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Fareed Zakaria GPS

CEO Roundtable; Interview with Michael Hayden; Interview with Salman Rushdie

Aired October 07, 2012 - 10:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

FAREED ZAKARIA, CNN HOST: This is GPS, the Global Public Square. Welcome to all of you in the United States and around the world. I'm Fareed Zakaria.

The state of the economy, it was the topic at this week's presidential debate and will be the deciding issue of the election. We're often told that we need to get businesses to start investing and hiring.

Well, we have three, powerhouse CEOs on the show, Lloyd Blankfein of Goldman Sachs, Andrew Liveris of Dow Chemical and John Chambers of Cisco Systems.

Next, 11 years after 9/11, do we have to worry about al-Qaeda again? I'll talk to the former CIA chief, Michael Hayden, about the aftermath of the Benghazi attack.

And Salman Rushdie on his decade in hiding after a fatwa was placed on his life. Also, if China's growth slows, should the rest of us cheer? No. I'll explain.

But, first, here's my take. Sometimes the conventional wisdom is right. Minutes after the Denver presidential debate, the pundits declared Mitt Romney the clear winner. And he was. He seemed engaged, forceful and punchy. Obama seemed passive, detached and glum.

But what's more significant than how Romney said things was what he said. Romney repeatedly insisted that he was not advocating a big tax cut. In fact, he declared unequivocally that he would not cut taxes at all if they added to the deficit at all.

Now, as the Washington Post's Glenn Kessler points out in his fact- checking column, for two years, Romney has been campaigning on a tax cut that that would cost around $5 trillion over 10 years. Romney says he would eliminate deductions and cut spending to pay for it, but he never gives any details.

Well, he offered one at the debate. He would cut funding for public broadcasting, which was 0.01 percent of federal spending in 2012. Medicare was 13 percent. But, anyway that tax cut appears to be off the table.

Romney also spoke in favor of regulations, including much of the Dodd-Frank bill, and he repeatedly held up as a model his health care plan in Massachusetts, which has, at its center, the individual mandate, and on which Obamacare is based.

Romney's transformation did not happen overnight. The candidate has been reworking his stump speech. In a very smart analysis, NPR pointed out that Romney now has a five-point stump speech.

The first four points are actually identical to Barack Obama's stump speech. Romney argues for (1) Exports (2) Domestic energy (3) Retraining programs (4) Deficit reduction. It's only on the 5th that they diverge. Romney talks about small businesses, Obama about national security.

I've long argued that Romney is an intelligent man trapped in a party that has forced him to embrace extreme and impossible positions. One of his advisers had predicted that once the Republican primaries were over, Romney would erase the image from the primaries and, like an Etch-a-Sketch, just draw a new one.

Well, he appears to be doing just that. The Republican Party might hate Obama enough and be frustrated enough to wink and let him do it. If so, President Obama faces something far more challenging than a good debater in the last weeks of the campaign. He faces a moderate Republican.

Let's get started.

America's biggest corporations have a unique perspective on the economy. I recently had an opportunity to talk to the heads of three different, very successful businesses in finance, in manufacturing and in technology when I chaired a panel for the Clinton Global Initiative.

They are: Lloyd Blankfein, the chairman and CEO of Goldman Sachs; Andrew Liveris, the president, chairman and CEO of Dow Chemical; and John Chambers, the chairman and CEO of Cisco. The conversation was fascinating. Listen in.

(BEGIN VIDEOTAPE)

FAREED ZAKARIA, CNN HOST: Lloyd, let me start with you. When you look at the global economy right now, what it is, four years after the crash, what does it look like to you?

LLOYD BLANKFEIN, CHAIRMAN, CEO, GOLDMAN SACHS: Well, we're definitely in a muddle-through phase, slow growth, very disappointing.

But I think one of the things that was achieved and, by the way, in hindsight, this may look small but what we were living through was very large, it was a very substantial chance, too substantial to live with, of things falling off the rail.

They're still out there and a lot of the things that would foster growth are still uncertain and are still, you know -- frankly, they're still in the forward.

