aren't affected to team with troops as eocene most recently in marsha. -- in marajah i am curious about how the changing keep that from the fields in iraq and afghanistan will be incorporated in the future doctrine of development. i look forward to hearing all of your testimony. thank you pr. >> thank you. >> good morning to all the centers who are here. . .

chairman, good morning senator mccain, all the senators here. >> is your mike on? >> yep. >> move it closer to you if you can. >> thank you very much, senator levin, and senator mccain, all the members of the committee who were taking the time to hear from my two very good friends and wing men this morning. general kip ward, i feel very safe between these two distinguished combat veterans. i want to thank the congress, this committee for the support you give us in all of our operations. it's vital and it translates directly to our men and women. and we thank you for it. i'll be glad to talk about all of the things that were raised by the chairman and the ranking member. in afghanistan, i would say that i'm cautiously optimistic. i think that secretary gates yesterday in afghanistan put it very well. we have some challenges ahead. but we are seeing some bits and pieces of good news. pieces of good news. talk about

some of those. senator levin, i agree completely that we need to focus like a laser on trainers for the nato forces. i'm committed to doing that and i'll talk about it as we go along. we're very engaged from a u.s. european command perspective in the valcans. today we're down to about 1,200 troops. and our allies are working very hard as we move toward a safer and more secure area there. i'd also like to touch on today some of my concerns there. talk a little bit about iran and potential threats to europe. touch on our relations with russia, and then talk a bit about some of the initiatives we're undertaking at u.s. european command that focus on inner agency, international,

private/public partners and the use of effective strategic communications. i'll close by saying i represent here 80,000 brave men and women from u.s. european command. all proud to serve, all volunteers. they thank you for your support. thank you, sir. >> thank you very much. >> good morning, chairman levin, it's great for me to be here this morning, as well. alongside my two great friends, the admiral and the general who we've come to partner with over time. and i think our collaboration has been good for men and women who serve with us as well as for our nation. i'm very happy to be here to address the points that raised as well as others. and i'd like to thank this committee for the support provided to my command, men and women, as we carry forth our mission on behalf of our nation.

we do what we do to protect american lives and to promote american interests. and we do it by supporting security and stability programs in africa and this island nation. we concentrate our efforts on helping african states build capable and professional militaries that respect human rights, adhere to the rule of law and more effectively contribute to stability in africa. we're assisting our african partners and building capacities through transnational threats from violent extremist organizations and to adjust consequences of natural disasters. the development of professional and capable militaries contribute to increase security and stability in africa allows african nations and regional organizations to promote good governance, expand development, and provide for their common defense and better serve their people. the partnership, which includes our european and african

partners. as members of the staff is now on the fifth deployment and expanded some of the initial focus in the gulf of guinea to other africa coastal nations. a continental wide command and control exercise has been seen a steady increase in participation that will amount to 30 nations participating this year. exercise natural fire, conducted by the nations in east africa, a tremendously successful program that looks at how these nations respond collectively to a natural disaster. these programs reflect the willingness of our partners to work with us and with each other against common threats and reflect our programs and activities are indeed producing tangible results. my focus is on activities, program, and communications that support our national interest and also reenforce success in ways that assure progress for

the long-term goals our african partners for themselves. we closely harmonize our activities with our colleagues at state, usaid, and other agencies. our service components are, in fact, maturing. our security cooperations, defense attaches and security locations. they are tremendously valuable as we pursue our u.s. security interests. it's my honor to serve with the very distinguished uniformed and civilians of the department of defense. making a difference in this vitally important part of the world as we look to cause their work to lead to more effective global stability. their dedicated efforts exemplify the efforts and strength of the people.

and the security and stability on the african continent directly supporting our interests there. i'm pleased to also say that representing those men and women that i've brought along today our command sergeant major the command senior. mark ripka as someone who exemplifies the goodness of that great, great team. i thank you for your support, i thank you for what you do to cause our mission to be successful. any additional information i can. thank you so much. >> thank you so much, general, and general mattis. >> members of the committee, thank you -- >> and it will be. >> over the course of the past year, joint forces -- [ inaudible ]

we continue to encourage joint forces -- nato. [ inaudible ] we have continued to adapt our forces. we've been increasingly confident in warfare. the chairman and secretary of defense stated that we must not [ inaudible ] if we continue to deploy forces in a regular fight in iraq and afghanistan, dormancy of our conventional capabilities. our forces are achieving balance and will continue to do so as dwell times build with the iraqi drawdown.

through effective training and education across the force, we can strike the appropriate balance while ensuring our current and future combat readiness. i returned a week ago from afghanistan and our field commanders there confirm that our troops are superbly trained for the fight even as we use lessons learned to not fall back on complacency. based on the reality of current active operations and future trends outlined in our work on the future, joint forces command top priority continues to reflect this balance between support for the current fight and our constant assessment of the future to ensure we remain the most capable military in the world. thank you, sir. >> thank you very much, general. let's try eight minute first round. admiral, there have been a number of reports about the performance of the afghan army

during the recent operation to clear the taliban from central helmand valley. larry nicholson said that afghan forces are not cosmetic, they are in the fight, but at the same time, anecdotal accounts of afghan soldiers smoking hashish and failing to help fortify positions. afghan soldiers that are partnered with coalition forces in the fighting in helmand. >> sir, as you can imagine, i discussed this frequently with general stan mcchrystal, my nato subordinate who is directing operations. and i also receive reports on a daily basis. i am satisfied with the progress of the afghan national army and overall its performance i think has been effective in marjah. as you recall, senator, when we went south about a year ago, the

ratio of isaf troops to afghan troops was ten of the isaf for every one of the afghans. in this particular operation, we are one isaf troop and just less than one afghan. so we're approaching that one-to-one ratio. so the quantity piece has improved dramatically, the quality piece, i think, is spot-on. we're seeing them actually in the fight. we're also seeing instances where the afghan troops are stepping ahead of the coalition forces and saying let me go through that door first. let me go up that road first. we're seeing that kind of shoulder to shoulder effective combat fight out of our afghan partners. in terms of individual instances or anecdotes, we follow up on every one of those. we report them, action is taken by the afghan chain of command,

but overall, senator, i am satisfied with the progress we've seen over the course of a year. and i think the operation in marjah shows that. >> well, that's important news. i want to focus on that ratio. we were there just -- i guess the first time maybe a year ago now. and got into this issue. it was a five to one ratio five of ours for one afghan. we heard that in marjah for that effort, it was about two of ours to one of theirs. and now you're telling us that it was actually a lot better than that closer to one-to-one which was very significant and important news. that's critically important. not only in terms of turning over responsibility to afghan security to the afghans which is a major part of our mission, but also in terms of the credibility of what we're doing there to the people who live there, to the

residents, but also to the training of the afghan troops so that we can have that close training relationship and the closer that ratio is, not just the one-to-one, but two of theirs to one of ours the closer we are to our own standard and our own goal. i read in the paper this morning that, however, when that effort was undertaken that we left, i think, afghan troops left or perhaps it was some marines in the nearby area to -- without adequate protection at all and a number the taliban simply moved next door. can you tell us anything about that? and if that was happening, why was there not a plan particularly given the size of the afghan army to have afghan forces secure places where other combat troops were leaving in order to succeed in the fight in marjah? >> senator, i'll have to take that one for the record and get

back to you on that particular incident. i'm not familiar with it. >> you'll see it reported in this morning's paper. >> thank you. >> as i mentioned the opening statement, nato members are falling short once again. and the most recent generation conference. they fell short in meeting the nato mission requirements. nato is committed to provide. can you give us any kind of assurance as to that -- whether that's going to be filled in and whether the nato countries that have fallen short of their commitments and obligations are going to be forthcoming? >> first of all, let me give you the exact numbers. we're looking for an additional 1278 and we have pledges for 541. so it is absolutely correct to say that nato has fallen short in providing these vital trainers.

what we are doing about it is taking further steps in terms of contacting each of the nations individually and going one by one through the precise requirement for each of the nations in@@@@@ @ @ @ @ @ @ @ åj >> we appreciate that. at a press conference last week, afghan army recruitment was going very strong. i think he said there wasn't a promise -- and 800% increase in recruitment in the last four months to five months. they cannot put them into basic training right away because of the shortage of trainers. that they can't put them in the basic

training right away because of the shortage of trainers. and that is totally unacceptable, almost unbelievable to me that we can't get nato allies to carry out that kind of commitment, which is not the most dangerous of the positions that they need to fill. there's obviously danger anywhere, but comparing to being in combat, it falls well short of that. and we need to do everything we can. and i'm not sure if there's anything more we can do. if there, is please let us know. in your judgment, can the recruiting trend, which is a great extent according to general caldwell to the efforts of the afghan leadership to stimulate recruiting as well as an increase in pay. but he attributes the large increase more to the leadership of the afghans and to the pay increase when we met them. will that recruiting trend in your judgment be maintained? or is it maintainable right into

the spring? >> i believe it will be maintained, senator, and i'm also very focussed on the other end of that equation, which is the retention piece, which is not going, as well. so we have to focus on retaining just as we do in the united states. it's so important to have the retention along with the recruitment piece. i'm confident we will continue to be strong on the recruiting side. working very hard with stan mcchrystal and bill caldwell to put focus on the retention side, as well. >> a new missile defense program in europe called phased adaptive approach that the obama administration has announced and begun to implement. does nato support that new missile defense plan? >> nato is beginning that conversation. and at the moment, what we have is a ballistic missile defense c-2 command and control structure which is being

explored to decide where, when, and how nato could connect into this if the alliance decides to do so. i anticipate there will be a significant discussion about that at the defense,which will be in the may time frame. and i'm hoping to see a decision taken toward the time of the summit, which is in lisbon in november. so it's very much an active conversation. i don't want to pre-judge the political decisions of the nations, but it's certainly on the agenda. >> all right. from what you know, can you say there seems to be a positive response to it? >> i think overall, that would be fair to say. >> thank you very much, senator mccain. >> thank you very much. mr. chairman, admiral, are we -- as i understand the president's proposal was that we would be adding approximately 30,000 troops and our allies including in and out of nato would be adding an additional 10,000.

>> yes, sir. >> how are we on track for that 10,000? >> sir, we're in pretty good shape. we're at 9,500. and if i can get the additional 700 trainers that i just talked to the chairman about, then that would put us over the 10,000 mark overall. >> does that include the 2000 dutch troops that are scheduled to leave? >> no, sir, it does not. >> so you're really talking about 7,500, you don't have any illusion about the dutch troops remaining, do you? >> my sense is listening to the political dialogue out of the netherlands that they will be leaving. >> so we're really not on track, then. it's nice to say, but if you're going to lose 2,000 dutch troops who are, by the way, great fighters from my visits, it's not 9,500, it's closer to 7,500, and there are other of our allies whose commitments certainly not been firmed up yet. the afghan army, as i understand

it, needs to be around 300,000 and 100,000, rough numbers we would like to see over time? >> i think over time, yes, sir. >> how do we expect over time to pay for the afghan army? >> i think the international community will have to be in a position to continue to support it for a great deal of time to come. >> and rough live how much would that cost be on an annual basis? >> i don't have that number at my fingertips, but it would certainly be in the billions, probably in the low billions. >> and we would expect our allies to foot the bill for that? >> i think it is fair to say it's an international effort and we would hope that all in the international community would continue to support it moving forward. >> overall, the operation in marjah was successful? >> i think it is going very

successfully, certainly through the clearing phase. we're now in the build and hold, which i think will be challenging, but i am confident that the plans that we have in place will give us a very good chance at overall success as we go to transition. >> what presence was our nato allies in that operation? >> the overall 55 -- >> the marjah operation. >> the marjah operation was in the range percentage wise of the isaf forces was around 25% to 30%. >> and that was in direct combat roles? >> largely, yes, sir. >> so some of our allies are fighting very well, some of them have very restrictive rules of engagement, right? >> we have -- we have 22 nations that have no caveats and we have about 20 nations that have caveats, yes, sir. >> and some of these caveats are

