VIEWPOINTS & INTERVIEWS

Following his graduation from Williams College in 1951, Donald P. Gregg joined the Central Intelligence Agency (CIA), and over the next quarter century was assigned to Japan, Burma, Vietnam and Korea. Gregg was seconded to the National Security Council staff in 1979, where he was in charge of intelligence activities and Asian policy affairs. In 1982, he was asked by the then Vice President George H. W. Bush to become his national security advisor. He then retired from the CIA, and was awarded its highest decoration, the Distinguished Intelligence Medal. During his six years with Vice President Bush, Gregg traveled to 65 countries. Between 1980–89, Gregg also served as a professorial lecturer at Georgetown University, where he taught a graduate level workshop entitled “Force and Diplomacy.” From September 1989, Gregg served as ambassador to Korea for three and one-half years. Prior to his departure from Korea in 1993, Gregg received the Department of Defense Medal for Distinguished Public Service, an honorary degree from Sogang University, and a decoration from the Prime Minister of Korea. In March 1993, Gregg retired from a 43-year career in the United States government, and assumed his current position as the president and chairman of The Korea Society in New York City. He is a member of the Council on Foreign Relations. Recent awards include an honorary degree from Green Mountain College (1996), the Secretary of Defense Medal for Outstanding Public Service (2001) and Williams College’s Kellogg Award for career achievement (2001).

NEW YORK (KWR) –

Thank you Ambassador Gregg for agreeing to speak with us today. Before proceeding with our questions, can you tell us a little about your background and current activities?

I first went to Asia in March of 1952, spent ten years in Japan, shorter periods in Burma and Vietnam and six or seven years in Korea, first as CIA station chief and later as Ambassador. Since early 1993 I have been Chairman of the Korea Society. In this capacity I travel to Korea three or four times a year and last year traveled twice to North Korea.

Despite its clear potential and achievements, Korea has lagged behind many other Asian countries over the past year, at least in terms of its equity indices. Many investors mention problems with the North, heightened labor tensions, high consumer debt and the emerging competitiveness of China as reasons for their ambivalence. Are investor’s right to be concerned and what should they be keeping in mind about Korea and the future course of its economy?

The Korea Society recently featured Hogan Oh as a speaker about a month ago. He is a highly successful Korean banker who managed debt restructurings under Lee Hung Jae during the Kim Dae Jung regime. This included the makeover of Daewoo. His feeling is the Koreans are still learning the power of the marketplace, and they are still moving away from the period where government made decisions which he believes are better left determined by the private sector. He was asked what he would do if he were king now and noted he would work through the banks to make sure they would play their role in making things transparent and that borrowing is conducted in satisfactory fashion. He is quite bullish on the future of Korea but admits that questions on North Korea act as a deterrent to investors and hopes very much that the American role in dealing with North Korea will become clearer than it is at the present time.

One Korean official recently noted to me their belief that some of the current anxiety over Korea is reflective of its having become a more advanced participatory democracy. As a result, a wider range of stakeholders are now voicing and learning how to advocate their opinions. Their thought was while this was creating some concern in the short-term it was a long-term positive. Do you share this view and what are your own thoughts on the current administration in Korea and its policy agenda?

I think that South Korea is probably the most vibrant democracy in Asia and President Roh has said to some of his confidants that governing South Korea is much more difficult than he thought. I think this is a very healthy remark and is similar to what American presidents used to say about the difficulties they found in governing this country. I think that President Roh is caught in almost a zero sum game between the over 60s-set and the younger people who played such a major role in electing him. Memories of the Korean War have faded in the younger peoples minds if they ever knew about it in the first place. They tend to see the U.S. as an obstruction to North-South reconciliation. The older generation, however, remembers the horrors of the war and remains grateful to the United States. They are also very skeptical of the Sunshine Policy. I think it is a very difficult task for Roh Moo Hyun to thread his way between these very different sets of perceptions. I think he leads a forward-looking administration and remain confident in the end he will emerge as a constructive president, who will advance South Korea on its role to become the hub of Northeast Asia.

Recently, Japan has been receiving a lot of positive attention for the first time in many years. Some people believe this is simply a cyclical upturn and others that this marks the start of an economic recovery. What are your thoughts about Japan at the present time?