But I think what was taken off the table recently by the -- frankly by the central banks acting by themselves and less by government fiscal policy was the real blow-up risk.

So if you think of a couple places in the world that we were most afraid of, like Europe, I think the actions of the ECB to at least defer the problems of the sovereigns and the bank issues in Europe.

If they use this time to fix those problems, we'll look back and think it was a good thing. If they've merely deferred them and made them worse in the long-term, we won't feel that way.

I think something similar has happened in the United States whereby a lot of liquidity has been provided by the central bank.

ZAKARIA: Andrew, you have operations almost all over the world. What is your sense of growth? Because there are trouble reports about growth slowing down in the emerging markets, which have, so far, been a very powerful lifeline for global growth as the United States and Europe weakened, particularly China where you do a lot of business.

ANDREW LIVERIS, PRESIDENT, CHAIRMAN, CEO, DOW CHEMICAL: So I don't think we're going to have an '08-'09 scenario and I think we'd all agree with that. Liquidity's out there for the reasons Lloyd was addressing.

I do think the world since '08-'09 until now has not got a normal. We don't know what normal demand is and, of course, the obvious, which is consumption in the U.S., is not where it was in the pre-'08 period.

What's replaced that is government stimuli around the world that has been ineffective in the main. The first Chinese one was very effective. The situation in China right now I would say, in the B-to- B industrial world, is we haven't seen this even in the '08-'09 period.

They are at, in my view, somewhere in the 2 percent range of growth, not 6, not 7. And that's an industrial engine. Thousands and thousands of small mediums are having trouble. Our supply chains are weak.

And, of course, the slow motion train wreck that is Europe, and if I can be optimist there, let's say they're on the rails again. They just need people to drive the trains. So we'll maybe get back to Europe later.

But maybe I can finish my run around the world with the one optimistic place we should be thinking very positive about, which is the United States.

We have a strong hand right now. Our political process is not allowing us to play it. Capital is a coward. Businesses hate uncertainty.

We have uncertainty even in this country on things that matter, not the least of them being our phenomenal energy position, which I can talk more about if you wish. Outlook-wise, I think post November maybe the U.S. gets its act together, whoever the president is, and business and government work together, finally, to really get this economy where it needs to go.

ZAKARIA: John, whenever we have these conversations, when it turns to technology, the hope is that somehow you guys will magically bring us out of all this. That technology is going to be the thing that gets the American economy moving again.

JOHN CHAMBERS, CHAIRMAN, CEO, CISCO SYSTEMS: Yes.

ZAKARIA: If we are to look for the next drivers of growth, do you see them in technology?

CHAMBERS: I absolutely do. And if you really look at the opportunities, you go around the world, much as my colleagues have done, and we see the picture remarkably similar.

If you look at Europe, you not only see a weakening economy, but you also see, as we said in our last quarter reports, the spending on capital start to drop a lot, same with job creation.

I do not think that Asia-Pacific will be as aggressive as we hope they would be in China and India, although, Andrew, I'm a little bit more optimistic on China. I've been there for 25 years. They always find a way to get through.

But I think the common takeaway here is this country, the U.S., is known for its entrepreneurial spirit and, unfortunately, it has to be the country to lead out this time. We just do not see the engines in other places.

But I think technology combined with a great education system and government and business really working together and I think this is what we're missing around the world.

A model like what has occurred in the U.K. or what is occurring in Canada or even in Russia might be something that we could learn from. But I believe it will be the U.S. that leads us out.

ZAKARIA: Wait, so follow-up on that, you say government-business cooperation is what we need. The kind we have in the United Kingdom, the kind you have in Canada and even in Russia, you find it easier to deal with Putin's Russia than the United States?

CHAMBERS: Well, you are a pro at this and no matter which way I answer this one, I'm in trouble. But to the point of commonality, each of those leaders understands technology can create jobs.

Each of those leaders know if you're an extraction industry like Russia, you've got to create a middle class or you don't have political stability, you've got to keep your young people at home, you've got to create new jobs, et cetera.

