International Q and A with Rohatyn

Author: Amin Bouchentouf

The Campus: The United States economy, as you mentioned last night in your speech, is not doing too well. Consumer spending is low, the national deficit is high and corporate scandals have revealed faulty accounting practices and incompetent management. With war on Iraq looking to be imminent, how will such a military conflict affect an already weakened economy?

Felix Rohatyn: That's the fundamental question. One of the reasons that the economy is weak is that people are very concerned about Iraq and how the war might evolve, and we don't have any real answers.
That's one of the problems because the war in Iraq — well first of all there may not be a war although it is likely that there will be one — could be a very short and quick war with very little cost or it could be something that's much more complicated and take longer and could have some sort of ripple effect in the Middle East and cause significant long-term problems.
And then there's the question that if there is a war, how much is damage done to the country, how long will it take to rebuild it, who is going to rebuild it, are we going to do it? So all of these questions —some of which I tried to put on the table Friday during my speech—contribute a lot to the weak economy. People are waiting for answers or at least to see a little bit more clearly before they decide mostly to invest — that's why you see capital spending very low. People are going to put off buying houses, buying cars until they see a little bit more clearly.
I think that is a big issue, and there is a loss of confidence in the system because of these scandals, and the losses that people have sustained in the stock market, which are huge, are clearly negatively affecting the economy.

The Campus: Do you think that some sort of regulatory board should be created in order to restore public trust in American corporations, their accountants and their managers? What kind of role should the federal government play in these issues?

Felix Rohatyn: I think this new law about corporate governance and disclosures is a very important one to restore trust in the economy. The Fed has reduced interest rates as low as you can go.
I do think that the government could do one thing and help state and local governments with their deficits now. In New York City we're going to have a deficit of about $6 billion for next year, and we can't run deficits any more, so we're going to have to cut spending or raise taxes. But the federal government could do deficit spending and they could have a program. There are 46 states that are going into big deficits this year, and the government could run a program to help the states and the cities, which would help the national economy until the economy has turned around and these cities and states are back in balance. Nixon did this and they called it revenue sharing.

The Campus: How can the United States proceed so that it can protect its economic and political interests abroad without alienating international public and diplomatic institutions during this era of globalization?

Felix Rohatyn: We benefited a great deal from globalization, and most European countries did also. Many developing countries have benefited to the extent that they have been able to take advantage of foreign investment and improve their education and increase their exports. A lot of developing countries haven't been able to do it and there should be a greater effort to help them increasing amount of foreign aid that they receive in a more practical way, probably by combining private sector initiatives with government initiatives.
There is some sort of resentment of the United States on issues of globalization, and I think that is not entirely justified, although on things like environmental issues we haven't been very good.

The Campus: What are your views about Saddam Hussein and Iraq? How much a threat does he pose to America and its allies?

Felix Rohatyn: I think it would be very desirable for Saddam to step down from power. I think within the framework of the United Nation he can be disarmed and removed from power.
A lot of information that government has is secret information, and there is a fine line between information and security. What we know is that if this man has the weapons, or will have them in the future, he will use them. I think on balance it's not a risk we can take, even if we don't know everything. I've been taught in business to never take risks you can't afford to lose.

The Campus: You are an advocate of fairness — economic, political and social fairness. Do you think America has lost sight of the economic concept of fairness? If so, how can we go about in order to restore it?

Felix Rohatyn: If you say that the economic policies of the United States seem to favor upper-income people through the tax system, I think that's true and wrong. I think the way that the Bush tax cut is structured is too favorable to high-income people. I've never been very much for deliberate distribution of income and wealth. I've always believed enough economic growth but within that framework it has to be fairly distributed.