very disturbing. >> some of them are very restrictive and we work very hard to try and reduce those whenever we can. >> i thank you, there's a lot going on in nato and in europe, and we appreciate the great work you're doing. general, this sounds like a perhaps a question that need not be asked, but should we be looking as part of africa command some headquarters located in africa? >> the work of the command is in its programs, its activities, its exercises, the things that we do across the continent to help the nations of africa increase their capacity. the headquarters location quite candidly doesn't affect that work where we plan those activities, where we look to resource activities. it's not something that the

leaders in africa are asking me about. and at this time, it is my estimation that any great efforts to locate an american-sized headquarters of that nation would be more counterproductive than productive. >> because? >> because of perceptions, because of the reactions to neighbors, to parts of the continent where the headquarters might not be located. many unintended consequences, i think, would fall out from that type of a move. >> what's your area of greatest concern? maybe tell us a couple of countries of your greatest concern, general ward. >> senator, as we look at the continents, clearly the challenges are there. there are also opportunities. but when we talk about what's going on -- >> your greatest concern. >> what's going on in somalia, sudan, nigeria. the judicial means of changes of

government that we saw in guinea, those activities concern me. >> and do you believe we're making -- since it's not news perhaps it's obvious we're making some progress in the piracy issue? >> we are making progress from the standpoint of addressing the threat at sea, the weather, lately also helps because of the high sea and the inability of those to go out and operate freely. the coalition that occurs at sea is an effective coalition. big ocean, however, as you are aware, and these do, in fact go around and get through. that's piracy threat not just in the gulf of aden, also the west coast of africa. our work to help these african nations to increase their capacity to deal with their territorial waters is certainly making a difference. in addition to that, i would offer that's the work that would need to occur on land,

especially pertaining to good governance or governments that are more than less able to control their territories will also contribute to increased stability and reducing the effects of piracy. >> the main area of piracy operations is where? >> predominantly the gulf -- >> what country? >> somalia. >> somalia. an incredibly unstable country. >> sir. >> and very little prospect for stability in the future? >> well, it's a work in progress to be sure. small things happening now. but much work to be done. >> could you just make a comment about ethiopia and the situation there? >> ethiopia remains a friend, a partner in our efforts to help produce stability there in the region. there are work that the

ethiopians do in the counterterror business as well as in the work of their participation in peace keeping operations is important work. and i think the partnering with ethiopians as well as other east african nations is something we would continue to look at in ways of helping produce stability in that part of the world. >> i thank you, general, thank you admiral, thank you, mr. chairman. >> thank you, senator mccain. senator liberman. >> thanks mr. chairman and thanks to the three of you for your extraordinary service. general ward, let me just pick up where senator mccain was. particularly in somalia, we know from experience that where there's a no government either piracy or provision of space for terrorists, islamist terrorists particularly to operate. i gather that there is an attempt by -- i'm not sure what you call it. the provisional government to

retake the capital city of mogadishu. and i wondered if you could give us both your estimate of how that's going and to what extent we're able to be supportive of that effort. senator, as you know, somalia has been an ungoverned state for 20 years. what we're facing today is not new. the current transition federal government being supported by the african union, being supported by the mission in somalia, and being supported by others of the international community to include the united states is an effort that i would continue to endorse and think that it has for now our best potential for helping to turn around some of the instability and lack of governance we experience there. what's going on in mogadishu with respect to the desires of the transition government to reclaim parts of mogadishu is a work in progress. i'm not aware of the specifics.

i'll have to come back with you, sir, with the specifics on what that current operation looks like. but to the degree, the tfg, transition federal government can, in fact, reexert control over mogadishu with the help of others. it's something we would look to do and support as well as the other provisions of the process that looked to instilling the governance, instilling governmental things that would serve the benefit of somali people to cause that situation to reverse itself. we look to participate with those who also support them, the other nations, and the neighbors who contribute to the mission, uganda, supporting their work and trying to lend a hand that they lend to the tfg and increasing stability. so those efforts are ongoing. it's an effort that i think we would certainly support, and we would look to do it in ways that

add to stability in that part of the continent. >> let me go to the sudan, there's a lot of continuing concern here about the situation in sudan. we're in a critical period in the coming year when national elections next month, which are the first and more than two decades, maybe more than 2 1/2 decades. and then there's a referendum in the south in january. i would like to hear first what your command is doing to support the a huge force. >> senator, our support to the mission in the r four has been for training assistance -- in

darfur has been for turning assistance. we provided logistics and support. we continue to do that in support of the peacekeeping efforts in darfur. we do not have any direct on the ground involvement there. there are political process is that we do support in the case of southern sudan, we support the formation of the southern liberation army and the development initiative. we work with the special on boy and doing those things and hope to increase -- the special envoy and doing those things and hope to increase professionalism of. is over.

how should we interpret those? >> senator, the cooperation that we see emerging between the presidents, i think we would look to that as an encouraging sign. >> so it's real? something is changing there? >> something is changing. >> for the better? >> it's for the better, it's still fragile, not irreversible to be sure. i think we should be encouraged by those signs, but we look forward to more of that as this political dialogue continues. >> admiral, let me ask you about bosnia. senator mccain and a couple of colleagues visited there last month. we feel a sense of pride about what the u.s. was able to do in the '90s to stop the aggression and genocide there. but as you indicate in your posture statement, the problems

continue particularly the ethnic divisions. it's not what it was in the '90s, of course. but you've got some really explosive situations. and people there. i will tell you that the one most encouraging experience that we had was visiting with the military. and i think ucom has had a lot to do with that. all of the ethnic groups in there functioning at a higher level. i want to quote from something you said in your statement, it's the question i want to ask after your evaluation. you warned that the "deprogrammed reduction of nato and european union forces may induce additional risk of instability in the region." and i'd like to evaluate the situation. but then specifically, would you counsel now that the program reduction of nato should not go forward that it involves too

much risk? >> thank you, senator. just, again, the context of the reduction of u.s. troops is really quite remarkable. 20,000 in bosnia alone, we're down to 20 there now. in kosovo, as many as 10,000, we're down to about 1,200 troops now. in bosnia, you correctly hit on, i believe a central element, which is the security force there, the armed forces. moving them in a direction that is integrated, i think will be very encouraging to the body politics in bosnia. in terms of kosovo, we had 15,000 nato troops there as recently as december. we've been able to draw down to about 10,000 nato troops there now. again, about 1,200 u.s. the next step in that process is for me to provide military advice to the secretary general about whether to take the step to go from 10,000 down to 5,000.

i'm evaluating that very carefully. there's still tension, understandable, between serbia and what they perceive as a break away province of serbia. but what the united states and 62 other nations have recognized as the independent country of kosovo. so i think we need to move carefully so we don't fall back. the progress has been extraordinary. we don't want to let it unravel. we don't want to let it unravel. i will be looking very carefully in kosovo, continuing our encouraging efforts in bosnia. overall i'm confident we'll continue to move in a good direction but it requires sort of watchful, watchful approaches. >> well, i appreciate that. i'm encouraged by it, and i guess i would encourage you to err on the side of caution. we may look back and really

regret it. end on a bright note. one the serb, told by the commander of the military, in bosnia herzegovina, at one point, called on all serbian members of the bosnia herzegovina armed forces to return home, and no one came. that's a great comment and a tribute also to u com's role in training that force. thank. >> senator inhofe? >> thank you. senator lieberman ended on bright note. i'll start on a bright note, some of the things that are working. e talked tab before or every meeting in private. the programs, 1206, 1207, 1208, the inet program, serb program, ccif, those programs are working well. admiral stavridis, i would ask you, with some of these things

that have been changed recently, like in the 1207, the whole reason for structuring these programs the way they're structured with d.o.d. is so they can be activated quickly, and get an immediate response. now, we're kind of going in the other direction with the 1207. you want to comment on that? >> senator, first of all i completely agree that the 1206 and the inet programs have been superb. i think each of the combatant commanders has testified to that over the last couple of years and i benefitted from them greatly in the three years that the command continued to be a strong advocate here at u.s. european command. 1207 money is kind of dual key between state and department of defense. i think that any time there's a dual key it's going to take a little longer to work through the challenges. so some of that immediacy so valuable in the 1206 funding is

not as readily available in the 1207, but we're committed to work with our partners and make it go as rapidly -- >> i understand that civilian to civilian. are you satisfied with the funding level of the ccif program? >> yes, sir. >> all right. general, with all the great things happening in simulation now, as you know yesterday we broke ground on the new building for the jvets program, and by the way i appreciate very much your personal attention going down, watching that. i mean, we had people from all over the world there under the, our inet program. i think some 250 coalition members are being trained by this jvets program. so just another example of how iset in working. also an xumpl how the jvet programs is working and i -- why don't you give an update as to what you think is happening in

terms that things with the jvets programs? >> thanks, senator. you know this is an issue near and dear to my heart. in prepares our troops, which is ultimately my responsibility, we cannot do it as efficiently or effectively or as cheaply, i might add, as we can in real world, as we could using simulation. one of the biggest challenges we face is breaking the old paradigm somehow they're good for submarines, aviation, ship drivers, missile ballistics but somehow leave the people who take 80% of our casualties off the ledger. so we're going forward very strongly with this from the small unit levels to how we integrate joint isr intelligence surveillance reconnaissance and more importantly joint fires,

because if we distribute our forces more broadly on the battlefield we need to reduce the risk to them. that means they can access joint isr and know what's over the next hill. they can access and use well joint fires and the installation out in your district, i'll tell you, sir, is absolutely critical tore the maturation of this. >> the best way to break the paradigm, get people out to see it. you can't explain to someone the actual conditions they experience out there. just -- you know, it's mind-boggling. >> yes, sir. and we have a couple of programs that to dla right now and are getting a lot of interest. significant support from this committee. >> good, good. good. general ward, of course, as you well know, i've been very interested in africa. in fact, criticized the amount of time i spend in africa and the, i was very strongly in support of, back when when he,

hard for me to understand why we would have had africa, the continent, under three commands as we did, and now things, i think, are working. as i've told you before, i would have preferred to have the headquarters in africa, some place down there. i know the political problems that come with that. but let's start with, i was recently in djibouti, talked to admiral fitzgerald and rear admiral curta. heavy lifting over there. but everything is happening. briefly, tell us what is happening in djibouti and some of the successes there. >> thank you, senator, and thank you for your support to the command and also to our security efforts on the continent. we feel that we appreciate it. in djibouti, as you know, the combined joint task force in africa, we assumed responsibility for command and control over what became an endorsed unified command a

little over a year ago. the program was combined joint task force programs we undertake in the eastern part of the continent and in other places as i determine a skill set that they possess that's required. proips the type of training support, the type of mentoring, coaching. the type of program that we are using along with our civil affairs activities to help the nations in africa concentrate their efforts in causing a degree of harmonization of the training, the professionalism as well as the regionalization of security assistance and cooperation programs that i think are proving very, very beneficial insofar as moving to the next level, a capacity of many of these african nations to increase their military and security capacity. doing it in ways, because of our long-term approach to doing business, doing it in ways that fully integrate the elements of

diplomacy, development, as well as defense and not that we do those thing, senator, but because we understand the importance of all of those activities being a part of this dynamic, the comprehensive approach, it is working. >> okay. i want to expand on that a little. first on the cuts that were there in your information operations program, are they going to hurt you? i mean is that serious? >> it is serious. the information programs that we looked to do, we cut the $3 million, that was about one-third of what we wanted to do and the focus for those additional programs would have been in the east africa region to complement what we're doing in north africa. >> such a huge area. i think people just don't really comprehend that. and how about any other equipment, first there was problem there's. do you feel fairly comfortable that the resources you have? >> always looking for resources

what they have are sufficient to do the work that we want to do. we could enhance that with additional resources, but the work that we are able to do, working with those nations to include assisting them as pointed out the various programs, 1206 program, very, very important and beneficial as we work with the nations on their territorial security as well as their maritime security and capacity building. >> yes. i'm running out of time here, but do this for me. the reason that our activity in gentleman djibouti with the rest of the continent is the that we already there. it's more difficult if you start anew. as large as that continent is, probably toot have someone in ghana. activities there and maybe for the record you could respond as to what, are there any hopes for that, or if there's anything, should we continue to try to do that? and as i go around, i talk to

the presidents. i find a lot of them, although there's a political problem with naming names, because they don't want other people to know they agree we should have that activity, for the record, you might answer that. lastly, enheartened a little by some of the new faces in zimbabwe. that have been on the other side of mugabe, and i feel for the first time in many years somewhat optimistic these new faces that want to bring that country hopefully back to where it was at one time, the >> idea. i had a conversation with our new ambassador. there is that same sense of optimism and they hope to take the advantage of what is a changing environment. >> senator reid. >> the gentleman, thank you for your distinguished service.