And they're willing to work very closely in public-private partnerships to create these new generations of companies. ZAKARIA: So how badly do we do in the U.S.? Can you -- when you contrast your dealings in Washington with your dealings in London, in Canada, in Russia, what's your conclusion?

CHAMBERS: I think we have a country that dreams well. I think we've got to be more effective on our execution. But, you know, if you turn to the positives, any time you feel kind of down, just go to Silicon Valley.

I mean the ability to dream in the Valley is amazing and they make dreams happen. But there's a risk-taking culture that you must have to be successful in countries and companies.

(END VIDEOTAPE)

ZAKARIA: We'll be back in a moment, more with these three top CEOs, their optimism and pessimism about the future. Right back.

(COMMERCIAL BREAK)

ZAKARIA: Now, more of my panel with Lloyd Blankfein with Goldman Sachs, Andrew Liveris of Dow Chemical and John Chambers of Cisco. How does the future look to them?

(BEGIN VIDEOTAPE)

ZAKARIA: Lloyd, the biggest immediate danger for the U.S. economy and, therefore, the global economy is the so-called fiscal cliff.

BLANKFEIN: Yes.

ZAKARIA: How real is it and how do you prepare for something like that?

BLANKFEIN: No, it's real. I mean the numbers are there and the law is cast and the math the economists have divined and there seems to be a consensus that it could be 4 percent of GDP.

I think it was meant to be somewhat of a ticking time bomb to prompt action. I don't think anybody is going to be please if it doesn't produce action. Obviously, people have written off the period up to the election and putting their faith in a lame duck session to do some work.

I don't think a lot of work can be done, but maybe, at the most optimistic, there can be some, you know, rejiggering, rearranging, some deferring.

But if they got something done, medium hanging fruit, and then said we have a structure in place and maybe by the middle of the year, we come up with a whole program and set ourselves that real deadline and agree to work together.

And I'm somewhat optimistic that, again, after the election, regardless of who wins and regardless of where the compromise gets set, people who have pouting for 18 months and holding their breath aren't going to want to do that for another four years so there'll be some movement towards compromise and getting it out.

That gives me some optimism. But this was supposed to be -- you know, a timer was set. It was supposed to prompt action. And we may -- there is a substantial risk that we don't get action.

And that is -- that will be very, very bad for the rating and it won't just be because of our credit. It will be because of the dysfunctionality of the government and it will -- we will deserve to be graded as a dysfunctional government and who wants to lend money to a dysfunctional government.

And why should we be the reserve currency of the world if we can't manage the health of the economy and therefore the health of the currency? U.S. is amazing beneficiary of being the reserve currency. I think people should start realizing that that's the real ticking time bomb.

ZAKARIA: Andrew, you operate around the world. Would you say that the dangers or the problems of investing capital in America have gotten worse?

LIVERIS: America's in a passage through a very stormy period where the voice of business needs to elevate to meet the voice of government and do it as a partner. And I think it falls on us.

When I'm in front of our factory workers and we talk about the pride in the products they can now export from America thanks to American entrepreneurialism, thanks to American innovation, I'm not an American and I think this country has nailed it in terms of human history and putting the right model in place.

So we should allow ourselves some faults. We should allow ourselves the opportunity to dialogue and not be afraid and business needs to elevate to where the debate has gone to and not complain that it's just politics.

Equally, politics has to get away from this notion that we have four-year or three-and-a-half-year election process, which is joke. A whole year, this year, of doing nothing, which is, in essence, what we've got.

We've got a Jobs Council report, an Advanced Manufacturing report, and Export Council report, lots of work on the financial side all sitting there in inaction because we can't get a White House and a Congress to agree on fixing the problems of the day.

ZAKARIA: You're on several of President Obama's ...

LIVERIS: Several of those, yes, sir. I'm looking at me when I say all this.

ZAKARIA: No, but I -- but I want to ask you a different question.

LIVERIS: Yes?

