>> rose: welcome to our program, tonight, the beginning of the security and economic dialogue between the united states and china. and we have secretary of the treasury tim geithner and the leading chinese official, the vice premier, wang qishan. >> ( translated ): the most pressing problem we are faced right now is the problem of inflation. inflation is a problem we place on importance of china. >> it would be good if we tried to take the politics out of economics. very hard to do. just listen to the fiscal debate in the united states. it's hard to take the politics out of economics. i think the most important thing we can do is just try to demonstrate and explain that we are working to address the problems that exist between us. >> rose: also this evening, francis phuc yam ma, the political scientist who's new book is called the origins of political order. >> i've never seen a period

where you can have such a period of outcomes. even if two of the cases turn out good, egypt and tunisia develop into democracies. yemen could sink into a state of chaos and it's already got al qaeda there. >> rose: an exclusive conversation between the secretary of the treasury and the vice premier and francis fukiyama when we continue. every story needs a hero we can all root for. who beats the odds and comes out on top. but this isn't just a hollywood storyline. it's happening every day, all across america. every time a storefront opens. or the midnight oil is burned. or when someone chases a dream, not just a dollar.

they are small business owners. so if you wanna root for real hero, or when someone chases a dream, not just a dollar. support small business. shop small. >> rose: the u.s./china strategic and economic dialogue begins in washington today. it brings together leading officials to talk about the relationship between two countries. u.s. treasury secretary tim geithner leads the economic part of the talks, wang qishan represents china. he's vice premier of china. he oversees the economy and

foreign trade. he's a member of the 25 politburo which sets policy for the government and communist party. he's the former mayor of beijing and has been the go-to guy on the chinese government from everything from sars, the olympics and the banking crisis. at the opening session today, wang and secretary geithner reaffirmed the importance of the u.s./chinese relationship. >> we have far more shared interests and corporation between differences and competition. the reforms we must both pursue to meet these challenges are not in conflict and the strength of our economies are still largely complementary. and we each recognize that our ability to work together is important to the overall health and stability of the global economy. >> rose: secretary of state hillary clinton, who's heading the foreign policy talks, and vice president joe biden spoke to the iss of china's human rights policy. >> we know over the long arc of history that societi that work toward respecting human rights

are going to be more prosperous, stable, and successful. that has certainly been proven time and time again but most particularly in t st month. >> as i said, i recognize that some in china see our advocacy of human rights as an intrusion and lord only knows what else. but president obama and i believe strongly-- as does the secretary-- that protecting fundamental rights and freedoms such as those enshrined in china's international commitments as well as in china's own constitution is the best way to promote long-term stability and prosperity. >> rose: tight and chinese vice premier wang qishan joined me for their first joint interview and the first interview of the united states for the vice premier. what do you hope to accomplish in this session? how do you aswresz the relationship is today?

>> ( translated ): over the past three decades of more since the establishment of china/u.s. diplomatic relations our relationship has indeed experienced twists and turns. but what is more important is that today it is heading towards greater security. and it was culminated by the visit to the united states by president hu jintao back in january. and the two president it is reached an important agreement to build a china/u.s. partnership based on mutual benefit and mutual respect. and four months later i'm here in the united states for the third round of the china/u.s. strategic and economic dialogue. actually, secretary geithner and i had a previous agreement about the major tasks we are going to accomplish during this round of the dialogue. that is to say at this round of the dialogue the two of us, we are going to follow through on the important agreements which

will deepen our economic cooperation across the board in the areas of finance, economy, trade, and investments. so that we will bring up the comprehensive and mutually beneficial economic partnership between our two count freeze-to-a new high. >> rose: this is an interesting time in china. an economy that's had extraordinary development. but it is a moment that it may be shifting from an exporting economy to an economy built on domestic demand and consumption. what does that mean for the united states and the world? >> well, it's necessary for china. it's good for the world and it's good for the united states because china's recognized that it's now too large, too large an economy to be able to grow based on a model dependent on exports. so i think for china's future, china's leaders have recognized that future growth has to come more from domestic consumption,