not to be overly simplistic, but the last few years have forced us operationally and in our positions to be expeditionary. has that figure caught on in the nato countries? >> that is a terrific question. a little bit would-be the answer. this is part of what general managers has tried to work on so hard. -- general that thimattis has to work on so hard. the thought that we have now 100,000 nato troops engaged on three continents speaks a certain level of fixed base --

of expeditionary. including counterpiracy, including the balkans, which isn't enormously expeditionary, but somewhat and of course afghanistan. i commend the work of jeffcom and ect transformation. we need to continue to encourage that and move it forward. the nature of threats in this 21st century will demand more than just sitting behind our borders. >> has the military of political leadership got the idea, and now the question of implementation, or is it still something that's unresolved and under debate? >> i think it is under debate, but i think increasingly the forces of security, the demands of this non-traditional threats, transported threats are moving the europeans in this direction, and i'm confident as the nato strategic concept is unveiled in lisbon in the fall we'll see

further movement in that direction, sir. >> general matis, if you want to comment on that. >> yes, senator. i completely agree with where admiral stavridis had set this effort. to the united nations i made the motion italian troops going to afghanistan or to the balkans -- excuse me, the baltics would have to deploy about the same distance, when you look at what the alliance is trying to do under article 5. so it's not an either/or. if you want the alliance to defend more than its home turf each army in its own country must be expeditionary. i think that is becoming politically more acceptable, where at one time it was seen more along the lines of what senator mccain brought up, that it was the americans trying to get the europeans to fight an american war. i don't think the expeditionary argument is any longer characterized like that.

so i'm optimistic here. >> let me turn to the, one aspect of the way forward in iraq, and that's the advise and assist brig gatades. i wonder if they'll had a chance to look at these. they've continued to configure combat power but also at the name applies to essentially be a trainer, mentor and integrator with iraqi forces. and our success in drawing down our forces and stablizing iraq rest on their performance and i wonder if you have done any work? >> senator, we have, we leave that tactical training, of course, to the chief of staff of 9 army. however, we have looked closely at it, and it is the behavior of the troops as much as any significant shift in their capabilities that is important. what i mean top say is, that when those troops go in, they will focus on the train and

assist, but it would be ill-advised for the enemy to mess with them. they will still have their capability to fight and if the iraqis ask for it, of course, protecting, demands these forces are quite capable of rocking the enemy back on their heels but they're going in with the mission, and the troops are trained and adjusted to a train-advise-assist mission to the iraqis, and right now from our perspective, these troops are exactly the right thing at the right time and their preparation looks sound. >> and just to follow-up with a question. part of this is a staining this effort, the best, highest quality forces we can, and is it your imflaegs with the -- impression with the department of defense, the army, this mission is highest priority and they will organize these brigades in a way that you have the best possible component elements?

>> sir, obviously we're having to juggle a number of high priorities. we also send combat troops in that can partner in afghanistan, but the theme we're seeing more and more now is that all of our troops going in must have this ability to fight in a coalition atmosphere and be able to partner whether it be with estonias, afghans, iraqis, and this is part of the shift that secretary gates and chairman mullen directed for the entire military force in becoming more attune to this advise and assist effort, whether it be in africa or afghanistan or iraq. i believe because of that there will be no lowered priority on something that has now considered an inherent part of the primary mission. >> can we assume that this model will be adapted into afghanistan also? that as we make progress in terms of reducing the capabilities of the taliban that we'll be able to put more of these type of units on the ground?

>> sers, i'd go so far as to say the units we're sending ober there now into the area that admiral stavridis spoke about are completely capable on their own as combat units of partnering with the afghans. we are learn as the british prime minister put it, once we've exhausted alternatives we'll do the right thing. we've it right this time and are using the lessons learned to change the very makeup of the unit training. >> thank you, sir. general ward, can you describe the nature of the partnership between afra com and the frim union standby force of five brigades? >> the command, senator, has a relationship where we have a president determination put in place that allows to us work with these five standby brigades. currently that determination in place for the southern african

standby force. the west african standby force. we're working on one for the east african standby force. we see that these regional alignments, very critical, important and where they don't exist, we still work on a bilateral basis with the nations who would send forces to the standby brigades to increase their capacity as well. as the training relationship, and in some instances a r an equipping relationship in some instances where we provide that type of assistance to these standby forces that are part of the regional economic communities. >> do we have an ongoing liaison with them in terms of personnel on the ground with them? boots? on a day-to-day basis, or is this -- >> we have a liaison with the fren union. a liaison with the economic community in west african states and their stand.

by states. we do not have a permanent liaison with the southern african developmental nor with the each african but a day-to-day relationship in east africa with those east african forces as well, and we have supported each of them as they conducted training, exercises and other things to increase their capacity to bring these brigades together, yes, sir. >> i want to thank you, general. i also want to thank you for your service, because it's a long time that we talked together at west point and i'm awfully proud of what you've accomplish for the military and the army. thank you. >> thank you, mr. senator. thank you. >> thank you very much, senator reed. senator? >> thank you, mr. chairman and general ward, add mill stavridis, nice to see you, admiral, thank you for your service to the country and thank you for being able to be here to answer our questions today. i want to talk to you, admiral stavridis about a report that came out last week where a spanish judge accused the government of venezuela of maintaining elicit ties with

farc and eta terrorists planning to quill senior government officials in spain including the president. i'm asking you not only because of the spanish connection but your previous work at south com. is there good cooperation between your command and southern command to make sure that we're staying in front of these issues? >> yes, sir, very much so. and i'm in quite a bit of dialogue with general frazier. another example would be after the earthquake in haiti, he and i have been in close coordination in terms of support from the many european nation whose have pitch in and helped. so a very strong relationship there. and i would actually add also a strong relationship with of a fra com. those three frands, eun com, africa com, sound com, consent to woeg together and partially geography, partially general friendships and the geopolitical

issues you correctly highlight i. have a concern that touches this issue i just raised with potentially assassination plot against president u reeb bayh running through spain. it's geopolitical with the concern that iran was projected its influence through spain and also through latin america. it's become a destabilizing force. and certainly europe is, know, tremendously important for our security interests, and if we have a nuclear armed iran, that's going to impact your area of responsibility. can you speak to that issue? >> senator, i find iran alarming in any number of dimensions. not the at least of which is, as you mentioned, increasing iranian influence throughout latin america and the caribbean, drawing on my previous experience. they're very active sponsorship

of terrorism and pursuit of a nuclear weapon and ballistic missiles can which deliver such weapons. one of the reasons i think missile defense is particularly important and i think a concerted international effort to focus on the dangers of iran is well warranted. >> the administration recently made a decision about ground based interceptors and not pursuing that in the czech republic and in poland. do you feel that the plan going forward to make sure that we have an adequate missile defense to protect europe and the united states is adequate? >> yes, sir, i do. i think the basic adaptive approach is timely. it is flexible. it will provide the capability and be able to step up faze adaptive title of it as the iranian ability to use ballistic missiles goes forward. it is being well received in europe where a dialogue, we the united states are in dialogue with a variety of the partners.

potentially partners for placement of it. secretary tauscher, ellen tauscher, is in charge of that particular effort and she's doing a very good job working with allies to move forward on it. overall, yes, i am a supporter of it and i believe it will be very effective in defending europe over time as well as the united states, of course. >> thank you, admiral. general, and i may have missed this testimony before. so if i have, forgive me, but can you give us and update of the status of al qaeda in africa? >> we look at al qaeda in africa, senator in two locations essentially. although likely that there are more of a predominantly east africa al qaeda, although al qaeda islamic bred. we see in the northern part of the continent al qaeda, they're operating, conducting kidnapping, other sorts of activities that certainly

threaten our interests, threaten those interests of our partners in the region. in the eastern part of the continent, they're in east africa. we see east african al qaeda. recently the claims of merging between the el sha baabens in somalians eeast african al qaeda are there. the linkage between them and in the peninsula, that network. so i would say that we certainly see indications andpresence of al qaeda in africa as well as in the greater sahara, that's part the continent as well, sir. >> is it a growing ins influence? are they becoming more organized? >> i would not characterize it -- i would come back with something for the record more specific detail, but i would also offer that the, based wloon they are saying, that they are

seeking to expand their influence. they are in the east africa region as well as in the north africa region. >> general, this weekend we learned that 500 people including women and babies were massacred in nigeria. what's our current strategy to curtail human rights abuses in africa? >> we obviously, senator, as we conduct our military to military relations with the various nations of africa, we encourage the promotion of human rights. we encourage the conduct of military and professional ways. obviously, those activities that you describe, i've seen nothing that support they were committed by the militaries of nigeria. clearly, the role that's been taken by the nigerians to go in and stop that action is the killing of any is ainnocente

would work with the government of nigeria to arrested the responsible and we certainly regret it. >> thank you, general. general mattis there was an article this week the talk about our european allies and our ability to decipher in iraq [unintelligible] what are we doing to strength and our allied defenses? >> senator, the u.s. strategic command is our main effort on the cyber effort. we are in constant contact. we also work on the concept. frankly, we are scrambling to find a concept that takes into account how best to protect our

networks. . networks and obviously we must maintain an exploitation capability against the enemy. it is hard to come up with a theory that also includes the constitutional issues with our own country as far as how we do this protection. our first step is to protect our d.o.d. network. we work closely with primarily the nato allies but also some other allies in the world who work with us on putting these concepts together. we're drawing a fair amount of we're drawing a fair amount of effort now, attraction now, h stratcom now that they've been assigned this and are maturing it. i'd have to get back to you with your detail, which i will do. i will do so by going to strategic command to make sure i'm current. >> add that in europe, nato has established a center for cyber. it's in estonia, appropriate, since they suffered a severe

cyber attack two years ago, and i think that's exactly as general mattis says. indicative of all of these organizations, reaching to build the first structures that can focus on this problem, but i believe it's vital. and it is something we think about a lot incurity. admiral staff redis, i look forward to hearing your prescription for developing and better leveraging nato's capabilities to meet future thd your concerns with me on cyber security, and in the broader context how you view the vastness of this realm at cyber c. and in a recent paper that you authored i want to give a quote that really paints a picture of this sea for me and e wrote, the seas i'm referring to, however, are not of water and waves but of zeros and one, optic fibers and routers and browsers and

satellites and servers. is the cyber sea the new global commons and it is untamed. two reason i can think of for cyber security and attacks when the iraqi insurgents recently intercepted video feeds from predator uav using off the shelf software and then a second one concerning google when, claiming that chinese hackers stole some of its computer k0eding and attempted to break into chinese dissidents e-mails. will you describe your principle concern with cyber security and how you think we can best mitigate our exposure? >> thank you, senator. i completely agree with the thrust of senator lemieux's questions as well as general mattis' response. today we have a billion -- a billion -- devices that are accessing the internet. our economies are fundamentally intertwined in this cyber sea, and it is an outlaw sea.