ZAKARIA: What do you think of President Obama because you are a business leader who's actually worked with him?

LIVERIS: Is this going to get me deported?

(CROSS-TALK)

LIVERIS: Look, we serve the country, we serve our president and I am proud to serve this president. I am proud to serve a president who follows this president. If it's the same person, great.

ZAKARIA: John Chambers, you have lavished praise on President Clinton, publicly and privately.

CHAMBERS: It's hard for a Republican ...

ZAKARIA: Hard for a Republican.

CHAMBERS: That he's created the most jobs. He's done the best job during my lifetime.

ZAKARIA: Lloyd, Goldman Sachs was, I think, the largest contributor to President Obama's campaign the last time around. I'm guessing, I think the numbers show that is not the case this time.

Does that surprise you? Why has support for President Obama dropped so dramatically in the financial community?

BLANKFEIN: Well, just to clarify, Goldman Sachs doesn't contribute to these campaigns.

ZAKARIA: No, individuals within them.

BLANKFEIN: And, you know, we're kind of a mixed bag. We're also a big contributor to the Republicans 4 years ago and a big contributor to the Democrats this year, but there certainly has been a shift.

I think there's been a disappointment owing to some of things that have just been described and working together. There has to be -- you know, risk-taking is not just the risk that we take and not just financial risk.

The environment has gotten such a "got you" environment that even the politicians themselves and regulators have to do their business with one eye over the shoulder for fear of being dragged into some congressional committee or they'll be exposed for having to talk to leaders.

So I think this idea of working together -- I think, in order to allow people to work together, there has to be a little bit of a let- up. Another thing is, you can't kill people if everything doesn't work out perfectly.

Who the heck is going to take the jobs, both in business and in government? You know, you always get people who want to be CEO and you always get people who want to be Senators and Cabinet Secretaries.

But it might not be the people you want if you make it so punishing for them to take the job and so unsustainable to be in the job because who gets it right all the time?

ZAKARIA: That's actually an important distinction John Chambers and I were talking about. In business, you assume that you make decisions, you take risks. Some of them work out and some of them don't.

In government, it's very difficult to take risks because if something goes badly, you're going to get pilloried for it. There's no particular reward for having gotten it right. And so the balance that you worry about is very different, right?

CHAMBERS: It is. Business has an advantage in that we know if we don't risks, it's about survival. And, you know, we have a great number of competitors every year. What's been interesting is those from 15 to 20 years ago are no longer there. And from 10 to 15, only one survived.

It's a culture that if you don't change, you will hurt your employees, you will hurt your customers, you will hurt your shareholders. And this is where I think business also has to stand behind our government leaders who take risk.

And encourage the country and every country around the world, that if government leaders don't take risk, especially during the tough times, and we were talking earlier, I think that's what leadership's about.

It's not leading during the good times. It's getting the turnaround to take place. And, in order to do that, you have to take risks and then we've got to come together, whether it's in Europe, whether it's the U.S., whether it's China, behind those common risk- taking.

The Chinese will take risk. I would argue the Canadians will take risk. And I think we need to do the same thing here.

ZAKARIA: Since I have you, John Chambers, I want to ask you a question that most people are wondering.

So if everybody watches video on the Internet, how on Earth is the system not going to crash? Give us a glimpse into the future of the pipes that run the Internet.

CHAMBERS: Sure. Well, the exciting thing is in video, you haven't seen anything yet. The majority of video you will consume five years from now will be user-created as opposed to content- created.

We build a router that does a billion videos, one router. We build a router eight years ago that did a billion phone calls. We sold 6,000 of them. The problem will not be capacity of technology. The key will be how do we consume it. And if you get excited about that, you haven't seen anything yet. You look at what could happen if you connect the unconnected. And you begin to do this not just through video, but through common capability.

In a plant, you connect 50,000 IP devices. In the finance industry, think what could happen if you could bring your loans in a very unique way. So you're just getting started in terms of what the Internet could be.

And back to a plug for President Clinton, which he does not need, he was the champion of the Internet. He got how important it was to lead with this concept in 1992 and he was the best spokesperson.