The Japanese economy is something almost beyond comprehension in how it has floundered over the past dozen years. I draw some hope from Prime Minister Koizumi’s reelection and some of his cabinet appointees, including Mr. Takenaka as evidence they are going to push forward with genuine reformation. It still has a long way to go but I think that Koizumi is one of the better leaders Japan has produced since the Ron-Yasu (Nakasone) relationship during the time of President Reagan.

A Financial Times reporter recently described Europe as the past, the U.S. the present and China the future leading force in the world economy. How do you view the emergence of China and what will be the implications for Americans and other nations over the next few decades?

I only have a superficial response to that. I was in Qingdao in September for a six party meeting and was astonished by the development of the city and the construction along the beach. It looked almost like Southern California with every kind of car in the world in the streets. The Chinese diplomats dominated the meeting. Their sophistication was notable and they are on the rise. But - inner China is still very much lagging behind. There are still huge problems with corruption, unemployment and highly inefficient public sector industries that have yet to be dealt with.

Last year I heard you speak at the annual Foreign Policy Association conference and was intrigued by your comments on Iraq and the global war on terrorism. Now that we have gone to war, what are your current views on Iraq and the global war on terrorism? Are we striking the right balance between military-, diplomatic- and socially-oriented means to deal with these problems?

I was very much impressed by Retired Marine General Anthony Zinney’s recent comments on the war. He felt the actual battle plan had been brilliantly conceived and carried out but there had been far too little anticipation to what would follow at the end of the full-scale military engagement. I think this is a very difficult situation for the United States, but that it is something from which we have to emerge successful. I draw some comfort from things that were written about the U.S. occupation of Germany in 1946 and 1947, which were filled with skepticism about our ability to reconstruct a nation that had been devastated by our making war upon it. Germany was a tremendous success as was Japan but whether Iraq will emerge in those terms remains to be seen. However, there is a tendency in the press to focus on the bad news. I am guardedly optimistic but still appalled at the costs.

One issue you’ve spent a lot of time focusing on is the future course of North Korea and the heightened security tensions that have emerged since the nation was included in the "axis of evil" by President Bush in 2001. How do you view the current situation in North Korea? Do you think that current concerns can be resolved through diplomatic means and is the U.S. administration taking the right course of action?

I think there is a growing body of evidence that North Korea is making a serious effort to change the way it deals with economic issues and that it wants to become a nation that is qualified to deal constructively and effectively with western markets. This is a very difficult transition to make. The South Korean Minister of Unification at the end of September said at the Korea Society that North Korea has moved from symbolic change to serious change in economic terms but has not yet reached irreversible change. For that to occur North Korea will need outside economic assistance. He hopes it will be forthcoming from donors including the U.S. At this point the Bush administration still seems to be divided. The President is making the right noises when he says we are pointed toward a peaceful solution. But strident voices within the administration and some of its outriders are expressing a very different line talking about the possible need for force and their interest in regime change. So I think the administration still hasn’t made up its mind whether to negotiate seriously offering something in the way of security guarantees before North Korea completely steps away from its nuclear program. I hope very much that serious negotiations occur between the U.S. and North Korea because I believe North Korea will give up their nuclear programs in return for a security guarantee and promises of continuing economic assistance.

There has been a lot of talk over the past year or two about the U.S. shift toward a policy based on preemptive rather than retaliatory action and anticipatory/unilateral decisions, rather than multilateral consensus. What is your view on this change in orientation?

I think one of the central issues in the next presidential election will be a very spirited debate on the role of the U.S. in the world and how we respond to it. President Bush’s team has brought with it a more aggressive hard edge approach to our role, which he inherited from a policy group that called themselves the “Vulcans “ before the election. They go back to the Wohlstetters and Professor Strauss from the University of Chicago. The events of 911 seemed to validate much of what they had said. Whether or not the elements of unilateralism, preemption and regime chance will remain central to the way we play our role is a great question that I think will be debated vigorously in the next election and I think that issue will have a profound impact as to who will emerge the winner in November of next year.