we do not have the norms, the buoy system, the navigation, the satellites. nothing really exists to develop norms of behavior in the cyber world. so i think that there's a military component to this, but it's actually much larger of a problem. this is a classic example of a society approach must be taken into -- it's not even whole of government. you point out, google and many other private companies are very engaged in this. from a military perspective, what we're trying to do in european command and in nato is to highlight the challenges ahead, put in place initial structures. do the kind of damage control that general mattis is talking about to initially at least protect ourselves and then try and, i think what's necessary is to think our way forward through a process that can create these kind of global norms, and that may be a process that brings a

lot of nations together to have this conversation. just as we gather to talk about the climate and have a global summit on the climate, i think at some point there needs to be a very global conversation on this challenge. >> well, i understand that the summer of 2009, you ucom held an entver including a mix of international, interagency and public/private entities focused and computer network defense. i also understand that nato recently established a cooperative cyber defense center of excellence in estonia to enhance the capability cooperation and information sharing among nato nations and our partners in cyber defense. how did this endeavor serve as a model for the development of multi-national policies to ensure continued unimpeded and lawful access to cyber space? >> thank you for highlighting those activities or european

command. i hayes tsten to say each of th commanders is taking this on. i know general ward is doing this. spratcom at the heart of it, general madison, we're all grappling with this, and i think that the more we cross-communicate and cross-level our efforts at this stage, the more effective we'll be in dealing with this. so i believe that exercises that bring international, inner agency and private/public actors together as we try to do an endeavor need to be elevate and taken to a higher level by the nations that want to connect on this. and we're working that very hard, as you mentioned, on the nato side through the center in eston estonia. >> i'm very concerned about this, because i see numerous examples going forward where we will be subject to much more attack on the cyber sea. >> yes, senator. >> general ward, as you know,

the u.n. peacekeeping mission in the democratic republic of the congo is the largest and most expensive, and reportedly the u.n. could begin withdrawing its troops from the western portion of the country, i understand, as early as june of 2010. additionally, the u.n. peacekeeping mission reportedly plans to begin withdrawing from the unstable eastern portion of the country in june of 2011. and studies estimate that up to 1,200 people die each day from conflict-related causes as well as diseases and malnutrition. rampant corruption and pervasive weak government allows members of the national army and members of armed groups alike to abuse its civilians. can you, please, describe the effects that a u.n. peacekeeping mission withdrawal from the democratic republic of the congo would have on the stability of the country and region, and what plans are in place to counter the democratic forces for the

liberation of rwanda that focused on destabilizing the eastern portion of the democratic republic of the congo? i'll be happy to repeat any of that. >> well, thank you, senator. i'm sure if i don't get to everything, you'll remind me. first, the president talks to the united nations in a withdrawal of those forces from the congo. i, too, think it would not be a good idea for that to occur too quickly. the conditions that you describe with respect to the corruption, the professionalism of the armed forces of the congo, their activities, the lawlessness in the eastern part of the country, to be sure, all contribute to abuses to the population, to instability and the united nations force that's there has clearly been a force for good in addressing those conditions. as large as that contingent is, given the size of the congo, it

is still not covering that entire country. so any place where those forces are reduced would have, i believe, a negative effect. right now the western part of the country is, in fact, the most stable. it would probably be the least effective with the withdrawal of united nations forces. clearly, in the eastern part of the country, where the -- majority of the things occur against the people, either being committed by rebel group whose operate in that region or in some cases by the armed forces of the congo stfl, i think removal the united nations forces would have a debt that mental effect on those conditions. as we work with the department of state and others with the congolese as they address in a comprehensive way the plethora of conditions that contribute to that instability that contributes to the lawlessness, our focus now is moving ahead with a training of a battalion.

a battalion that hopefully can serve as a model for what professional behavior is and what it could lead to for other parts of the armed forces of the democratic of the republic of congo. we have begun that program in earnest. about two weeks ago. it will run about another six or seven months, and should it prove successful, there is potential it could be expanded to other battalions as well to help a process of increasing professionalism of the armed forces of the republic of congo to move ahead. the work being done by the fdlr in the east, those activities, the congolese are addressing that through some of their activities, supported by the united nations, and i think that, too, is important work as a part of overall comprehensive way that those rebel groups have to be addressed and as we've also seen, i might add, with the cooperation that exists between

uganda, the congo, rwanda, as well as the central african republic, and the regional way to address these common threats is something we also will continues to encourage. >> well, i'm extremely concerned about the number of people that are dying every day, and certainly the abuse of their men and women, it's just reprehensible. but thank you for your testimony. thank you. >> thank you. senator? >> thank you, mr. chairman. i, too, want to add my thanks to these three distinguished americans who dedicated their lives to protect us. so, from me to you, thank you, gentlemen. and i just -- i want to submit questions for the record because i have a whole list of them and will try to start with general ward. general, your command was designed to employ the whole of government approach to executing theaters security cooperation. and to facilitate

counterterrorism effort with the african nations. general, what is the future role of the joint task force, task force horn of africa and the military base in gentlemdjibout? what is the future role in that, general? >> sir, the camp is a very critical part of our national structure in that part of the continent that serves four combatant commands, not just mine. it serves a u.s. central command, special operations command as well as u.s. transportation command as logistics hub, infrastructure point, as well as a training platform. it, i think, is in the long-term interests. united states to maintain that facility to the degree that we have it and continue to improve upon it that will allow our activities in support of our missions in that part of the world to be facilitated. so it is very important to us, i

think it has a great, long-term meaning for us, and i will clearly endorse it over the long term. my force that's there right now continues to do work in the region insofar as helping build the capacity of those nations in east africa to counter the terror threat as well as to be able to deal with the threat of terror by increasing their capacity. we are providing training ining assistance, equipping, as well as helping bring together them in a regional way as they continue to work together towards addressing that common threat. both activities, both the platform itself, important. the work being done by the combined joint task force in africa, as it institutes its programs fully align pd with the goals and objectives of my command also very, very instrumental in promoting that degree of professionalism in

east africa and in other parts of the continent where we see those unique capabilities that could be aapplied. civil apairs in particular. >> general, do you feel, since you're the last command to be up here, that you are fully operative and fully personnel staffed correctly, or do you really need additional staff personnel? >> senator, we always look for more. and we think that the work that we've done with the inner agency through our osd, the secretary of defense has written to all of this colleagues asking for additional interagency support. not that we would do the work for the interagency, but so the interagency input to ours would are further assures what we do, in fact, is in keeping with supporting the overall comprehensive work done by other parts of our government. we don't have all that we would like to have, but there is a recognition on the part of our interagency partners that they should be and want to be a part

of this command and they'll continue to move forward. we see that occurring. that's why i endorse all that the secretary of defense and chamen says about increasing the capacity of our interagency partners as well so that they can in fact participate in -- >> are each is in line with the central command. i will be in egypt within a matter of weeks. >> we have not been able to locate the demand. there are politics in the country. that should be a major undertaking. can we find it very thinly african country on the continent of africa? friendly african country to headquarter african

command on the continent of africa? >> senator, very complex. the degrees you site are par innocent and there's more than that. at this point in time, in our work is to be about increasing the capacity of african nations, it's our programs, activities we do in about 38 different countries, right now that's the important part. and the effort to find a location with all of the other associated issues, would be distracting to the real work of the command that is through our programs. >> admiral, the theater engagements seem to be a major tool used by the command when partnering with the nations with the area, your area of responsibility. how is the national guards state partnership program integrated into your theater engagement strategy? admiral? >> deeply, deeply engaged. this state partnership program which brings the state guard

into individual nations to partner with their militaries is fundamental to what we're doing. we have 26 of them around the u.s. europe command and i'd highlight one among many, which is the georgia guard, which is partnered with the military of the republic of georgia, and the two of them are working hand in hand to prepare a deployment of the republic of georgia's brave soldiers. they're going to send 750 to afghanistan. so multiply that by 26 programs around the theater and you get a sense highway important this is, sir. >> january ma-- general mattis, you have a completed draft document, educational employment for operations and integration. one of your working concepts is to stand up and exploratory civilian force. what is the mission and

employment of the expeditionary civilian force? >> shir >> sir, there are two forces. one inside the department of defense and this where you actually take d.o.d. swells who can fill certain jobs overseas on the joint coalition interagency staffs in these irregular wars. i think the one year refer ear referring to, we work with ambassador earp's with secretary of state and that would integrate better the civilian, military interface when we go into these kinds of wars that cannot be won by military means alone. there's a, there will be an immediate response force that's being built. these will be people who have been trained. it's their primary yob, packs packed. had shots. through various excesses with

the military ready to go on short notice. then a response force of members of various agencies, and they will be ones who are basically trained. they're like the reserves. they go to some training every year. they're maintained as far as health records and deployment records, and they know what to do, but it would take us anywhere from 30 to 90 days to get them deployed. then there's a larger force of people that we would endeavor to train as well. and that would be the backup force. the sustainment force that would replace these others after -- >> we want to use contractors for some of this. >> sorry? >> we ought to use contractors for some of these forces. you know, private contractors we see in the theater. >> the ones we're looking at that i just described are under the department of state, ambassador earp's efforts, all government employees. contractors would about separate issue, and we do that when we

have to fill the gaps, frankly, sir. so they don't have the active duty or active government civilians that we can put in. >> my time is expired. so i will yield, mr. chairman. thank you very much, mr. chairman. >> thank you. senator bill nelson. >> thank you, mr. chairman. gentlemen, thank you for your public service. tomorrow in our emerging threats subcommittee we're going to look at the comprehensive way that the military integrating with the civilian agencies can best project u.s. power and interest. this is particularly applicable to general ward and admiral s a stavridis. not only presence in afghanistan, admiral, also your previous command of southern command. and general ward, clearly, africa command is taking this

comprehensive approach. now, mr. chairman, i just was not very satisfied when we had the assistant secretary for, assistant secretary of defense, ms. flornoy, come to talk to us about the policy, and it didn't seem to me that the department of defense had its act together. its act together on integrating. and it was like, that there were the same old answers about stove pipes that we're trying to break down. you give your commanders on the ground the opportunity that they have a certain amount of serp funds they can go out and dig a well or build a school, but above that, an integrated approach which is key to afghanistan, which is key to africa which is key to latin america, things like wells.

education. training for jobs. the position of women. medical. all of these things that for us to be successful in third world areas, like we are projecting, there's got to be a holistic approach. now, the military has been so good as the one who leads it, and that, of course, is what is the thrust of africa command and admiral stavridis, your former command. i'd like to have you reflect, because i'm worried about afghanistan, that once we get beyond those serp funds, that these courageous young officers can go in and utilize, that then we get right back into the old stove pipes, and i've got the

head of usaid coming in in the morning, and i want to talk to that person about this. so can the two of you give me some advice? and, also, advice for our emerging threats subcommittee, it's the subject of our hearing tomorrow, mr. chairman. >> senator, i fully share your prescription which is that we have to put together what we actually call a nato comprehensive approach. it's the whole of society approach. it really is inner agency, international, private-public and all has to be connected in a way that we have not been terrifically effective at in any of these theaters. we will never deliver security in afghanistan from the barrel of a gun. it has got come as a raumt of all of these mechanisms working together. to that end i just met myself with dr. shaw, the administrator

of usaid. he's extremely impressive. highlyer in jetic an energetic. we're exploring with him how we can better partner. state department, as general mattis, is talking about is working hard with this with ambassador earps and his team. we have a long way to go, but i believe this precise issue is the most important security issue for the united states moving forward in this 21st century and back to the cyber piece, if you look at cyber as one of these emerging threats, it's a classic example why this comprehensive approach is needed. fully validate it. i believe all the departments should continue to be pushed very hard to integrate their efforts at all levels, and that getting that balance of

civilian-military, private-public inner agency is crucial to our security going forward. >> senator, i clearly concur with what admiral stavridis indicateded. we know it's important to do. we have not broke the code on how to do it at echelon. we do it fairly well on ground. the country teams, in the countries where the department of state, usaid, other members of the inner agency were there, working with obviously the military component do fairly good job of harmonizing the activities that occur on the ground. how we plan those endeavors, we need to do better at it, and my command as we bring in members of the inner agency to help us with our planning, it's a two-way street, because tlir thru through their understanding of us, back to their parent organizations can help ensure a harmonization of the planning

that occurs. at the secretary's pointed out we think the capacity of some of the interagency partners to do that, that needs to be more robust and so we support those efforts that would, in fact, robust their capacity to participate in the planning as well as in the execution of these programs that bring the comprehensive effects to stability that you address. so we recognize it's an issue. it works more better than not at the lower echelons. we need to expand that through echelons, but at the inception of our work, we have done a better job of combining what we call this approach, the issues of development and obviously a public-private partnership. issues of diplomacy including good governance and those that address the security aspects that need to be there so those other things can in fact work. >> well, what advice should i

give to the head of usaid tomorrow? and has questions should i ask in our hearing tomorrow? k that would get around usaid? they go out and they contract with somebody to do this. let's say it's digging wells. but there's clearly need for education over here. let's take afghanistan. and a medical clinic. and training for jobs. how do we get a comprehensive approach? you've got each of these ngos and they want to do their thing. how do we get it all combined in an approach? >> two thoughts.