LIVERIS: Not Al Gore?

CHAMBERS: Al helped him a little bit. But you haven't seen it. If you think that's a challenge, it gets even more exciting.

ZAKARIA: All right, you haven't seen anything yet. That's a good optimistic note to end on. Thank you very much.

CHAMBERS: Thank you.

(END VIDEOTAPE)

ZAKARIA: Up next, What in the World? Why some bad news for China is really bad news for many other parts of the world. I'll explain.

(COMMERCIAL BREAK)

ZAKARIA: Now, for our What in the World segment. For the last weeks, we've been getting pieces and bits of news that add up to something big. China is slowing down dramatically.

If it continues, it will have a profound impact on the rest of the world. GDP growth has dropped from about 10 percent last year to 7.6 percent in the latest quarter.

Now, that might not sound like much, but it might just be the beginning. Like a dropping ball, we don't know if China has hit bottom yet. What we do know is that it will have widespread effects.

Look at two charts: The first is from Brazil since the 1990s. The line in red shows how Brazil's GDP has fluctuated around an average of 2.5 percent. Now, look at the blue line showing commodity prices. The correlation is pretty stark.

When commodity prices rise or fall, Brazil's growth rate move accordingly. Another graph shows the same result for Sub-Saharan Africa. Rates of growth closely track commodity prices. These prices, in turn, will increasingly track with China's growth. China imports these commodities.

Australia is another example. It used to be called the lucky country, but this week it recorded the biggest trade deficit in four years. Why? Prices of iron ore and coal are sharply down because of slowing Chinese demand.

From Australia to South America, Africa and beyond, China's unprecedented rise has brought with it a boom for resource-rich countries. As China's growth slows, the party is going to wind down.

Even the United States is not immune. I was struck by a report in the Wall Street Journal this week. It said that, "U.S. exports to China of coal used in steel-making, great six-fold in 2009. They grew six-fold again in 2010." Six hundred percent rises.

But as China's steel industry faces a loss this year, demand for U.S. coal has slowed. That's contributed to lay-offs for hundreds of coal miners in the state of West Virginia. Thousands of miners will have their pensions and health benefits reduced.

All these ripple effects lead back to a China. To give you a sense of its importance, look at the market for metals. According to the World Bank, China's consumption of refined metals has jumped 17 times since 1990.

Its share of global consumption of these medals has jumped from 5 percent to 41 percent. Over the last decade, while China's demand has been growing by 15 percent a year, the rest of the world's had remained constant.

China has essentially fueled global growth in these new markets. But now that China's appetite is waning, commodity prices will fall. Indeed, are falling. Oil prices are dropping as well.

China consumes only about 10 percent of the world's crude oil, but, over the last decade, it has contributed to nearly half of the global rise in demand.

According to Morgan Stanley's Ruchir Sharma, "On average, China's appetite for oil has been increasing by eight percent a year, this year it's growing at just a third of that amount, 2.5 percent. Now, if this slowdown is indeed the new normal for China as many economists suggest, it has immense ramifications. All of these countries, which count on rising crude prices to balance their budgets, Russia, Venezuela and many of the Arab states, are all going to struggle. I don't mean to paint a picture of doomsday. Despite China's slowdown, it will continue to grow at a more moderate six to seven percent in the coming years. It's a rapid rate for what is now a very large economy, but it will mean that the party is over for many countries and companies around the world, and they will lead to get used to a new normal. Lots more ahead. Salman Rushdie tells me what it was like living under a Fatwa for a decade. But up next, is al-Qaeda back? I'll speak with Michael Hayden, the former director of the CIA. Right back.

(COMMERCIAL BREAK)

CANDY CROWLEY, CNN ANCHOR: I'm Candy Crowley in Washington. Fareed Zakaria will be back in a moment, but first a check of the top stories. Seven people are confirmed dead from an outbreak of fungal meningitis. 64 cases of the illness are now confirmed in nine states. The outbreak is linked to contaminated steroid injections. The pharmacy responsible for making the steroid has recalled all of its products nationwide.