domestic demand and they have put in place a very ambitious, very important set of reforms to bring that process about and you're starting to see it happen already. but they're at the beginning of that transition. >> rose: will the transition from an exporting model to a consumer demand model from domestic consumers, what are the challenges for you? >> actually, the biggest challenge for us in this respect is to make sure that everyone is on the same page and we look at the problems. we need to come come to the same conclusions that it is necessary for us to conform our economic development patterns and at the same time stay committed to the scientific development because we have to be aware of the issue

of the lack of balance and coordination in our development and this in turn will make our economic development not sustainable. >> rose: have you come to the conclusion that because of inflation, oil, and food especially that an appreciation in your currency might be the right thing to do now? >> ( translated ): in the a certain sense this is just the question we face in the immediate run. actually, against the backdrop of a financial crisis and faced with the need to ensure steady and relatively fast economic development. the most pressing problem we are faced right now is the the problem of inflation. the inflation is a problem we place a lot of importance right now in china. and it is the biggest problem we are going to tackle this year in china in ordertor do this we have to use monetary policy,

fiscal policy and at the same time economic restructuring. and on top of that against the backdrop of inflation pressure here in china, another thing we have to bear in mind is to ensure the livelihood of the people with the lowest income. >> rose: do you believe that at this point there is a real possibility for a common understanding on the appreciation of the currency? >> well, i think china's decided they need to let the exchange rate reflect market forces again, the rise in response to market forces. they're letting that happen. that's in china's interest to do. they're moving very gradually because they want to be careful how they do this. up 5% since june against the dollar. but if you adjust for the fact that inflation in china is substantially higher than the united states in real terms-- which is what matters for

competitiveness, which is what people have for where they build something, it's appreciated more rapidly against the dollar, probably about 10% a year. that's likely to continue because it's necessary for china so they can reinforce the strategy of moving away from exports to domestic demand and help contain the pressures they see. >> rose: that k they do that without having to worry about jobs? losing jobs because of the export demand? >> well, one reason they're moving carefully is they want to make sure that they don't undermine the capacity of the country to grow and move forward. but so far-- and i think this is very encouraging-- you're seeing chinese growth being very strong very resilient and from our perspective the chinese economy is in a position where it can withstand the pressures that come with letting your currency rise. but i think you should look at it the other wayment if they don't allow it to recognize-- and, again, the risk is that china will face a higher risk of inflation going forward. but i think leader shivship of

china has a very sophisticated understanding of how to balance those forces. we'd like to see them move more rapidly, but they'll come to the right judgment. >> rose: you think the arguments will resonate with them? >> absolutely. again, china recognized it was in their interest to move and i think you'll likely see that continue. >> rose: it is said that you were very much bothered by the u.s. economy is coming out of the crisis. china was the first to recover. do you have great concerns about the american economy? >> ( translated ): actually, the numbers for the american economy in the fourth quarter of last year were quite good and in the fourth quarter of this year the market is improving and we have seen good numbers about economic growth in the first quarter may not be satisfactory but it was

not bad. and talking about the american economy, i believe the housing market the most important thing for the american economy and this issue has not been addressed and it's correlated with the jobs market and i still foresee possible problems in this area. the policy of quantitative easing in the united states has brought back some confidence in the u.s. capital market and that in turn has created some wealth returns which has, as a result, who fit part of your domestic demand and this is good also for the jobs. but still i believe housing is a big issue we have to take seriously and start being fully addressed. >> rose: secretary geithner has addressed what he would like to see happen with respect to the currency. what would you like to see from secretary geithner? >> ( translated ): first and foremost i believe what is

important for the united states to do is to depoliticize economic issues with china. during more previous conversations with secretary geithner, i often tell him that it was true that there was always a political dimension to economic problems and economic issues are closely related to political ones. it's dangerous to politicize economic issues. take the exchange rate it's an issue that's economical. it seems to me that somehow the americans believe that china's trade surplus is all caused by the manipulation of the exchange rate and china became a big