one is, the cue ddr, which is what aid and state are working together now, this is happening in realtime. i think that's an opportunity to work on the integration, the alignment and partnering between a.i.d. and state and how that marrying up with the qdr, department of defense document, a place where you can get the three main actors in the security mix coordinating plans, as echelon, at the very highest level. if you click down one, i think kip has an exact, general ward has it exactly right. which is, it's the planning. it's the planning we watt to go after, because that's where our other agencies are off doing their plans and we're doing our plans and then we meet in afghanistan and the plans aren't particularly aligned. so i think bringing together a layer of planning below that

strategically represented by the qdr and qddr, think in terms how we can encourage the agencies to do plans together to have transparency and planning, to show across the board what the big muscle movements are country by country and integrate those plans so there's not duplication. as general ward said, one level down, now we're at the tactical level, it's seamless. it proceeds from the strategic through the operational planning down to the tactical execution. that -- i'd focus in on that planning piece, sir. i want to keep your views on the development of the air se backa held development.

it will help guide the future development needed for effective power projection operations. could you provide your views on the development of this new battle concept so far? where does it fit into the development of this concept? >> the concept grew out of the identification of a military problem. the problem is, how do we were together jointly. the situation is changing. it is always changing and adapting to that problem. but as part of this effort. we are monitoring right now. we are monitoring it make sure the concept development guide us forward.

what we are seeing is more and more of this integration at of the -- at every level of war. is integration at every level of war. at one time we basically integrated at the strategic level shts and th, and that was. then you saw in "desert storm" oif-1 and down integrating at the tack nickel level. no longer can any service go into one primary domain, army on land, navy at sea, air force in the air, and not integrate with others. it's the nature of warfare today. it's the nature of a lot of things. you've got to integrate more than ever in this age. so it's going forward well. i think the identification of the problems is maturing well. i would say we're in very good shape on that. the solutions are not completely clarified yet, and we will also uncover additional problems as

we go forward. ultimately, we will see an increased reliance on naval forces as we look towards the future security situation. it must be that way for matters of limited access in certain areas for political or military reasons, and to bring the air force and the navy together, i think there's a very healthy thing at this point. even though we have not completely got all the problems outlined. but we're getting there. >> in your. how will long range strike capabilities fit into this new air sea battle concept? >> sir, we look at these what in phases. these kinds of issues. certainly during phase zero, when we're engaging along the lines of what africom has been testifying to here today, we're trying to deter enmips at potential adversaries from ever doing something that we don't

want them to do. that would be disadvantageous to international stability. when you put together a strong capability like this, you temper our potential adversaries design. should it go into a combat phase, the planning for this comes under something called campaign design. and's in that area, the strike capability that would be built would be fundamental to ensuring that we deter our enemies and reassure our friends we can get through to them and support them. >> do you see any, foresee any future budget requests changes based on this new concept? for example, equipment requests with regard to this new concept? >> sir, i'd like to take a pause on that one, because i think, first, we need to get the concept right before we come to you asking for money. certainly, the capabilities,

strike capabilities will have to be maintained at the cutting edge, but i can't tell you. i can't really forecast until we get the concept right which is based on a very clear problem statement of what we're trying to solve, whether or not that will mean new programs. >> okay. admiral, add vathsed weapons systems design nor access in denial are proliferated throughout the world including in the europe area of command responsibility. russia's advanced surface air missile surface air missiles and fighter aircraft and hinting at plans for a long range bomber, the likely hood of conflict with russia is low, it seems likely we will be involved against adversaries who possess the weapons ises sold to them by the russians. what are your views on the activities by the russians to proliferate anti-access and

denial systems some. >> senator, we continue to e vaguate the systems emerging and russia is developing sophisticateds and i would add submarine capabilities. we have to pace that. clearly we have to maintain our superiority at all levels as we go forward. that applies not solely to russia, but globally at the threats. it's a fundamental responsibility of the department. >> do you view russian development of the 5th fighter aircraft as a cause for concern? >> i'm sorry some. >> do you view russia's development of the fighter aircraft as a cause for concern? >> i do. >> how about their planned development of a long range bomber? >> yes. i would put that in the category

of a wide variety of emerging global threats. those would be among them. >> one other question i want to ask. the russians are seeking to lay missile defense to follow on star treaty and negotiations as we understand have stalled over the russian demand for the option to withdraw unilaterally. if they threatened the nuclear missile force, to the best of your knowledge, is there effort to negotiate a side agreement with the rugs on this issue? >> i had no idea. that would be squarely in the view of the department of state. >> thank you, mr. chairman very much. >> thank you very much. we expect votes just about now. there four votes coming. let's try to have a second round for everybody. >> i'm trying to listen to the distinguished gentlemen. >> i have a few and then we can turn it over to the senator.

if you have spoken about the new phase of adaptive approach for missile defense, one of the possibilities being considered is to ask russia to cooperate in the missile defense effort with the radar informations a way to enhance against shared missile threats. do you support that idea? >> i do, sir. >> what would it add? >> first of all -- >> if we were able to achieve it. >> first it would create a zone of cooperation with russia which is an important good as i look at the military and the military responsibilities i had in european-u.s. command. it could add to the early warning time because of the location of the system. thirdly it creates confidence-building measures

between ourselves and the russians. >> does the polish government now support the missile defense approach? >> i think it's fair to say in general terms they do, yes, sir. i would not speak for their government. >> have they spoken out yet? >> they have not. that's my intuition. >> are there discussions or agreements relative to the deployment of a patriot training battery? >> yes, sir, there is. >> is that completed yet? >> i think we are literally signing the final mous this week and i anticipate that deployment going forward in the next 30 days. >> that's good. the manning issue is raised as to whether or not you have enough personnel and you indicated you would like more if you can get them.

my question is this. you apparently, your service components are not assigned to you as assigned forces. is that correct? >> the opponents are assigned, sir. they have no assigned forces under them. my components are s signed to me. >> underneath them there no force. >> that's correct. >> those forces are recentlily provided through a global force management and request or forces system. have you apply for forces through that system? >> i have. i used the global force manager in process as do the others as well for satifying my requirements for forces to do our forces. poor. >> finally the department is currently in the process of updating the guidance for

employment of the force, the gef which establishes the department's strategic objectives for campaign planning and security cooperation and the priorities to be established. there is an ongoing rewrite of the gef, the first i think since it was established. is africom receiving a fair hearing under that process? >> yes, senator. i have been part of that process and i am aware that the department of defense as it looks at the revision is looking at ensuring that the requirement that we have for resources to conduct the building part of the capacity is being treated at a level of priority different than the past so those fores that are required will enjoy a higher priority than has been in the past. we are participating in the process. >> thank you very much. >> can i just associate myself

with general ward on that particular issue? i think it is a bit of a change in the department and it's a good one. >> thank you. >> thank you, mr. chairman. there is only one area where i disagree with you and i told you this before. i would like to have you tell me where i'm wrong. our intelligence told us that iran would have the long range ballistic capability somewhere between 2015 and 2020. i would say 2015 then, as serious ass that. the sm 31 b would be 2015. it doesn't matter. that doesn't have the capability nor does the 2 a variety which would get into the intermediate. that is supposed to be somewhere around 218. the sm 32 b which is comparable to what we would have had and i think this is the case, if we kept the ground-based systems or

the interceptor in poland. there is no data on that. i would say and of course i objected to that first budget that the president for terminating all the programs like the f 22 and c 17 combat system. the thing i found most objectable was when he pulled the rug out from under poland and the czechoslovakia republic. i was with them this last friday. what i'm saying is that capability is there. we don't have a way of deterring that other than i understand the argument that we have the ground-based system in alaska and california. i don't have the confidence that they would have that. briefly, what am i overlooking? >> senator, i will ask to take that one for the record.

it's a technical issue that i would like to provide you a little more data on. i will say that as a naval officer who has commanded multiple ships at sea, i am extremely impressed given my background with the system and ability to adapt. part of my confidence comes out of my grounding and sea operating at that system and belief that it can be transitioned. having said that, i want to provide you the hard data on this and take that for the record. >> that's all right and i don't disagree. i have been a strong supporter, but looking at long range icbms and we get that for the record, general, i appreciated the fact that you said good things about ethiopia and the response to the chairman's question. specifically i know that the one

under attack in ethiopia more than anyone else is the prime minister. he has a tough job and he's a tough guy able to do it. when you make the same comments about his leadership as you would ethiopia in general? >> senator, i meet with the prime minister quite regularly and i have a huge respect for the fact that he lives there with it. i think he has taken a bum rap. you talked to senator hayden about the cooperation between rwanda, a few guns it, and the condo. i personally -- the congo. i personally have talked on their cooperation with each other that is the area of the

lra. we made a point to go over to east africa, thinking that was about where he was last seen. he had another reign of terror since that time. we have legislation right now that will try to give more assistance to those countries and to try to end with that call one of the worst rains of terror -- reigns of terror i have observed. do you think we should be pursuing more resources to and that problem? would you support that? >> the work being done by that group of countries to come back in the atrocities has worked. it is important. our support is important.

>> i think many members on this committee are co-sponsors it to be helpful to resolve that. -- co-sponsors. it'll be helpful to resolve that. all three of these presidents came from a military background and there is a little bit of concern over is this reflecting, i can't do it myself type of thing. we are in position to jointly work on this thing. is there anything else in terms of what's taking place right now? maybe you can give us a couple of examples of improvements working with the african military. some of the successes there. >> thank you, senator. there several. as an example, as we work with the nations on their maritime

safety and security, they have been called the africom program. an interagency construct. we bring in homeland security and the coast guard working with african nations and the legal systems such that they have an ability to provide for the territorial waters and that is working. we conducted an exercise in east africa where we have nations. they came together and jointly working to help address a natural disaster or assistance scenario. as was pointed out to me by a chief of defense, the first time ever that as convoys move through that part of the continent, militaries that in the past 10 years ago you would not have thought they would come to link up and move to a common objective which was conducted in the north of uganda where lra

had just three short years ago running with abandon and populations there. those are happening all over the place. we had a training operation and the term that he mentioned, it went on last summer. a member who received training this past january said he had that training prior to that last situation where al qaeda grabbed forces. would that have happened? the training and assistance of these countries to be in a better position to address themselves is paying off. >> thank you, mr. chairman. i applaud all three of you for the grit work you have done. >> senator lieberman, i will turn the gavel over to you buzz i have to leave. thank you for your service. >> thanks, mr. chairman. i wanted to say to you first how impressed i am and as i hear you

answer the questions about what's happening within the african continent and your involvement and knowledge of it and how important it is i think that we created this african command. i think we were paying too little attention to this critically important continent and i think you are bringing to it the same kind of critical different relationship with the leaders and some of the regions of the world, the most important person in the region really is the original commander. as you said to me when i began this conversation over the hearing, it's only in a sense that it leads to other relationships, dim lo mattic and political, etc. i want to thank you for the way in which you have done your job. it's been very important.