Voting in Venezuela's presidential election is under way. The incumbent Hugo Chavez is hoping to fend off a challenge from Henrique Capriles Radonski who is considered a moderate alternative to the left of Chavez. Hugo Chavez has been in power for 13 years.

At least 1,400 pastors across the country plan to take on the IRS today. They will be making political endorsements from the pulpit which is illegal for churches that receive tax-exempt status from the federal government. The pastors are working with a group that wants to challenge that law's constitutionality. And those are your top stories, "Reliable Sources" is at the top of the hour. But now back to Fareed Zakaria GPS.

ZAKARIA: Is al-Qaeda back? There are signs that an affiliate of the terror group, some kind of affiliate, played a role in the Benghazi attack that killed Ambassador Stevens last month. How much do we have to worry about this so-called al-Qaeda affiliates now and in the foreseeable future? Michael Hayden has run the U.S. intelligence agencies under three presidents. He was appointed Director of the National Security Agency by Bill Clinton and was in that post on 9/11. George W. Bush later named him CIA director, a job he left 23 days after President Obama came into office. Hayden is now an adviser to the Romney campaign. Welcome back to the show, General Hayden.

GEN. MICHAEL HAYDEN, FORMER CIA DIRECTOR: Good morning, Fareed. Thank you.

ZAKARIA: There are two possibilities here, one is, that this is a bunch of bad guys, some militants, who got lucky. The other is that this is a systematic campaign perhaps directed by one of the major al- Qaeda affiliates, if not al-Qaeda central. And you know, that this is, in fact, a -- you know, the execution of a long planned attack against the United States. Which do you think seems more plausible?

HAYDEN: Well, Fareed, this is all fuzzy and it's just not fuzzy in our analyst. It's fuzzy in real life. If you look at al-Qaeda, I'll give you three tiers. If you get al-Qaeda prime still in Pakistan and all the Afghan-Pakistan border and I think we both agree they are not what they used to be and probably never will be. Then you've got the al-Qaeda affiliates in the Arabian Peninsula, the Islamic Maghreb, and then you've got the al-Qaeda inspired. Frankly, I think this attack was conducted by a group that's on the edge between those second and third tiers. Consistently inspired, probably not yet quiet quite a formal affiliate of al-Qaeda. And I think that's the new normal. That's what we're going to see an awful lot of. And so what we're going to see are attacks of this nature in many areas of the world against Americans and American interests, but al-Qaeda's ability to pull off what they doctrinally really want to do, the mass casualty attack in the homeland against the iconic target. Well, the probability of that now is very, very low because of what we've done over the last 11 years. ZAKARIA: When you look at this kind of al-Qaeda affiliates, and as you say, I think what you're describing, it's almost like they take the al-Qaeda brand.

HAYDEN: Right.

ZAKARIA: As opposed to having, you know, any kind of central direction or being an office of al-Qaeda, but you look at these kinds of groups, does it worry you that what does seem to be a band of militants was able to attack an American government target? This has been something, again, they haven't been able to do really since -- certainly since 9/11, and if you go back to the attacks on our embassies in Africa before that. Why were they able to do this to an American -- a government building?

HAYDEN: Well, Fareed, I think of all the places on Earth you could point to for al-Qaeda and western interests, Benghazi is really a home game for al-Qaeda. It's the home of the Libyan Islamic fighting group. Islamist militants have been very prominent there for a long time. They sent more foreign fighters to Iraq than any other country during the war there. This part of Libya is not under strong government control, and so in one sense, if this wasn't predictable, at least one can look at the circumstances and say, this is an exceptional, this is not -- this is not unexpected.