trading countfully the world simply by manipulating its currencies. actually, this is a very politicized argument and for all those people who really understand what the exchange rate is really about, they would not say so. >> rose: we now come to the crux of the problem, don't we? >> i think the vice premier is right that you can't look at this economic relationship through the prism of tex change rate. obviously it's important for china the exchange rate move up as it is and we'd like it to be faster. >> rose: and be sensitive to the idea that their extraordinary success in trade was not simply a matter of the trade. >> of course not. china's leaders 0 years ago started to put in place sweeping reforms to open up the chinese economy to expand the role for property rights in the market, and those reforms were enormously successful, probably the most successful period of economic reform in modern

economic history. and it was those reforms, those choices combined with the fact that china was able to take advantage of an open global economy that was expanding relatily well at that period of time that helped contribute to this rapid period of economic growth. our economic relationship, we have our tensions, we're going to have disagreements. there's things we'd like china to do that they're reluctant to the. the same is true on our side. but if you look at the overall economic relationship, it's enormously beneficial to both countries. we export more than $100 billion a year to china. our exports are growing much more rapidly than they are to the rest of the world. that's likely to continue. we have a huge stake in china's economic success, as does china in ours and, of course, we want to work to strengthen that basic relationship. and i think it's important to the rest of the world that we demonstrate that we can work well together, manage the inevitable tensions we face and create the conditions to allow for a better growth between us and better growth for the world economy. the exchange is an important part of that dimension but it's

only one piece of that relationship and the exchange rate, the chinese norths are moving. >> rose: you want to see them give credit to companies that are not state owned. >> we have two basic objectives. of course we want to make sure that u.s. companies competing with china, competing in china, selling to china, we want to make sure that they have a level playing field. the that's important just for the basic fairness that the system requires. but we also want this transition china's undertaking to shift from a more export-driven gooet model to a more domestic command driven growth model to succeed. the reforms you referred to are things we think are important but more importantly the reforms of the chinese authorities have committed to. in this case what we're supporting is working with the grain of the dominant direction of reform in china. that's very important to recognize. we're not trying to push on to china things that they believe are fundamentally incompatible. >> have they implemented the

thing that president hu jintao promised here in previous conversation? >> they are moving to put those in place and make sure the message goes out all across china to all levels of government in china. the commitment that the vice premier is central to implementing. to make sure as they promote development in china they're not discriminating against u.s. companies but the chinese, when they make a commitment they deliver on that commitment and they're moving forward to put those things from place, make sure they have traction on the ground and those commitments will endure. >> rose: are you looking for investments in the united states? do you believe that your opportunity to invest in technology is being respected? >> ( translated ): there's no doubt that we are trying to encourage more and more chinese companies to go global.

part of china's policy to expanding the opening to the outside world is on the one hand to invite foreign companies to invest in china and at the same time to encourage chinese companies to go global. and the united states is one of the countries of which... what companies we would like that see in china and for the chinese companies they do not have sufficient knowledge about the investment environment, investment policies and in particular the security of review policies in the united states. and given what happened to some cases related to security review in the united states happening to chinese companies trying to make an investment here, we've got the feeling that there is a lack of transparency in your security review policies. and one of the investment hurdles for the chinese companies trying to make

investments here is that they are short of talented people. actually, to make investment is just like spend money. it's not easy at all to spend money and it is even harder to try to get a bigger band of your money. so for the chinese companies, they really face the issue of how to well spend their money. it's very difficult for chinese companies to have those capable people who understand at the same time the domestic situation their particular industry and the situation here in the united states. >> rose: you have said that the thing that could get in the the way of u.s./chinese relations is fear, not so much disagreement over specific policies. >> i think you see this risk of americans' concerned that china's rise will come at our expense and you see in china some dharn the objective of u.s. policy is to contain china's