i know you have been asked about the missile defense. in your role, you are going to be responsible for operating the early stages of the phase that adapted missile defense system. i thought i would ask you first for an analysis, if you will or report on what the state of european public opinion is about missile defense. in other words, do the europeans feel vulnerable now? there have been times in the not so distant history where they haven't. do they feel vulnerable and who are they worried about firing missiles at them? >> sir, i think there is a growing appreciation in europe for the danger from iran. i think they look at the nature of that regime and clearly a sponsor of terrorism, working hard to develop a nuclear device

and additionally i think there is a great deal of understanding that the ballistic missile technology that iranians possess is moving in pace. that is having an effect on the oorp eastern proclivity to be engaged with us on missile defense. it varies from country to country and there a number of factors from geography to relationships with the united states to general world outlook that shape it, but i think in my opinion it's fair to say that we are seeing a growing appreciation of it and i have to applaud the secretary who is moving forward on the diplomatic side. she's an expert and doing a credible job of mortgaging the practical partnerships which i believe overtime will grow into a missile defense. >> i appreciate that and the

work that has been done. there was concern on capitol hill when the decision was made to pull back from the initial plan, the polish-czech plan. how are we doing on the development of the alternative system and are you confident that it will meet the target dates we set so it provides adequate defense? >> i'm certainly confident that the first stage will. it will be sea-based and as we said to the senator, i have a great deal of confidence. given the track record and the technology embedded in it, i am reasonably confident it will be adapted and will transition to a shore-based system within the targets set for it. nobody can predict the delivery of defense technology.

we have been surprised on that occasionally, but given the track record of the system and my understanding of where we are, i think it's reasonable to expect that we will hit those bells as wu move forward. >> good to hear. there was a related article relevant in the "washington post" about the system and i will quote from it. after several failed attempts, the army is trying again to cancel a $19 billion missile defense system that the united states is developing in partnership with italy and germany and has been in the works for more than a decade. it's designed to replace in part the army's aging patriot system. i wanted to ask you whether you have been involved in discussions with your army

colleagues about this program and your opinion of it and do you see this as a unique feature and that we have a couple of our european allies and picking up a big chunk of the bill. whether you see it as part of the phase that you are now hoping to implement. >> i have not gone into detail with my army brethren who are developing that hearing here in the united states. i recently spoke with chiefs of defense from the participating nations who mention that. i think senator, it's also indicative of the relationship between the united states and israel where we are looking at the israeli capabilities that you are aware of, the iron dome and the arrow system.

i think we in the united states do not have the market cornered and well served by reaching out and finding what can be integrated and it is in fact a player in that. i will continue to follow the story. it is more important as an example as additional technologies can be adapted to the phased adapted approach. >> so at this point you are inclined to favor the continuation of the program? >> i don't know enough about it to make that statement, sir. >> okay, but i agree. there is a agreeing appreciation among allies in europe and in the mideast and in asia of the missile threat.

particularly from iran and north korea. it makes a lot of sense to be cooperatively. the last time i was in israel i saw video of testing of the iron dome system, the defense against short range missiles in iraq and it was quite impressive and we are partners with the israelis and we will have full benefit from its technologies in terms for instance of protecting american personnel bases and places like europe or the mideast from potential short range missile rocket attack. >> yes, sir. >> that's it for me. i have to go over. it has been a very informational and encouraging hearing. i'm sure the committee will try their best to authorize to a level that will ton allow the men and women in uniform who

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>> and the pit the u.s. economy. we will hear from christine aroma of jobs in the deficit. then the ceo of the caterpillar corporation. then the u.s. trade representative ron kirk on tomorrow morning's "washington

journal" he will talk about health care insurance. after that, melanie sloan on lobbying and earmarked. also, john della volpe on the 2010 midterm election. later, meredith will announce the winner of our annual student cam documentary contest. what should "washington journal" each morning beginning at 7:00 a.m. eastern. >> tomorrow we will announce the 75 winners of the student cam petition. 2000 middle and high school students entered a video on our country's greatest strengths are a challenge the country basis. find out the winner tomorrow morning during c-span's "washington journal." >> now christina romer. she taught the new programs

aimed at job creation, including a higher rate -- hiring tax credit. this is part of a conference hosted by the national association for business economics. it is about a half hour. >> i would like to welcome all of you to the breakfast. my name is richard. i'm the vice president and a faculty member. i have two tasks tomorrow -- this morning. the first to remind you of the professional development seminar where holding in april. the brochures are available at the front desk. you can also sign up. we put together a wonderful pdf thanks to the hard work of rosemary and jack. we have a fantastic program.

this'll be a new experience. we have to tracks -- two tracks it intended for repeat attendees. my second pleasure is to introduce today speaker. christina romer is the class of 1957. . . romer is the class of 1957 professor of economics at the university of california berkeley. and chair of the council of economic advisors. she joined the berkeley faculty in 1988 and was prompted -- promoted to full professor in 1993. she received her ph.d. from mit in 1985. after her nomination as chair and before the obama administration took office, dr. romer was tasked with co-authoring the

administration's plan to recover from the 2008 recession. she's a highly accomplished academic. she's researched the causes of the great depression in the united states and how the u.s. united states and how the u.s. recovered from that depression. she has done extensive work on fiscal and monetary policy from the great depression to the present using notes from the meetings of the federal open market committee and other fed-written documents. her recent work with her husband david romer has focused on the impact of tax policy on government and general economic growth. and if all the academic and other skill sets aren't impressive enough, i will add that she is the former vice president of the american economic association, a fellow of the academy of the arts and sciences and the winner of the berkeley distinguished teaching award. she's also received a john simon guggenheim memorial fellow and the presidential young investigator award and an alfred p. sloan research fellowship. she was codirector of the

program of monetary economics at the national bureau of economic research as well as a member of the business cycle dating committee. she had to resign both of those positions when she took her current position. most of all i will say those of you who were here last year you will recall that she addressed us last march at one of the most turbulent times in u.s. economic history. she was new to the job and dealing with one of the worst crises ever. she provided us insights into the recovery plan and listened very carefully and thoughtfully from the comments from the nabe audience. she's a great spokesperson in our view for the obama administration. in these times someone with this educational background, this experience, this level of academic research in this particular topic and great communication skills, i think there really are very few if any people better suited for this job. please welcome christina romer. [applause]

>> well, thank you very much. it is lovely to be back with you again this march as we were -- as was just mentioned. i was here last march. yep. we'll give a minute for technical. well, i'll tell you what, let me go ahead and we'll see if they actually manage to get the powerpoint again. you know, when i spoke at this gathering a year ago, as was just mentioned, the country was in some of the very darkest days of the recession. we had lost a million and a half jobs in the first two months of 2009. industrial production had fallen by more than 2% in january of that year.

and almost another 1% in february. fear was rampant and stock prices were plummeting. and my topic last year was the american recovery and reinvestment act which had passed just a few weeks earlier. i discussed its key features and my reasons for thinking that it would be effective at helping to end the worst recession in post-war history. well, one year later, i think that the evidence has bourne out my predictions. the recovery act has helped to change the direction of the economy dramatically. the decline and fear of a year ago have been replaced by growth and hope of continued progress. we are unquestionably still in a very difficult situation but the trajectory has vastly improved. in my talk this morning, i want to discuss where we have been over the last year, where the economy is now and some additional policy actions that i think are needed to put us more

firmly on the road to recovery. all right. well, let me start by talking about the contribution of the recovery act. you know, the act was the largest countercyclical policy action in american history. of the $787 billion of total budget impact, roughly one-third was tax cuts for individuals and businesses. another third was payments to help those directly harmed by the recession. and to state and local governments struggling to maintain employment and services. and the final one-third was direct government investment. in everything from conventional infrastructure to health information technology, to a smarter electrical grid. i think the most basic evidence that the recovery act and the other measures taken to heal the economy have been effective is that the trajectory of the economy has changed fundamentally. and if we had the powerpoint,

i'd show you a picture of a real gdp growth over the last three years. we went from gdp falling at a rate of more than 6% in the first quarter of 2009 to rising at almost that same rate in the last quarter of the year. most analysts including the administration and the members of the federal open market committee expect gdp to grow steadily this year and for growth to increase in 2011. this change in trajectory during the past three-quarters is both much faster and much stronger than one would have predicted based on the behavior of the economy up through the passage of the recovery act. now, a number of analysts including both private forecasters and the nonpartisan congressional budget office have investigated the impact of the recovery act on employment. and these estimates suggest that the act raised employment in the last quarter of 2009 relative to

what it otherwise would have been by between 1.5 and 2 million. this estimate is consistent with the reports filed by recipients of recovery act funds. only about one-third of the funds expended through the recovery act are subject to recipient reporting. yet, as of the third quarter of 2009, recipients had identified over 600,000 jobs that they believe would not have existed but for the recovery act. well, because of the recovery act and the numerous other policy actions taken by the federal reserve, the administration and congress -- you know what -- oh, fabulous! life is good. well, almost. [laughter] >> it's not showing on the screen, however.

>> we'll all crowd around you. >> you know what? i'm really fine without it. why don't we not bother. that's really fine. but thank you. all right. let me -- let's see. because of the recovery act as i stated, as i've stated, numerous other policy actions taken by the federal reserve, the administration and congress, the american economy is growing again. but i think as last friday's employment report made3c÷ clear the labor market remains severely distressed. most obviously the unemployment rate is 9.7%. a terrible number by absolutely any metric. consistent with this total output is still far below the normal trend path. moreover we have yet to see gdp growth translate into employment growth. instead productivity has risen at a roughly 7% annual rate for

the last three-quarters. the largest rate in three-quarters in more than 50 years. now, the reason jobs report did contain signs that employment growth could commence in the next few months. as most analysts have noted, february snowstorms in washington and along the atlantic seaboard likely artificially reduced the february payroll figures. workers who missed a paycheck because of the snow do not show up in the statistics. and based on the number of workers in the household survey that said they had a job but could not work because of bad weather, the cea and others have estimated that the impact may have been substantial. as a result, february's headline number of relatively modest job loss is an encouraging sign of gradual labor market healing. but it is essential that job growth, not just turn positive but that it be as robust as possible. it

takes employment growth of roughly 100,000 per month just to keep up with normal labor force growth and to hold the unemployment rate steady. to bring the unemployment rate down quickly much faster job growth is needed. most forecasts, however, project relatively modest gdp employment growth over the next year. some analysts are slightly more optimistic. others somewhat less. but virtually no one is predicting the kind of strong rebound that would fill the employment gap quickly. it's for this reason that job creation remains the president's top priority. and he's proposed a number of targeted members designed to have the maximum impact on accelerating job creation at the minimum necessary cost. indeed, the fiscal 2011 budget that was submitted in early february set aside $100 billion for new job creation initiatives. and in the week since the president has been offering more

details on the high impact proposals that he wants to see enacted into law. the budget also included more than $150 billion of continued relief measures to maintain demand and provide essential support for those most directly hurt by the recession. the president has also proposed important additional steps to increase lending to small businesses. now, many of these proposed measures are being debated in congress right now. and i thought i would take some of my time this morning to highlight the case for three particular measures. let me start with a large tax credit. firms will get a fixed amount for each additional worker hired in 2010 and an extra credit for a fraction of the increase in their payrolls. now, both the house and the senate have passed a somewhat different jobs credit proposed by schumer and hatch.

their proposal waives the employer side of the payroll tax for newly hired employees who'd previously been unemployed and they would provide employers with a $1,000 bonus for workers retained for more than a year. for a new worker earning $60,000 a year, the benefit for a firm that retain the worker for a full year would be about $4,000. now, at its most basic level a highering tax credit if you want to increase the consumption of something, lower its price. in this case we want to encourage firms to hire more workers and to do this the government is proposing to absorb part of the cost of the new worker in the first year. now, of course, when one lowers the price of something, to attract extra consumers, some people who would have purchased the good anyway at the old price get the benefit. this is true of a highering tax credit and all other tax incentives.