ZAKARIA: Politically, I want to ask you, what do you think the dynamic here is, because one thing that strikes me is that the difference this time around with some periods in the past is that you have an elected government in Libya that has legitimacy as a result, that has not only denounced this attack, but come out very strongly in support of the United States, seems very determined to track down these people. You have an elected Islamist government in Tunisia denouncing the al-Qaeda attack. You have an elected president in Egypt denouncing the attack. Not as eloquently as we would have liked, but he did it. Elected government in Turkey with an Islamist background denouncing the attack. In other words, for the first time you have a lot of people with street credit in the Muslim world and in the Islamist world saying, this is, you know, this is bad, this kind of violence in the name of Jihad is a terrible thing. Does that change the dynamic, you think?

HAYDEN: Yeah. It really does, and this is a really important point, Fareed. And it's both good news and bad news. Let me quickly cover the bad news, all right? All the successor governments are weaker then their predecessors, and frankly, they're less agile and adept counterterrorism partners for the United States. That's just a fact. This would not have happened in a Libya under Moammar Gadhafi. And Fareed, we've been very successful in what -- an American military men would call the close battle, dealing with Jihadists who are already convinced that they'd want to kill us. We have not been successful in what I would call, the deep battle, and that 's the production rate of Jihadists who want to kill us in a year or in five years. Despite all the near term and probably medium term turbulence that this Arab awakening has created, it's set in motion a dynamic, it gives us the possibility -- and Fareed, this is not a sure thing -- that gives us the possibility that we can begin to have some influence on the deep fight, you know, the production rate of these folks who in a year or several years' time will be convinced that they'd want to do us harm. It's very difficult, success is not guaranteed. But for the first time in 11 years, I actually have some hope about the deep fight where we were just suddenly unsuccessful before this Arab awakening.

ZAKARIA: Mike Hayden, always a pleasure to talk to you. Thank you so much.

HAYDEN: Thank you Fareed.

ZAKARIA: And we'll be back.

(BEGIN VIDEO CLIP)

SALMAN RUSHDIE, WRITER: Everybody who loved me, said what the hell are you doing? Have you lost your mind? I thought, you know, maybe, actually. Maybe.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

ZAKARIA: How do you live knowing that the world's most powerful Islamic cleric wants you dead? Salman Rushdie lived under a Fatwa, an edict to kill him from 1988 until it was retracted in 1998. It was all because of a book he wrote, "The Satanic Verses."

Did you think you were going to die?

RUSHDIE: At the beginning, yeah. I mean when I first heard about it, I thought, almost certainly because I knew the nature of the beast, you know. And I knew that there had been assassinations carried out in Europe of supposed opponents of the Iranian regime. So it was a thing that they did. They saw it as a legitimate extension of their rule.

ZAKARIA: And you couldn't have imagined that you would get, I'm guessing, the kind of protection that would allow you to be safe.

RUSHDIE: Yeah, I had no idea what I would get if anything. You know, the whole thing was unimaginable. It was -- it put me in a position where I literally didn't understand the shape of my life anymore. You know, and then thought, well, there probably isn't much more life to have -- understand the shape of. And that's what I really thought, to begin with.

ZAKARIA: People forget, that we didn't know -- nobody knew quite what to do. This was one of the first episodes of this kind of Fatwas and Muslim rage ...

RUSHDIE: Yes.

ZAKARIA: And there wasn't very strong support from governments. I mean even Margaret Thatcher was somewhat ambivalent, did you say?

RUSHDIE: Well, I mean to be fair to the conservative government, they did, you know, they did support the police offer of protection and that was maintained throughout the period. Most, you know, so, yes, that sort of bedrock level of making sure that a British citizen was protected. They did do that. But I mean, it was well known that I had not been a supporter of the conservative government, you know, and I had written sort of satirically about it often and non- satirically. I had written to the op-eds and so on. And some of that satire is actually in "The Satanic Verses." So -- so it wasn't a novel that endeared itself to the then ruling group, you know, and I think that maybe somewhat reduced their energy to solve the problem.

ZAKARIA: Like Margaret Thatcher never made a kind of ringing speech about ...