rise. both those perceptions are think are false. and they pose risks to both of us. part of what we have to do is demonstrate to the systems of both countries that as we work to advance and protect and defend our interests that we can do that. and still find a way we can grow together. i think it's going to be the great challenge of the coming decades for these two countries and that's why we're investing so much time and effort to make sure we understand china's interests, its intentions, their values and tra dpigss and ask them to do the same to the united states because that will help us avoid the miscalculations that raise the odds. >> rose: what secretary kissinger said to me was that many chinese believe the united states wants to contain their growth and development do you believe that? >> ( translated ): just the united states... does the united

states want to contain china's development. actually, during president hu jintao's visit to the united states the u.s. government and president obama himself said on many occasions that the united states hoped to see prosperity and development in china and believed that this would serve the world and the united states. nibble what your president said. >> what do you think the biggest misconception is about your country from america in general? >> ( translated ): i don't think this is misconception, it is more of a lack of understanding. >> rose: what do you want us to understand? >> ( translated ): well, in the first place it is not easy to really know china because china is an ancient civilization and

we are of the oriental culture. and for the americans, the united states is the world's number one superpower and the american people are a... if they're asked to choose to understand a foreign country, their first choice would be the european countries and the south american countries may come second. it was not only until recent years that the american people have begun to pay more attention to china. but over the years, american media coverage of china has been scarce and if there were some coverage, most of them are lopsided. >> rose: what do you think about this question? the misconception and understanding? >> you know, the thing about america and the world is that our role in the world... we took on this huge role in the world well ahead of the understanding of americans about what was happening in the world. and that's changing now. and, you know, when i went to china to study chinese 30 years

ago, it was a unique, exceptional thing. and now, of course, there's tens of thousands of americans sitting in china all across the united states and you're starting to see a much greater investment by americans in understanding not just china but all the countries that are so important to our interests and it's come a little late but it's changing very quickly. i think our capacity to advance our interests as a country will depend much more now going forward on the quality of understanding we can bring to these basic problems. that starts with understanding, again, the basic interests and traditions, values and attentions of a country like china. >> rose: with respect, there was a story in the "new york times" today suggesting that there was despite this good dialogue taking place here, in china a rell sense of crackdown artists

out of some fear or some concern some concern about the united states or some arab spring kind of ideas coming to china. >> i don't think it is possible for events like arab spring to take place in china. that might be the conclusion of the state department. i understand that there has been frequent exchange of views to change your state department and china's foreign ministry, the situation in north africa and west asian countries but we've said on many occasions that it is not possible for things like... for things in west asia and north african countries to take place in china.

>> rose: it's interesting to be sitting here with secretary geithner because he understands mandarin. human rights will come up in this conversation. >> of course. as always. again, we have to recognize we come from different political transitions, traditions, at different political systems and as you heard the vice president and secretary of state say today and you heard the presidency in the past, we convey our concerns on these issues as you would expect us to do. but our part of these discussions are about the broader economic and financial challenges facing the global economy and we're doing a reasonable job of trying to make sure we find the right balance between china's interests and our interests. it's not perfect. we have our moments of tension. try to calm the tension where we can so we can make more progress but i think we're doing a good job of making sure we're expanding opportunities for both countries and that's important to us as we recover in the united states.

as we come out of this crisis we want to make sure export growth is as strong as it can be. that will translate to americans getting back to work more quickly. >> rose: if, in fact, this domestic demand develops-- because china china's had an extraordinary rise of the middle-class with buying capacity, and that's been true in other emerging nations as well-- does it also have opportunities for american businesses to serve that market and as part of the argument you're trying to make is to make sure there's a level playing field in order to give them an opportunity? >> absolutely. that's what you see happening, that's why we're exporting so much to china already and that's why our exports are growing so rapidly and that's why we're so confident that if you look forward to the future you're going to see even more jobs in the united states today created because of if need for us to meet that growing demand we're seeing in china. so, again, if you look at what's happening in agriculture, in manufacturing, in services, in advanced technology, u.s. companies have a major stake in

