a defining cleavage in foreign affairs. During the Cold War we had a unique period in our history because we could combine into one cohesive whole, realpolitik and the long-standing moral imperative of American foreign policy. Essentially the Soviet empire was seen as so evil that anything we did to fight Soviet communism was inherently moral. We could support dictatorships, engage in spying, build huge nuclear arsenals and this was all part of a moral crusade. Then the Soviet Union collapsed. The underlying inherent tensions that resulted - Who are we really? Are we to act as a traditional great power? Are we to act as a moral force in the world? - began to affect almost every area of our foreign policy. This has occasioned enormous debate about what we are doing and what we should be doing. Nowhere (in my mind) do you see that in more concentrated form than in our unending debates about how we should deal with China.

    America's position in the world

    The United States now is in an unprecedented position of power. We are stronger in relation to the rest of the world, arguably, than any country in history has ever been in relation to the other countries of that era. In each of the major spheres - military strength, economics and culture - we have a position of dominance that is unique and inevitably is not going to last at this level for very long.

    One result for American foreign policy is an assumption that the rest of the world has to accommodate to us. We believe essentially that we don't have to sculpt our policies in a way that is highly sensitive to the people outside of the United States who will be affected by them because we're so powerful we're going to attain the outcomes we want anyway. That has enabled many in Congress to view foreign policy as nothing but part of the partisan battleground in American domestic politics. Foreign policy has thus become derivative of domestic politics rather than standing outside of domestic politics and politics' stopping at the water's edge.

    As a consequence, there are tensions and cross currents that make it virtually impossible to have a single, effective, correct policy towards a region like Asia. These different tensions and cross currents are reflected in policy debates and admittedly in policy inconsistencies around the region.

    Let me now explain what I think are our goals in Asia. Let me express this in terms of four and a half priorities, that is to say, four priorities that are region-wide and one that is in a sub-region in part of northeast Asia.

    To promote recovery and growth out of the Asian financial crisis

    This is of fundamental importance to the region as a whole. The U.S. is seeking to do this through leadership in terms primarily of ideas, organizational skills and mobilization of resources. We are doing it through partnership with Japan to provide increased funds for trade credits. We are doing it through work via the International Monetary Fund (IMF) and the World Bank, the latter more for social safety net issues, the IMF by providing both funding and advice for bank recapitalization and a whole series of things to get economies in shape.

    To maintain a strong American presence that promotes stability

    This broad goal for the region is based on the belief that stability leaves countries freer to pursue prosperity and freedom. Therefore, we have a major effort to maintain a very significant American economic, diplomatic and security presence throughout the region. We seek to be actively involved in the region, even in the face of very little support for this at home, whether it be in the Congress or in the public as a whole.

    To strike the balance necessary in order to produce prudent behavior by the major actors in the region

    Essentially we need a strong China, a strong Japan and a strong ASEAN (Association of Southeast Asian Nations). China, if it is strong and healthy, is really the heart of the artichoke. If you look at China's position around the region, the array of issues China is involved in and its potential, you can see why we seek a strong and healthy China. We seek cooperative relations with China in our national interests. We seek Chinese participation in multilateral organizations. Those things are very much in America's interests, as well as China's interests. We don't do this altruistically; we do it because it is in America's interest to do it.

    The U.S. Information Agency (USIA) takes a poll around Asia periodically by country. I was really struck when I read the results of that in February 1999. One of the questions asked in the poll in Asia was, "What is the international development in your country that would be worst for it, that you most fear?" With that open-ended question, in every single country around Asia, the largest percentage of people stated the greatest adverse development for Asia as a whole would be for the U.S.- China relationship to go sour. It was absolutely startling. I would never have anticipated that but it gives you an idea of how fundamental that relationship is to how Asia's future is going to play out.

    We also want a strong and healthy Japan. Japan's economic situation affects all of Asia and beyond. A close U.S.- Japan security alliance is a major stabilizing force for a variety of reasons, as well.

    Next, we want a strong and healthy ASEAN. This reduces the chances of protectionism in Southeast Asia and dramatically reduces the chances of conflict within that very diverse region.

    When you have a strong China, a strong Japan and a strong ASEAN, it creates the right incentives for all three to behave in constructive fashion. You really want to get all three in place. My comments should suggest that this is not an easy outcome to achieve and one that will be a long-term process at best.