what matters are the relative costs and benefits. will a hiring tax credit to jumpstart judicial creation. and here i believe the answer is unquestionably yes. based on that, analysis by the cea suggestx$ that the costs p new net job of a hiring credit such as we proposed is lower than for other available job creation strategies. it's also the finding of a recent study by the congressional budget office. and what the cbo found is that a payroll tax reduction for firms increasing payrolls is one of if such a hiring tax credit has been trident large scale in this country only once before, and the new jobs tax credit of 1978. and quite frankly, the research

on this programs impact is quite limited. but the few available studies that exist suggest that it did have beneficial effect. and private nonfarm payroll employment increased more than 11% between december 1976 to december 1978, the fastest 24- month growth in the six decades since the korean war. one factor that appears to have limited the effectiveness of the tax credit was that many firms did not even know about this and had no opportunity to respond. all modern tax credit would be accompanied by a greater publicity effort, aided by new technology, and the widespread existence of payroll services that can convey the incentives to individual employers. i would also suggest that the likely effect of a hiring credit may be particularly large in the current situation. because the economy is growing

again, most firms are surely planning to hire in the next year or two, as demand for their products increases. in this situation firms may be particularly responsive to a hiring tax incentive. because the reduced cost of employment they may bring forward hiring to start gearing up for future production and to get the best workers. by hiring sooner than they otherwise would have, firms will create jobs at a time when the economy needs the most. importantly because the economy is on the road to recovery, those jobs remain long after the temporary credit expires. simply put, a hiring tax credit is a sensible, responsible policy uniquely well suited, i think, to the current situation. and it's been endorsed by a long list of distinguished economists including allen blinder, lawrence katz, laura tyson and joe stiglitz. mark zandi has advocated such a credit.

and estimated that the schumer-hatch proposal will generate 250,000 jobs for the $13 billion price tag. the second recovery measure that i wanted to highlight is additional fiscal relief to the states. you know, the recession has had just a devastating impact on state and local tax revenues. state and local income tax receipts have fallen by almost 20% in real terms since the recession began. sales tax revenues have fallen by almost 10%. because almost every state has a balanced budget requirement, states have no choice but to respond to their budget shortfalls. for this reason fiscal support has strong and rapid effects on their decisions about spending and taxes and thus on the economy. one key contribution of the recovery act is that it is filling about one-third of state's budget gaps.

now, several types of evidence confirm that the fiscal relief to the states has been highly effective. first despite the sharp declines in revenues, state government employment has fallen much less than private employment and much less than one would have predicted given their privilege shortfalls. the same is true of employment by local governments which receive most of their revenues from the states. second, one important of the state fiscal stabilization fund is subject to the direct reporting requirements of the reporting act and the direct reporting data that the $12.2 billion of relief provided by this fund through september supported 318,000 jobs. these figures suggest that relief is a particularly powerful tool for job creation. finally, the other major component of the state fiscal relief, the temporary increase in the federal medical

assistance percentages or fmap transferred different amounts to different states based on the specifics of their medicaid programs. analysis by the cea has found employment performance has been better in states that received more funds through this channel. unfortunately states continue to face large budget shortfalls. the center on budget and policy priorities estimates that even after the injection of the recovery act funds, states faced a combined fiscal shortfall of some $125 billion in fiscal 2010, $142 billion in fiscal 2011. and $118 billion in fiscal 2012. because of these continuing shortfalls additional fiscal relief to the states is likely to be both particularly valuable and particularly effective. it's particularly valuable because states are now at the point where the steps they would have to take to balance their budgets would involve cutting

service on vital services or raising taxes on families who are already struggling. relief is particularly effective because it will alter states' budget decisions quickly. states were able to meet very little of their shortfalls in fiscal 2009 by dipping into rainy day funds and almost none at all in fiscal 2010. the vast majority of the adjustment is coming from changes in spending and taxes. indeed because states are looking at multiyear shortfalls commitments of additional federal support could lead to some changes in states' budgets even before the relief is provided. by preventing tax increases and spending cuts state fiscal relief raises income and employment relative to what otherwise would have been. for all these reasons, the administration has proposed additional fiscal relief to the states over the coming year. the cea simulation model indicates that each $10 billion of additional state fiscal

relief would support roughly an additional 100,000 jobs. the direct recipient reporting data suggest the effects could be even larger. well, the third measure that i want to highlight is providing capital to small banks. you know, a key feature of this recession is the central role played by disruptions and credit markets and lending. we are all too aware of the tremendous rises in credit spreads at the peak of the crisis. the seizing up of key financial markets and the many crucial interventions that were needed just to keep lending going. despite these actions, lending remains severely restricted. for example, nonmortgage consumer credit outstanding is now 5% below the peak. commercial and industrial loans have fallen by almost 20% and commercial paper outstanding has fallen almost in half. one particularly valuable indicator of credit availability is the federal reserve's senior

loan officer opinion survey. for all types of loans the survey shows dramatic and unprecedented tightening in lending standards over late 2008 and early 2009. and continued tightening over the remainder of last year. the survey shows severe tightening and availability of loans to both small firms and large businesses. well, a key fact is that credit availability is simply critical to the health of the economy. numerous studies have demonstrated this link at the microeconomic level. one recent study, for example, looks at japan where a unique data set makes it possible to link firms with the main banks that they rely on for credit. and the study found that when a bank's financial condition weakens, the sales of the firms that depend on it for credit fall. and the firm's exports for which credit is particularly important are hit especially hard. studies have also confirmed that these microeconomic links mean

that lending is important for the overall performance of the economy. there's a substantial correlation between lending growth and gdp growth. studies that try to disentangle whether it's lending causing gdp, gdp causing lending or some third factor causing both find an important causal role for lending. in a paper that david romer and i wrote many years ago, we looked at episodes when the federal reserve intervened directly in credit markets to restrain lending such as its imposition of credit controls in 1980. we found that within about nine months of such an intervention, industrial production had fallen by about 5% below its previous path. because of the crucial role that renewed lending can play in the recovery, the administration is proposing concrete steps to help restart credit flows. one important measure would be to create a $30 billion small business lending fund to provide

capital to small and community banks which are a key source of lending to the small businesses that will obviously be critical to the recovery. the various restrictions accompanying the t.a.r.p. funds that went to the large financial institutions are not appropriate for smaller banks. these banks like so many american firms and families were simply innocent bystanders in the crisis. thus the administration is proposing that the fund be created outside of t.a.r.p. so that community banks across the country will face no barriers to participating. the government investments in these banks would include incentives to increase small business lending and making for my their impact. the program would complement other steps the administration has taken to support credit-worthy small businesses seeking to expand and create jobs. now, although there's considerable uncertainty about the precise relationships we estimate that this $30 billion of capital will translate into

several times that amount of additional lending and could create -- help to create hundreds of thousands of new jobs. and crucially because the government will be getting a capital stake that will lead to future repayments this will be accompanied by little long-run cost to taxpayers. now, the three recovery measures that i've discussed are only part of what the administration thinks needs to be done. the house has already passed a bill that includes an additional $50 billion of infrastructure investment that's consistent with the president's call for increased investments and repairing roads and bridges and waterways. last week the president discussed the importance of another proposal. the home star program. this program is designed to encourage homeowners to understake energy retrofits right now when the economy and the construction industry in particular have excess capacity. and in another key initiative that i didn't discuss simply because it is so obviously important is extending the

unemployment insurance provisions from the recovery act. nearly every analyst classifies insurance payments as one of the most cost-effective jobs programs. continuing the recovery act provisions is essential both to help families struggling with unemployment and to sustain the recovery. well, before i close, i think it's important to mention one other topic, and that's the budget deficit. you know, last june the congressional budget office reduced -- released their long-run budget outlook. and if the graph of the budget situation over the next 30 years using plausible policy assumptions is certainly disturbing. no one can look at these numbers and not be concerned. the deficit is unquestionably large today primarily because of the recession. it's expected to decline noticeable as the economy recovers but over the long haul it is predicted to grow tremendously.

largely due to the effect of rising healthcare costs on government health expenditures. by 2040, given the current path the federal budget deficit will be 17% of gdp. a level that is obviously unacceptable and unsustainable. now, i won't take you through the history of how we got on this terrible path though i will recommend chapter 5 of the economic report of the president which i think does a good job of that. other than to say that the budget problem was years in the making. it is not as some have suggested due to the actions taken this past year. as large as it was, the recovery act contributes less than a quarter of a percentage point to the budget deficit in 2020. but regardless of its source, the deficit is the challenge that simply must be addressed. now, the sensible way to address the deficit is with a long-run plan. it would be penny wise but pound

foolish to deal with our long-run budget problem by tightening fiscal policy immediately or foregoing additional emergency spending to reduce unemployment. immediate fiscal contraction would inevitably nip the nascent recovery in the bud just as fiscal and monetary contraction in 1936 and 1937 led to a second severe recession before the recovery from the great depression was complete. failure to take additional targeted actions to jumpstart job creation would lead to a slower recovery and higher unemployment for an extended period. high unemployment is not just bad for people. it's bad for the budget deficit. it is virtually impossible to get the deficit under control when the unemployment rate remains near 10%. rather than tightening the budget in the short run, we should focus on the sources of the exploding deficit in the longer run. the single most important source is growing healthcare costs.

so it's essential to focus on doing healthcare reform well. only by slowing the break neck pace of rising government healthcare expenditures can we hope to get the long run budget deficit under control. now, according to the congressional budget office, the senate version of healthcare reform legislation lowers the deficit in the first 10 years and reduces it even more in the second decade. the cea's analysis finds that the senate bill will likely slow the growth rate of healthcare costs by about 1 percentage point per year. a number that may sound small but which is hugely important especially when maintained for two decades or more. because the key cost containment features are maintained in the president's proposal we expect it to reduce cost growth by roughly the same amount. another useful immediate budget strategy is to focus on the long

run amount and quality spot of spending. at the same time that the president has called for more emergency spending to help put people back to work, he has supported the recent reinstitution of paygo rules and proposed a three-year freeze of non security discretionary spending. the paygo rules will help prevent measures that could worsen the long run budget outlook. the non security discretionary freeze will force policymakers to limit spending growth and to choose carefully which programs are allowed to grow and which are forced to shrink. these are decisions that need to be made and it is good to start making them now. finally, the president issued an executive order creating a bipartisan fiscal commission. the commission is charged with proposing methods to shrink the deficit to a sustainable level in both the medium and long terms. the president has made clear that nothing is to be off the table as the commission begins its investigation. he wants the commission to get

the best chance possible to come up with a solution to our deficit that can be supported by both parties. this is a concrete step that we're taking right now to forge the bipartisan consensus necessary to truly get our fiscal house in order. over the past year, the administration has taken some heat for supposedly trying to do too much. but the policy actions are all interrelated. to continue to move forward on jobs, we need to take additional targeted measures to help turn renewed growth into robust job gains. but to do that and a responsible way, we need to put in place a plan for dealing with the long- run budget deficit. and controlling health-care costs is an essential part of doing that. it is all part of a package that will put people back to work and make sure that the american economy comes to this crisis even stronger than before. thank you.