what's happening in china. of course we want to make sure those opportunities expand, but they matter for us because they translate directly into better opportunity for american workers as we come out of this crisis. >> rose: what is the reason for his interest in technology? is that a national security issue or why do many chinese officials feel like they're not getting a fair shake? >> cloyne recognizes china's capacity to grow in the future depends on them moving up the technological frontier. so they have an incredibly creative group of scientists and innovateors in china but, of course, they'd also like to take advantage of technology that was designed and developed in if united states so they're trying to aggressively make sure they have more access to that technology. now on our side we have a set of very careful protections put in place to try to make sure that technology that's most sensitive for our national security interest doesn't end up in the hands of people that shouldn't have it. now we're trying to reform and

modernize those controls and as we relax those controls china will find it easier to access some advanced technology in the united states but we're still going to retain and restrict access to most advanced technology with the greatest military sensitivities. but china is interested in more access to high technology in the united states, more opportunity to invest in u.s. companies with high technology. that's what you expect them do and i think over time you see china get more opportunity, more access in that area. >> when you look at this relationship, are you essentially optimistic? >> my biggest war i have that economic relations between china and the united states become politicized. as head of the economics dialogue from china, this is my biggest concern. because once economic issues are politicized, they're no longer

economic issues. it's where to look and china and the united states, the world's biggest developed outry in the world, biggest developing country be intertwining of our interests is enormous and we say great opportunities for cooperation. both countries have their problems in terms of transforming economic growth patterns and promoting economic cooperation. it's a lot of opportunity. economic issues are no longer economic issues and become political ones. such opportunities of cooperation may well be lost. so a most important thing for two of us to do is to

depoliticize the economic issues and the economic relations between china and the u.s. as they are in this way it will truly reflect the nature of a comprehensive and efficient economic relationship between china and the united states. china has a population that's 1.3 billion. our g.d.p. is now the world's second largest. but in terms of those hard power and soft power there is still a big gap between china and the united states. what is even more important is that when we looked at the per capita numbers, china's per capita g.d.p. is ranking around the 100th in the world. this is something that has never happened to the world before. this is a very unique circumstance. there has never been one single country in the world with a

second-largest g.d.p. but with a per capita g.d.p. that is ranking around the 100. you mentioned the issue of the exchange rate. talking about the exchange rate, there is one thing i'd like that mention to your viewers now. in china other people have made a comparison between our economic relations with the united states and japan's economic relations with the united states. a lot of people in the united states actually made such comparisons. the five differences... among the five differences too two of them were raised by larry summers. when i came to the united states he told me when talking about

china/u.s. trade surplus and japan/u.s. trade surplus back then, some things are different, actually. first japan's trade surplus with the u.s. back then in terms of its manufacturing technologies they are... they were at or above the level of technologies in the united states. it is not this case when we talk about china/u.s. trade. chinese technology are lagging behind the united states. second, back then american consumers could well remember those japanese brand names such as nissan, toyota, and so on.

but for the american consumers they could not remember too many chinese brands. the only thing they could remember from chinese products is that they are made in china. a third difference...ing a actually, this was told to me by the central bank government of japan. he added this third difference upon hearing the two differences mentioned by larry summers. he told me that in the japanese/american trade surplus most of the surplus was contribute bid japanese companies solely. but it's a different story in china/u.s. more than 60% of our surplus with the united states is contributed by foreign investment companies or multinationals from u.s., from europe, from japan.

the products are simply processed in china and then exported to the united states. that is why there's some experts that say that it is better to say that products are created in the world but only made in china. that is to say a large part of our surplus with the u.s. comes from processing trade and the core components of those exports come from developed countries. take the iphone of the apple companies as an example. it sells several hundred bucks each but only $30 or $40 were actually created in terms of value added in china. so it's better to describe the apple products as created in the united states but only made in china. and the fourth difference

between japan/u.s. surplus and china/u.s. surplus is that the united states did not have an export control vis-a-vis japan. that is to say it is possible for the japanese to buy virtually anything from the united states including, planes, cannons and warships. but this is not possible for china. many of the american product as mentioned by secretary geithner right now, because of security reasons could not be exported to china and and for the chinese people. when we look at the trade balance issue with the united states, the americans are complaining about our exchange rates and the chinese people are saying that this is because you have your good stuff but you will not sell them to us.