    To nurture democracy and good governance

    Obviously this goal appeals to us as Americans. We like to think that we value democracy and can help to increase its presence in the world. Personally, I like it not only for the value reasons but also for analytical reasons. I think it is the smart thing to do. If you look at the 21st century global economy, my own feeling is that it is one that will be basically market-driven, that is information rich, that has global pools of capital for which various areas will compete and that it will be technologically very dynamic. Therefore, it is an economy where, to compete well, the characteristics that will be required of a country are legal protections of the property and of the self, the kind of flexibility that allows entrepreneurship to flourish, free access to information (because those who don't will be at a severe competitive disadvantage), transparent financial systems and legitimate governments. The latter is important because global economies will produce the kinds of social swings that will test governments severely and only really legitimate governments will be able to take the measures necessary to produce prosperity out of periodic adversity.

    Generally speaking, if you think of these characteristics - rule of law, good property rights, freedom of information, freedom of choice, transparent financial systems, vibrant markets, legitimate governments - it is hard to think of an autocracy that has met those characteristics. I think that for hard-nosed, analytical reasons, the countries that will so best in the world of the 21st century are going to be relatively more democratic countries. I don't mean "Made in America" countries but countries that have these basic characteristics that do not sit well in authoritarian systems.

    Let me turn finally to a subregional issue in northeast Asia and that is North Korea. This issue consumes an enormous amount of time and attention for very good reasons. Here the task for American diplomacy is easy to state and hard to accomplish: If we want to have North Korea behave in a way that is not threatening to its neighbors, in a way that is not destabilizing - and I would argue they have behaved in a highly destabilizing way in the last couple of years - we have to be able to put together a reasonably consistent approach among four countries: the United States, Japan, South Korea and China. If any of the four of those should seriously defect from the approach that we're adopting, it won't work. Any of the four can undermine what the other three are trying to do. We're working very hard to develop a consensus that is meaningful in programmatic terms among those four countries to try to deal with North Korea in a way that reduces tension, increases stability and secures peace on the Korean peninsula. If we fail, that is, if there is another war on the Korean peninsula, the casualty estimates among military people are estimated to be a half million people and civilian casualties of over a million people. North Korea is not another Iraq where you can send Tomahawk missiles and be effective. Given the characteristics of the North Korean military capability, you are talking about massive human tragedy if we don't do it right and everyone else doesn't do it effectively.

    This is a broad brush: Four fundamental obstacles, if you will, towards developing and implementing an effective foreign policy, four and one-half goals, at least as I see it, that we would like to achieve in Asian-American policy.

    Questions from the floor

    Q: As a scholar from the U-M previously, you did have some ideas about cross-strait relations between the mainland and Taiwan. Now after a period of time in government, have these ideas changed or do you have different thoughts about how to carry out those ideas?

    A: One thing I have learned since I got into the government is that I had better not talk about my ideas. So I am happy to give you U.S. government policy on cross-strait relations: the three "no's," the three communiques, which are the set of obligations we have worked out with China in 1972, 1979 and 1982; and a determination that any resolution of the issue be achieved peacefully by the free will of the people on both sides of the Taiwan straits. We don't have a role to play in achieving it but we certainly are happy to accept any outcome that they themselves work out.

    Q: We've heard a lot about the successes in the Chinese economy and reduction in the size of the state with more role for entrepreneurship and individual enterprise - but doesn't that also mean that a lot of people have been left behind, that social cleavages are increasing and tensions are growing, leaving the possibility of complete breakdown in society, civil war, worst case use of nuclear weapons, with one side against another?

    A: Clearly, the Chinese reforms have been based on the assumption that a rising tide lifts all boats. The results, as we should have anticipated, are that not all boats rise at the same rate. We have seen an increase in inequality in China both within localities and between localities. Average incomes in Shanghai, for example, are a high multiple of average incomes in Yunnan province. Given the virtual universality of things like television in China now, the people in the Yunnan province know about the people in Shanghai and resent it very deeply. In addition, as they have moved to a more materialistic set of goals nationally, corruption has grown and political discipline has declined. So there is a lot of tension in China now. That tension is enhanced by the fact that China is now feeling the brunt of the Asian financial crisis. It has been somewhat attenuated in its impact in China because China doesn't have a freely convertible currency. Also, because China has such a huge internal market. It isn't like Thailand or South Korea. You are dealing with more than a billion people in the population. But the Chinese have been pushing to implement some major additional steps in restructuring the role of the government in the economy and providing more capital for the private sector of the economy, local government enterprises versus these big, state-owned enterprise behemoths. Just as they were implementing that, the Asian financial crisis hit. Exports at the end of last year were going down. The Chinese banking system is basically bankrupt. Unemployment is rising rapidly. Are they worried about political and social stability? You bet they are and in a dramatic fashion.