During the lead-up to the Iraq war, we saw heightened tensions between the U.S. and its traditional allies in Europe. In this regard, Secretary of Defense Rumsfeld highlighted differences between the views of "Old" and "New" Europe. Do you have any thoughts you can share with us on the European Union and its place in the world, the contrast between old and new Europe and their relationship with the U.S.?

It is certainly true that some European countries such as Poland are emerging in a new light and I am glad to see that. I am concerned however that our traditional friends Germany and France are still not comfortable with the approach we have taken in Iraq and to some extent so is the U.K., our closest supporter and ally. The key is some new formulation that will give the UN a greater role in Irag that will allow France and Germany to be involved. This seems to be in the works although it is a difficult procedure given the facts involved in the run up to the American invasion earlier this year.

I have heard you mention your belief that the Middle East is at the forefront of U.S. concerns and that if you were just starting out your career you would likely choose to focus on this region. What are your views on the seeming intractability of problems within the region? Are we destined to see accelerating amounts of violence? What are the prospects for diplomatic and political solutions to these problems?

We are more ignorant of Islam and the Middle East today than we were of Asia 50 years ago. We do not know the language, the religion and the psyche. I admire the job our troops are doing in Iraq but it is an extraordinarily difficult one. The Israeli-Palestinean problem is central and the complications there are obvious for everyone to see. I think it is imperative that we maintain and strengthen our relations with traditional friends in the Middle East including Egypt Oman, Jordan and Morocco and through these relationships do everything to demonstrate our interest in helping that entire region develop economically.

One area of the world that has become increasingly important is Russia and Central Asia, which possesses a wealth of minerals, energy and other natural resources. As a former cold warrior, can you talk a little about this area of the world and its prospects for the future?

As someone with a long CIA background who saw Russia as the main opponent during the Cold War, I am convinced that a positive U.S.-Russia relationship is vital if the 21st century is to be better than the 20th century -- and god help us if it isn’t. I think that President Putin is more or less what Russia seems to need at the moment. I am glad to see that he and President Bush have developed a good personal relationship and one that allows Putin to speak very frankly about areas where he disagrees with us. I hope that eventually we can reach the same degree of intimacy and honesty with the Chinese leadership.

Thank you so much Ambassador Gregg for sharing your views with us. Before concluding do you have any final thoughts you would like to leave with us?

I am more generally optimistic about the how the American system is working in October than I was 2-3 months ago. I think a serious run-up to the election has commenced and that all the things that have been mentioned in this brief overview will be debated in a healthy way. This will enable the American people to make an enlightened choice about the ongoing political leadership of this country.

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By Scott B. MacDonald

On November 9th, 2003 Japanese voters went to the polls to elect their next government. Although the opposition Democratic Party of Japan (DPJ) achieved substantial gains (winning 40 additional seats to end up with a total of 177), Prime Minister Junichiro Koizumi’s Liberal Democrats won 240 seats, which with its coalition allies, gives it a secure majority of 278 seats in the lower house of the Diet. Koizumi now starts a second term with a popular mandate to implement the so-called “Koizumi revolution.” But is it really a revolution? Is the Prime Minister really capable of moving Japan into a new era of sustainable economic growth, supported by a restructured economy?

The expression “Devil’s Gate” came up during a conversation in Tokyo in 2003 about President George W. Bush’s decision to invade Iraq. The Japanese speaker indicated that by invading Iraq, the President put himself at the Devil’s Gate – at the door of considerable potential troubles. Simply stated, on one side of the Devil’s Gate all was well; on the other side were the demons of treachery, war and deceit. For many reasons President Bush walked through the Devil’s Gate and the United States entered unknown country. In the same respect, Junichiro Koizumi’s decision to become Japan’s prime minister in 2001 took him to the Devil’s Gate. While Japan can hardly compare to Iraq in terms of political chaos, the East Asian country was in a troubled state – the economy was suffering from over a decade of stagnation, the political will for change was largely lacking, and society was adrift, transfixed by the dilemmas of an aging population and a sense of unease over the economic malaise. In addition, there was a sense that Japan’s place in the world was slipping, especially before the rising economic power of China and, to a lesser extent, South Korea. For a combination of reasons, Koizumi decided to walk through the Devil’s Gate into the unknown.