so this is the fourth difference and on top of this there is a another difference, the fifth difference. now china is the world's second-largest trading company. actually largest trading country. but even so the u.s. have yet to recognize china as a market economy, not even the united states and europe select the japanese, they have yet to recognize china as a market economy. but back in the days when japan was running a surplus to you, you recognize japan as a marketing economy long before. >> i agree by the way that the japanese comparison is not a good comparison. i also agree that it would be good if we could take the politics of it out of economics. very hard to do just listening to the fiscal debate in the united states, it's hard to take the politics out of economics. the most important thing we can do is demonstrate and explain

that we are working to address the problems that exist between us to shake sure that both citizens in both countries view that it's fair and even. that's the best thing we can. do. >> rose: and at the same time to make sure that everyone knows that the united states is trying hard to begin to deal with its long-term fiscal problems. because... >> i think the very important thing for americans to understand the that by far and away the most important factor that will determine the extent to which we benefit from china's rise will be the policies we pursue in the united states to make sure we're strengthening our long-term growth fundamentals. better education, stronger innovation investment and, of course, restoring fiscal sustainability. overwhelmingly what's going to determine america's relative strength in the world vis-a-vis china, vie vie other countries will be the quality of judgments

our political system develop. >> and has there been an appreciation of where the decision has been made respect to coming out of the economic crisis? >> you should ask the chinese that question. most people look at the united states, they saw us go through a terribly damaging terribly risky financial crisis and substantial consequence damage to the rest of the world and they also so us dawes what americans do which is confronted with this crisis we moved aggressively to fix our problems and as a result we're going to come out of, this i believe, much stronger than before the crisis. again, the great strength of the united states is our resilience, the speed at which we adjust, the quickness of action and we made a lot of progress but we have work to do. >> rose: what you're seeing here is someone trying to deal with... characterize the vice premier for us. >> again, i think he recognized that china's interests lie with the world and are inextricably linked with the united states

and the other trading partners and china's key challenge is to balance its own reform challenges, its own very substantial economic challenges with the needs of the world as a whole. it's going change over time but we'll find balance. >> rose: i was recently with lee kuan yew in singapore. he said that you were the person they most liked to deal with in china. he paid enormous compliments to you. he said i hope he stay at hit and will not retire and will be there because he's as good as he had seen. >> the one i like to do business is wang qishan. >> i thought you would say that. there is that you can he may stay on even though he's 65. >> well, if i was them i'd keep m on.

having anybody here him, practical, hard headed, humorous and makes the right decisions from the chinese point of view. >> ( translated ): when you were meeting with him, did hi still have a statue of confusion on his table? (laughter) confucius. back in the '90s i had a conversation with him back in his office. what impressed me most was the statue of confucius on the top of his table. mr. lee kuan yew had succeeded

in finding a development of a city state. both in the oriental culture and the rest earn culture. in a certain sense in terms of culture he made more use of the eastern culture but is he makes more use of the british system. >> rose: as i thank you for coming today you said to me thank secretary tooigt. secretary geithner says there he is again looking for leverage. (laughter) >> it is not until now that i feel a little bit more... this conversation. >> rose: so we can do more? >> yeah, we deal more. >> rose: dwoshd this again. good. my friends in china also say about you that you are a man who

loves a quick reparte and that you're a great student of history. so perhaps we can talk more about economics but also history the next time. >> that's for sure. >> rose: francis fukuyama is here. he is an author, a senior fellow at stanford university. he's well known for his end of history and the last man. his new book is called "origins of political order." it looks at political institutions from pre-human times up until the eve of the french and american revolutions. i'm pleased to have hem back at this table. welcome. >> let me start with a dedication here. and when he talked of the clash so civilization is the judgment of his argument and his writing today that it has been confirmd? has been rejected or it is misunderstood. >> well i didn't like it as much