    The tension is, then, how do you make it more likely that you'll retain social stability even as you're restructuring the way the place works? Lots of people who thought they had lifelong tenure in their jobs are being thrown out of work. As people look into the future, they face the uncertainties because, for the first time, urban Chinese have to buy their homes instead of getting them basically for free. They have to buy their insurance instead of having a social safety net through the enterprise. They have to pay tuition at school instead of getting schooling for free. Finally, the Chinese for the first time in their modern history are facing not inflation but deflation.

    When you try to achieve stability in that situation, it has to be some mix of increasing the right to protest, the right to free speech and at the same time trying not to let that get out of hand through large scale organization. We in the U.S. government think that the Chinese are being more repressive than they should be and they're not allowing enough additional expression and right of peaceful organization. But nobody outside of China and no one inside of China knows with confidence how to govern China. It is too big and too complex and changing too fast for anyone to be really sure they're getting it right. We all have an enormous interest in China keeping it together and doing it well because if China doesn't keep it together and do it well, we have the potential of another Russia, which is to say the spread of rule by Mafias, the spread of proliferation activities, the spread of illegal activities, such as smuggling of people and drugs, or environmental devastation.

    Q: What would China do if there were a war on the Korean peninsula?

    A: I think China would do everything it could to stop such a war. A big issue would be: how did that war start? Who initiated the war? Anyone who knows Kin Dae Jung, the current President of South Korea, would find it inconceivable that South Korea would consciously start a war against North Korea under Kim's leadership. If a war begins, it is going to be because of actions by North Korea. If you accept that premise, I think that China would immediately cut off all food and petroleum supplies to North Korea and probably menace the North Koreans along their northern border in order to get them to stop. Having done that, they would then help the North Koreans negotiate the continuation of their own existence. I don't think China wants North Korea to make war.

    Q: What are U.S. policy and perspectives on the situation in Indonesia and its future?

    A: Indonesia is an extremely complex society, topographically (with more than 10,000 islands that make it up), culturally, ethnically, religiously, in every fashion. The situation in Indonesia is extremely fluid right now. The institutions are undergoing major transformations from what had been a very authoritarian form of democracy to what arguably will be a competitive electoral democratic system. In that process, the role of the military is changing and the role of the presidency is changing. Everything is in play at the same time that the economy is in the tank and ethnic tensions are extremely high. Frankly, you can build a scenario for a reasonably good outcome in Indonesia. The difference between that and a dramatically bad outcome may be a matter of happenstance, such as some gross misjudgment by someone in crowd control in Jakarta on the wrong day.

    From a U.S. policy perspective, therefore, you try to gain leverage but it is hard to gain leverage in a fluid situation. Frankly, our own sense is and I think most of the contenders in Indonesia agree, that what is key to the recuperation of the Indonesian economy is regaining the confidence of foreign investors and also of Indonesian Chinese who have taken their money abroad. Anything shy of a reasonably democratic system growing out of this will be seen to be so potentially unstable that money will stay away and they will be in deep trouble.

    Q: Ta Mok, who is really the last of the top Khmer Rouge holdouts, was captured across the border from Thailand in Cambodia recently. What is the U.S. policy toward trying to bring him to justice in a court, along with other top Khmer Rouge leaders who have now surrendered for crimes that they committed 20 years ago?

    A: That is an easy question. A harder question is, how would that affect, in turn, how you deal, for example, with the leaders of Burma, because, after all they aren't going to retire if they see retribution and prison in the future after they step down. We face the same thing with Pinochet of Chile. If you bring a butcher like that to justice, you will probably have a much harder time getting rid of the next butcher by getting him to resign and leave quietly. So there is a real tension there.

    Our policy regarding the Khmer Rouge leaders, including Ta Mok, who is probably the biggest butcher of the group of them, is that we would like to have an international tribunal established to try them, preferably outside of Cambodia itself, via the United Nations Security Council and bring people to justice for the crimes they committed from 1975 to 1979, from their seizure of power to essentially their having been pushed to the margin by the Vietnamese invasion at the end of 1978 and early 1979.

    This is to say that, on balance, we think there is a sufficient moral imperative— after all, these are people who slaughtered millions. These are not thugs who wiped out the next gang. We think when it gets to that level, there is a sufficient moral imperative that they should have a legitimate trial. They should not be allowed to retire in some little town in western Cambodia where they can live all the high life, simply on the basis that they no longer rebel. There are moral ambiguities involved in that, I will readily admit, but frankly that is where we think it ought to come out and we're working very hard to bring that about.