Since 2001, Koizumi has given the world the image of Godzilla, the famous screen monster, always rising out of the sea and fighting over Japan, usually against bad monsters. In a broad sense, Godzilla represented the Schumpeter-like forces of creative destruction. Although Godzilla often destroyed Tokyo (while fighting the bad monsters), this caused the inhabitants to rebuild their city – at least the city was always brand new in each successive movie. In the same sense, Koizumi projects an image that he too is releasing creative destruction and from the ruins of the old Japanese economy, a new stronger and more modern economy will emerge. Consequently, Koizumi is credited for launching a “revolution” of economic change in Japan. He has made proclamations of his willingness to shake up Japan, uproot the political order and bring the economy back to a period of sustainable economic growth. All of this, of course, will help restore Japan’s role in the world.

There is little question that Koizumi is a breath of fresh air in what had become a stale world of Japanese politics. His proposed reforms to overhaul the state sector (with an eye to reducing wasteful spending), to privatize parts of it (mainly the postal system and highway corporation), to clean up bad bank debt, and reform the taxation, medical care and public pension systems, all promised much to an increasingly cynical and frustrated public. After two years, much of Koizumi’s program remains unfulfilled. The rhetoric of revolution remains in place, but the results seem lacking.

The Koizumi revolution confronts considerable opposition, both within the government and out. Members of Koizumi’s own Liberal Democratic party (LDP) have fought hard against reform as have business leaders from the protected and often inefficient domestic sector – agriculture, retail and construction. Koizumi’s supporters have been under fire for pushing reforms and in some cases there have been sustained efforts to force them to resign.

Additional opposition to the Koizumi reforms comes from the banks, many of which carry bad debts from what have come to be known as the zombie companies. It is no mistake that most of the zombies are in the retail, agriculture and construction sectors. Many of the same companies have long held close political ties to the ruling LDP. LDP members have not been shy about seeking ongoing government and bank forbearance for dead-beat companies. Adding another layer of opposition to reform comes from within the bureaucracy, where certain factions have been ill at ease at the idea of allowing bankrupt companies to actually go bankrupt. This also implies that the banks should stop providing loans and begin calling non-performing loans what they are – lost money.

All of this means that Koizumi coming to power in 2001 faced a Gordian Knot of the Japanese political economy, an intricate system created in the aftermath of the Second World War to help Japan catch up with the West economically. The system placed an emphasis on business, government and the LDP working together to expand and upgrade the country’s industrial infrastructure geared for export markets. In essence, the government guided the nation’s development, channeling credit to key sectors through the financial system.

The high level of success of that development model in the 1950s and 1960s, however, guaranteed that making any substantial changes would be difficult. While the global economy changed and Japan’s major exporting companies adapted, the rest of the development model did not. It was politically easier to tinker around the edges than it was to make a meaningful overhaul. While the 1980s showed a highly dynamic Japanese economy to the world, the structural weaknesses inherent in the system, in particular the stunted role of the banks, the shallow nature of capital markets, and poor corporate governance were all to be revealed in the “lost decade” of the 1990s.

The consensus-driven nature of Japanese society and the factional nature of its politics made the arrival of a strong leader, willing and able to cut the Gordian Knot of the political economy, difficult. Throughout much of the postwar era, Japanese prime ministers have operated with far less power than their Western counterparts, considering that they often had to play to a number of factions within the LDP. Achieving consensus was time-consuming and opaque, allowing considerable latitude to the bureaucracy in how policy should be implemented. It was therefore a surprise in 2001 when Koizumi, one of the country’s more colorful leaders, emerged as the head of the LDP and became prime minister. Regarded as handsome, with wavy hair and slender build, he became well know for being an Elvis fan and for having something lacking in earlier leaders, flamboyance.

The reality of the Koizumi revolution is that is really more of an evolution. For all the marketing of Prime Minister Koizumi as a revolutionary, he is more of a reformer and a master manipulator of the press. Simply stated, Japan under Koizumi since 2001 is seeing an evolution of reform, not a revolution. One of the definitions for revolution is “any complete change of method or conditions”. This implies sweeping changes in how things are done. Japan after two years of Koizumi is not at this stage.