as his other earlier arguments because i always thought there were more universal values than he was willing to concede. i sort of think that the arab spring in a way is evidence in the other direction because he said that there's something about muslim culture that would really make it different and its development from things going on in the west or asia. and i think what i per steve? placess like egypt and tunisia is that people don't like living under authoritarian governments any more than anyone else does and they're joining the party a little bit late. >> rose: and you suggested before i sat down that they were influenced by their education and the fact that they have more access to information. >> that's right. in 1968 hunting on the's first book is still his greatest, that was book called political order and changing societies. that's precisely what he argued because there's a lot of instability in the developing

world. and he said they're not staged by the poorest of the poor, they're staged by middle-class people that have gotten educations and they're not allowed to participation and they don't have job opportunities and they're the ones that are dangerous in this society. >> and then there is what you wrote about the end of hiory. would you say the judgment of history about that book and those ideas has been confirmed? rebutted? or, in fact, misunderstood? >> well, i think the argument looks better... >> rose: today. >> today. a lot of my critics said look, you're forgetting about september 11 and the fact that there's this whole part of the world he isn't going to participate in this global democratic revolution. we're not out of the woods yet and we don't have good democracies in the arab world at the moment but i think in a lot of ways the impulse is there and

it's sthun this argument about their there being a culture exception in either muslim countries or arab countries is not true. >> rose: your argument was in fact that after the fall of the berlin wall and all of that that it was a triumph of liberal democracy in. >> i think actually that despite this initial impulse towards democracy we've been disappointed in a lot of places. a good example is the ukraine. in 2004, you had the orange revolution that looked like the demonstrations in egypt and tunisia. they got rid of an old communist that had stolen an election but they couldn't deliver on good government. they scaubled... new democratic leaders among themselves and the guy that stole that election... >> rose: when he got reelected did he come wearing a different badge and a different argument? >> a little bit. he had moderated a little bit but he's basically the same guy i think with basically authoritarian instincts so in a

way it was a huge disappointment because the democratic forces couldn't create durable institutions. >> so there is a gap between the instinct for democratic and liberal democracies and the capacity to create and maintain and sustain them >> that's right. and the gap is called an institution. an institution is something durable. it lasts beyond the personality of a particular leader or organizers and it means you'll have a democracy that can deliver what people want which is education, health care, responsive government, all of these things. >> rose: you argue you're going to have a state, a rule of law and accountability. >> that's right. there's a kind of miracle in modern politics that we fail to appreciate because what the state does is it concentrates power. it's the policeman that enforces the laws. but the rule of law limits that power to what the community

accepts as forms of justice and accountability allows you to remove leaders and so you've got this combination of great power but power constrained by rule. >> rose: you used the example the united states has nuclear weapons to create a lot of terror in the world but it can't do it because it's restrained by rule of law and accountability. >> that's right, that's right. so in a sense that's been the secret that's missing in a lot of developing count these they don't have institutions. they don't have a state that can enforce rules and that's why you get crime and corruption and people living in insecurity. >> you go back before states before human history. and what does that teach you? >> i think it teaches you a lot. we have this idea that before you had the state people were living in this state of war, the twar of all against all. it's not true i think by nature we are social creatures. we have instincts that allow us

to live together. >> rose: you mean all species or... >> well, all species have some degree of this and it's the most highly developed and the reason we've proliferated and there's now six or several billion of us in the world is precisely because of our social instincts. and we initially, just like chimpanzees and other primate wes favor genetic relatives. we engage in what the buy yolgts call resipry cal altruism meaning you scratch my back, i'll scratch yours. these exist in primitive society and indeed exist in the primates that were the precursors to human beings. >> rose: and china was the first successful modern state >> modern state, yeah. it's not the first state but the chinese, for example, invented the civil service examination because they realize if you hired people that that are just your cousin or brother-in-law that you won't get good quality government and they invented

bureaucracy where it's organized and hierarchical and capable of ruling a vast country. and i think that came together in the third country b.c. and that still characterizes chinese government. they're good at authoritarian bureaucratic government. >> if you look out beyond the modern chinese state, that will be its defining institutional mine set? >> well, i don't think they're going to lose the ability to run a centralized government well. so the big question for china is whether they'll develop the equivalent of a parliament, whether there will be checks and balances, whether in terms of law or democracy that will offset the power of their government and limit its ability to simply do what it wants. >> rose: you talk about political decay. what causes political decay? >> i think that all human beings are rule-making animals. they create institutions.