>> now the chairman and ceo of caterpillar. this is part of a conference hosted by the national association for business economics. >> i would like to make some important acknowledgments. first our president.

second, much to the vitality of our organization comes from our chapters, and we're pleased to have a chapter presidents from around the countries, so would they stand and the knowledge -- and the knowledge -- and be acknowledged? i think you would agree that this program has been truly exceptional. [applause] a lot of people have asked me, how did you get such great speakers, and it is due to the hard work of our program committee headed by stuart mcintosh, and this group has met -- [applause] this group has met every single tuesday morning since last

october, so they have worked very hard. police, all of the stand and be recognized. -- please, all of you stand and be recognized. and none of this would have happened without the exceptional work of our great staff at nabe- washington. our new executive director is here. he works harder and has more ideas than i think anyone has had in the world. tom, please stand and be recognized for the great work that you do for us. and finally, tommy cannot do it alone. he has a great support staff.

please, all of you, please stand. now for our luncheon program today, i am very pleased and very grateful to have as the sponsor for our lunch today, the university, and three of our associates of come. kathy gallagher. the director of our mba program. our executive director of the institute. we thought it might be most appropriate for manny to

introduce jim owens for three reasons. the fdic chairman -- it is always handy to have a lawyer on site. second, like jim olin, randy has the ability to actually apply economic principles. he has started up and run several businesses successfully. and like many of us, ran the actually has been up close and purses to cap the equipment -- gm has actually been up close and personal to cat equipment and has ridden them. randy, please introduce our speaker. >> thank you.

jim owens has a more rigid the remarkable career -- has a remarkable career. he started that career from the academics moving to the business world in 1972 when he was hired by caterpillar has and economists, and 1975 he became the chief economist, and in 1990 he made a diversion to our neck of the world in san diego and ran solar turbines, a subsidiary. and many became the ceo, and is operated and most of the divisions of the corporation. he is also served on the board of alcoa and ibm, and he is currently on the president's economic recovery advisory board. as someone who has cat stock

and my 401(k), it is up, they do very much. -- thank you very much. he completes his work as ceo from june of this year, and will retire as chairman of the board in october 2010, and looks for to time with the grandchildren, traveling, and continues his endeavors throughout the country. we are most grateful to welcome mr. owens. [captioning performed by national captioning institute] >> thank you very much, randy, that was the most kind and generous introduction. i am delighted to be back in have the opportunity to speak to the nabe group.

it is an honor to be on the program. i sat in on to other presentations and got a good shot of economic policy from the white house perspective and from the federal reserve perspective. i tried to get calls from the business community side. -- to get inside from the business community side. eyespot, how one the world did this happen? i joined caterpillar in 1972. coming from north carolina, i had a lot of background in the textiles industry. i invested a few more years and doctoral studies, fascinated by the fact that caterpillar had a professional economics to partner -- department. it was a very important to the capital goods so what the leverage my education. secondly, there were a policy

activist company. the chairman at the time was prominent, a very strong advocate for free trade, worked very closely with the administration at that time. all of that played into my decision to move from north carolina to the midwest. i figured i would be there for four years and get back to the civilized world. and then i fell in love with caterpillar. a great journey, wrapping up 38 years. my first eight years as a are economists, i was a member of nabe. by last conference i attended was in the spring of 1980 in new york. 30 years later, it is nice to be back with the wall. briefly about caterpillar from the background perspective, many of this -- many of you know us

from the yellow equipment -- we're the largest manufacturer of construction equipment in the world. we also have a very broad and industry-leading engine line with multiple brands. the caterpillar diesel engine is very well-known. we have a very long -- very large engine manufacturer in germany, and in the uk. the cover the spectrum of engines from 25 horsepower to 30,000 horsepower. and then we have a broader array of service businesses and that is a growing -- one finance company is the largest in the world. we just loan to people who buy our equipment. we tend to know who we loan to. we are asset-based lenders. if something bad happens, we

tend to work with the customer to get through the bad patch. if we can -- if we have to come we can repossess the equipment. we have a global portfolio and a key part of our market strategy and an important part of our business division. we also provide logistical server -- services for other companies. we're probably the largest industrial manufacturer in the world, whether parts or engines. we rehabilitate them and put them back into service as a virtually new products. that is a very large and growing business, very much a sustainability story. and we have recently acquired rail services which expand our reach and to the maintenance side of rail services worldwide. they did a lot of work with real

cars -- railcars to put them back into service. none of it goes to a landfill. an important part of our business, and actually part of our business strategy, because the service business is a lot less cyclical. last year the services businesses or almost 50% of our total sales. just from perspective, on the production line, if you can see the loaders, you can get one for about the cost of an economy car. the large truck, the 797, that will carry 400 tons of material and a time. you can get one of those 4 $6 million apiece, depending on stereo, air conditioning, the features. [laughter] uh oh.

ok, back. actually, it cost about -- a cost quite a bit 41 tire. caterpillar is a household name and we are proud to be an american company, but we are a global company. 50% of our employees are outside the united states. we have 500 locations in 52 different countries. we operate -- the core of our product line, we sell them to independently owned dealers, which gives us a strong presence every day -- everywhere. the average machine or engine last about 20 years, so when we sell it, we maintain it and have a relationship with the customer for a very long time. also uniquely, we not only sell

new equipment but we will rent you equipment for a period of time, one-three years to even a day. our rental channels -- they are owned by a car dealerships. we have a unique business model of selling, printing, financing, insuring, and parts for the 8-10 years of the life cycle. it has been an interesting time since i have been the chairman of caterpillar, to say the least. first of all, back to economic cycles, we remember what happened in 1997 when the haitian crisis occurred and there was an implosion in the asian sectors of their currencies, and probably the worst economic crisis that i have ever witnessed in terms of the magnitude of drop of gdp and

the impact on construction and employment across indonesia and malaysia and thailand, that keep economies of asia at the time. out of that came literally a collapse in the global commodity markets. global mining as an activity hit a 25-year low in the year 2002. it's kind of a long sliding recession if you will. in this period, caterpillar acquired a number of companies and through those acquisitions we were able to sustain our sales level at right around $20 billion but we plateaued at that level. our target had been to achieve $30 billion in sales and revenue by the year, i think, 2006. we were able to get that done a couple of years early as the recovery got underway in 2003. and this was really a global economic recovery.

how quickly we forget in the wake of the latest crisis but 2004 through 2006 were the three fastest years of global gdp growth since world war ii. three conservative years. -- consecutive years. that did big things for global commodity prices, emerging markets became -- really starting to move up the scale in terms of having critical mass impact on the global economy. and a lot of the markets that we could -- we have served. i'll talk about strategy in a minute but the strategy i rolled out early but to drive ourselves to $50 billion by the year 2010. and as you can see, we were a little premature with that in that this booming market condition globally really drove our sales and revenue opportunities. so we were in this period from '04 to '07 aggressively growing

other capacity to accommodate this kind of a growth in top line sales and revenue. and, of course, at the same time working on a lot of new product development and new product technology because of changing emission laws. our earnings track that pretty well although the pull-through particularly in the last couple of years was less than desired. and you can see in 2009 -- actually, at the end of 2008 when credit markets globally essentially went into seizure post-lehman brothers, our markets literally collapsed almost overnight. it wasn't quite instant but it was within a few months. if you go back to september/october 2009, just before the lehman brothers collapse, we had about a three-year order-backlog, for example, of all of our large mining equipment. we were essentially sold out with firm orders. not so firm it turns out. because by the end of the year

as global credit markets went into seizures, commodity prices dropped radically. i mean, more happened in one-quarter of time, one 90-day stretch in terms of collapsing commodity prices, collapsing equity markets, credit availability essentially vanishing than any of us could imagine. so you can imagine running a company with 140,000 people operating on 50 countries and how many moving parts there were simultaneously. i think we did a pretty good job of reacting to that. we knew we were going to go into a free-fall in terms of top line sales and revenue totally unprecedented in our corporate history. but we did a lot of courageous things back in the fall of 2008. first off we told our dealers if you don't need it -- you don't have a firm customer order it that you think they can pay for we will allow you to cancel the

horde we would back up the value chain. so we had massive cancellations of orders in the fourth quarter of the year that had a big impact actually on 2008 sales. they would have been probably 52 or $3 billion a year had we not accepted all those cancellations. that helped 2009 be a little bit better and cushioned us a little bit. 2009 as you can see dropped $19 billion on the top line. that's with a b and that's a lot of tractors i can tell you and a lot of people. [laughter] >> and we were pretty well prepared for that. now, as we look at the future which, i guess, is what i really want to talk about, we have kind of views of the near term future and that's making the right policy decisions. not only here in the united states but around the world. and we're pretty much trying to think about this -- what scenarios could play out.

our best case scenario, quite frankly, is for a somewhat normal global cyclical recovery. and we think there are a lot of positives for that. i mean, today if you look around the world, very low inflation, a lot of idle capacity that can be brought back online, very low interest rates and accommodative monetary policy around the world, unprecedented -- really unprecedented fiscal stimulus on a global scale. and again industries with a lot of excess capacity. across the emerging market theater, very high infrastructure needs. they were in an investment boom. they were reactivating that as we speak. mass urbanization particularly in china but in a number of other emerging markets. and with that comes a huge increase in the middle class which we think is driving investment in commodities, we're kind of in the sweet spot of their investment cycle.

and our equipment fleet on average is relatively old. so all of these things play into kind of our best case corporate scenario for a pretty solid recovery over the next three or four years. we think there's an uncommonly high risk, though, given all of the economic trauma we've gone through of a great recession which we've defined as a multiyear kind of recessionary environment or a very, very sluggish recovery. and that would involve problems continuing principally in the highly developed economies in the world that's highly integrated. so if severe problems continue in the u.s., europe and japan it eventually affects everybody in a big way. big risk is central banks exiting or implementing exit strategies too quickly, tightening too quickly and credit availability not being what we expect. further declines in home and commercial property prices was a risk.

we think that's probably diminishing as a risk now. and a commodity price downward spiral. again, these risks we outlined, you know, late last year as we thought about these two different scenarios and, quite frankly, discussed them with our investing public. just to he show you what we think these two scenarios mean for our business, we think that the best case -- and by the way, the best case called for relatively economic recovery in the united states, europe and japan and a pretty robust recovery across most of the high growth emerging markets of the world particularly, china, india, southeast asia, latin america, notably brazil but the whole west coast of latin america, parts of the middle east, southern cone of africa, russia. we think the growth rate in these countries collectively is going to be 2.3 to 3x the growth rate in the oecd world for the next decade or two.

profound implications of the world economy that we're trying to plan for. but depending upon -- which of these two scenarios plays out, this is kind of the range of top line sales and revenues we think we have to work with. what this really says to our management teams is we have to be very, very nimble and prepared to deal -- to seize the opportunities on the upside and to deal with sustaining attractive financial viability on the downside. just briefly our economics team, which we still rely on quite a bit at caterpillar -- the closer you get to big capital goods, the mother difficult it is to forecast, i think. knowing your customers well doesn't help you a lot. it turns out that none of the miners want a truck until all the miners want a truck. [laughter] >> it's a pretty big challenge of the marketing team looking

them in the eye to figure it out. we rely on our economics team and, in fact, this year again we raised our forecasts significantly based on our macroeconomic assessment of the world before our marketing teams were prepared to do that. as you can see, we're calling for about a 3.4% increase in global gdp in 2010. and that's quite an improvement from the negative 2% which is the worse that we recorded since the '30s in 2009. again, pretty good growth in the u.s. i think our 3.4% gdp estimate in the u.s. is a little higher than the consensus, but we think that's -- there's a good case for that. europe and japan and the other industrialized countries quite a bit weaker in terms of their growth. but certainly a turn-around. and again the marketing theater around the world coming back to

fairly robust levels of growth. again, that has a huge impact on driving commodity prices and there's kind of a virtual circle of higher commodity prices helping other emerging markets because most of the commodities in this global economy come from the emerging market theater. just kind of a backward reflection in 2005, 18 months or so into my tenure i rolled out a strategy we spent a lot of time working and thinking about. i had a lot of fundamental economic principles embedded in here reflecting my economist training, i think, maybe most important we started with values based management and feeling that we really want to re-enforce the way we treat our people and the team is the key to success. and integrity, excellence, teamwork, commitment -- these things were foundational to everything we wanted to do in a strategy. i think there's more than just words behind.

and we really worked hard through boom times and bust to walk the talk with those values. we also had, you know, a strategic profile that really tried to -- something that most companies don't have to lay out exactly what types of customers we want to serve, what types of technologies we want to develop. and, you know, the characteristics of markets that we want to serve. in other words we wanted to be a noncommodityized to focus. i wanted to point out even in 2005 when we rolled this out in the early stages of the boom, we were very mindful of cyclicality and the need -- and the critical need for our company to manage ourselves so in the boom times so that we had the flexibility to take cost out. i didn't dwell on it when i went by the chart for '09 but in the

early '80s, the last great recession, we lost about a million dollars a day for three consecutive years. we lost our credit rating and we barely survived. most of our american competitors went bankrupt. in 2009, we sustained our credit rating at investment grade a1p1. we improved our balance sheet. reduced our zet plus equity during the year. we maintained our dividends. and we had the second highest year of research and engineering spent in the history of the company and about the third highest year of cap x in the history of the company so we were continuing to invest for our future but that all came with the strategy that had us prepared division by division to de what is the worst case? how do i build a call structure

to sustain profitability in the case of the worst case scenario? the strategic vision paid huge dividends when the time was right in 2009. what i really wanted to talk about today with all the preamble, our policy needs. we all have a role to play in shaping policy, particularly for the united states which is where most of us live. for the united states to stay globally competitive, which i would argue is the one of the things that we must be if we're going to be a great country 30 years from now, we know that there are three things that have to happen. we've got to have for savings as a country. we re getting down to virtually $0 and that will not work. we have to have