From an Anglo-American standpoint this evokes a sense of disappointment, that Japan is forever condemned to the promise of reform, but a reality of inaction and ultimately economic decline. From the standpoint of many Western analysts, Japan has seen too many failed reformers, heard too many claims that reforms will now work; and observed too many policy dead-ends. Koizumi initially had considerable goodwill, but patience has been eroded as the Prime Minister’s promises have not fully matched expectations. Deflation is still a problem, the banking sector remains wobbly, and the domestic sectors contain many of the same pitfalls that characterized them pre-Koizumi. And, behind all of this is a stark demographic reality – Japan’s population is aging, which will place that much more pressure on the economy. Accordingly, the Nikkei Newspaper recently noted a National Institute of Population and Social Security report that households headed by those aged 65 and older are projected to increase 65 percent from 2000 to 18.43 million in 2025, accounting for nearly 40 percent of the all Japanese households.

From a Japanese standpoint, what Koizumi is pushing is radical – he is calling for and, in a piecemeal fashion, breaking up the old political economy. He has adopted the mantra of “structural reform” or kozo kaikaku to sum up his agenda and to signal his commitment to radical change. For conservative members of the LDP, the many special interest groups in the domestic economy and parts of the bureaucracy, any change is dangerous as it represents a loss of power, the strong potential of more business failures, and an overall loss of control over the economy by the bureaucracy.

Somewhere between the Western and Japanese views sits reality. Japan is making changes and reforms are occurring, but the process is slow, convoluted, and at risk of slippage back to inaction. Because of this, it is difficult to measure the progress that has been made. It is also difficult to gauge the role of Koizumi and what his long-term impact will be on Japan. It is therefore important to underscore that the two issues are entwined – Koizumi’s place in Japanese history will be judged by how much he changes his country. Stated in another fashion, Koizumi will be judged on his ability to halt the decline of Japan.

Although there is frustration about the gradual nature of reform, Koizumi is changing Japan. The domestic sector is being forced to embrace structural adjustments, some companies are being allowed to fail, and others are coming under much greater pressure from their bankers to restructure with a coherent and more transparent plan. There has been some creative chaos as reflected by the high levels of bankruptcies in the 2001-2003 period. The banks have made an effort to reduce bad loans. In two cases (Long-Term Credit Bank and Nippon Credit Bank), Japanese banks have been sold to foreigners, and one major bank, Resona, was taken over by the government after it failed to have adequate capital ratios. Legislation has also moved forward pertaining to the privatization/overhaul of the postal system and the highway corporation.

Currently Koizumi appears as a transitory figure. Within the lexicon of historical figures, he sits somewhere between the Soviet Union’s Mikhail Gorbachev and the United Kingdom’s Margaret Thatcher. The former understood the need for reform and started the process, but was unable to bring it to a successful conclusion. Once started, reform quickly overcame Gorbachev’s ability to control the process and his base of support – the Communist Party and the state – proved wholly inadequate to accommodate change and ultimately brittle, destined to fragment. In 1992, the Soviet Union ceased to exist and Russia emerged as the major successor state, commencing a long and difficult process of economic reform.

In sharp contrast to Gorbachev, Thatcher was able to advance her revolution, which entailed the radical overhaul of the British economy. Thatcher was abrasive and ruthless in executing her reforms and the opposition was weak and ultimately lacked widespread public support. By the time Thatcher was ousted from power by her own party, she was largely successful in reversing decades of decline and a profound sense of national drift. Today the United Kingdom is one of the world’s healthier economies.

As Koizumi embarks upon his second term in office he must give serious consideration to his place in history. Thus far he has lasted longer in office than many other Japanese prime ministers in recent history. However, lasting in office is not making a revolution. Much has been promised. He now has a popular mandate to make good those promises. In a sense, Koizumi has pulled Japan across the Devil’s Gate threshold, but not moved much beyond. Does he have the strength to take Japan further into the unknown country, where there are tough challenges and very likely considerable rewards? If so, he will be remembered as one of his country’s exceptional leaders. If not, he will be seen a man with vision, but limited by his inability to implement badly needed changes – a transitory figure, waiting for another more capable (or maybe luckier) figure to come along. Only time will tell.

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