they like to follow rules and, indeed, they are programed to invest rules with intrinsic meaning. meaning they get religious zantfycation or as a result of history or tradition they believe that their set of institutions is god's gift when the circumstances change and the institutions don't work so well they're sticky. they don't move around, they're not easily discardable. i think that's probably got an evolutionary significance because if we discarded the rules at the first drop of a hat we wouldn't have social stability but a lot of times it becomes dysfunctional. >> rose: bringing that to today's debate and some people would argue it's not political decay there's political dysfunction. and political dysfunction permits the united states from dealing with its biggest problems and if you can't deal with its biggest problem it will be in decline. >> that i believe we have a serious problem in this country.

we've got a system that will is built around checks and balances. but in a sense we're so checked and so balanced and the political society is so poleorized that it can't make decisions. so everybody sees plainly there's a big problem with the budget deficit with the sustainability of the current path we're on with health care and a whole series of issues and the political system has not been able to deliver decisive action to fix it. in theory it could but i think the nature of our politics has s really stuck right now. >> rose: and india? >> india is a great case there a sense of you might say too much dem stli's an example a couple years ago when the tata motor company wanted to build a vehicle assembly plant in wegs bengal and, you know, when the chinese do something they just do it. they want to create three gorges dam and it requires moving more than a million people... >> rose: move a million people.

>> they move a million people. india stores something like one fifth the amount of water china does even though china's's a drier country because they can't agree on basic infrastructure investment. and so what happened to tata, lawsuits, peasants' associations. >> rose: so he bailed snout >> so he said okay, i'm not dealing with this and they didn't get their plant. >> rose: so looking at the arab spring, what impact does it have on islamic radical violent islamic extremism. >> it could be a great scenario and it could be a terrible one. right now in egypt, for example, i think that the polling data seems to show that the majority of egyptians have relatively moderate views. they don't want to turn their country into another iran but they're not well organized and they are two forces in the country are organized. >> dave: do either of them want to be iran like?

>> we don't know. the army, i'm sure, doesn't. the muslim brotherhood is a mixed picture. some want to have a strict islamist society and others may want to be more like turkey. >> rose: this good or bad for the united states? >> you know, it could be either. i've never seen a period where you could have surge divergent outcomes. it's scary for the united states in many ways. even if two or three of the cases turn out good, egypt and tunisia develop into real democracies, yemen could sink into a state of chaos and it's already got al qaeda there and it could be that this becomes another breeding ground for terrorism and radicalism. so you want to pay attention to six or seven simultaneous crises. >> rose: do you believe the united states is in decline?

>> well, i think that we have dug ourselves into a deep hole. we've been parties like there was no tomorrow for the last 20, 30 years. it's taken a lot of effort to get us into this situation of the biggest global debtor and it's going to take a long time to work our way out of it. and our relative power has declined without question. just look at the booming economies in the world and it's not europe, not the united states it's brazil. india, china, the rest of asia. so there's no question. and i think americans shouldn't be surprised. this 20-year period from 1989 to 2009 when twerp big hegemonic power is a... it was a... an aberration and i think it's now reverting to the mean. >> rose: are you more optimistic or pessimistic? >> i'm fundamentally optimistic about the united states. >> rose: because? >> because the country over time

has shown itself to be resilient it's good at reinvention. because it's democracy with lots of checks and balances it can get rid of a foolish leader. i think americans can believe dumb things but they don't believe them for long. i think the marketplace of ideas... >> rose: churchill said we eventually get it right after trying everything else. >> that's right. >> rose: francis fukuyama. the book is called "the origins of political order: from prehuman times to the french revolution." thank you. >> thank you.

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