RUSHDIE: No, she didn't. And some of her senior cabinet ministers said extremely rude things about me. I mean, you know, Douglas Hurd who was then the foreign secretary actually gave interviews, in which he said I was a very unpleasant person, which I don't know how he knew because he never met me. I mean I literally never met him, you know. But he was prepared to say that. And I remember there was an interview, in which he was asked what had been his most painful duty in office and he said reading "The Satanic Verses." So ...

(laughter)

ZAKARIA: So you got a bad review from the foreign secretary.

RUSHDIE: Well, Douglas Hurd himself, one of the crappiest novelists on earth. Geoffrey Howe, who was then home secretary, within days of the Fatwa, said, he said -- I've never forgotten it, he said, the British people have no love for this book. It compares Britain to Nazi Germany, which is astonishing remark. I mean -- you -- and I would ...

ZAKARIA: And untrue.

RUSHDIE: I'd pay a million dollars to somebody who could show me where in the novel it does anything remotely like that. It's true that it's not polite about the Thatcher government, but that's a little bit of a step away from comparing it to Nazis.

ZAKARIA: Talk about the period when people prevailed upon you to make an apology.

RUSHDIE: Yes.

ZAKARIA: And I can understand the pressure. You know, if somebody says to you, look, if you say this, it will all go away, describe what you were thinking.

RUSHDIE: Well, there -- I meant there was -- there was that. That was the carrot if you like. There was also the stick, which is that a lot of people in the British media and public spokespeople, commentators in the newspapers and politicians were essentially saying, you broke this, you fix it. And so I allowed myself to be suckered into this compromise, you know, in which I was supposed to make some declaration of adherence to the Islamic faith, which I did, and I mean, you know, it wasn't true for a start, because I've never been a religious person. I wasn't then. I'm not now. And so it was the one time, I think, that I really agreed to, you know, sort of push myself into a position of make -- telling a lie. For a good motive, to try and solve the problem. But nevertheless ...

ZAKARIA: And it didn't work.

RUSHDIE: A, it didn't work, and b, it did something worse than that. It disgusted me with myself. And I literally, my body knew it before my mind. I mean I came out of the meeting and I was physically sick and I had -- and then everybody who loved me said what the hell are you doing, have you lost your mind and I thought, you know, maybe actually. Maybe. But in a way I've come to think of that moment, later I say it in the book as a pivotal moment, not just in that story, but in me, and my life, and my character, because when I, you know, came to my senses and repudiated what I'd said and, you know, apologized for having said it, and, you know, regained my honest self, if you like, it also had clarified something for me, you know. It really made me feel you're never going there again. Enough with compromise, apology, appeasement, you know. Enough with giving in to -- with letting this other side set the agenda, you know? I know what I believe in. I know what I'm standing up for, and I'm just going to do that from now on and if you don't like it. Tough. And it gave me that kind of strength and purpose. What all novelists know is crisis reveals character. You know, you put people in a stage of crisis, you shipwreck them, whatever, you know. You find out what they're like. And this was a moment like that. It was a kind of shipwreck and we -- I find out what people were really like because they were obliged to reveal themselves.

ZAKARIA: Salman Rushdie, a pleasure to have you on. A great book.

RUSHDIE: Thank you.

ZAKARIA: And we will be back.

(COMMERCIAL BREAK)

ZAKARIA: Despite President Ahmadinejad's claims to me last week that Iran's economy is not in chaos, there was chaos in Tehran bazaar this week when shopkeepers protested the devaluation of the Iranian rial. It was trading at about 40,000 rials to the dollar, which means anybody with $25 to their name is a millionaire in Iran. That brings me to my question of the week. What is the largest denominated currency note ever issued? Is it, a, 500 billion Yugoslavian Dinar, B, 100 trillion Zimbabwean dollar, C, 100 quintillion Hungarian Pengo, or D, 100 sextillion Somalia shillings? Stay tuned, we'll give you the correct answer. If you miss our recent special on jobs, or any of our shows for that matter, go to iTunes. You can get the audio podcast for free or you can buy the video version. Itunes.com/fareed.

This week's book of the week is, "The Parties Versus The People" by former Republican Congressman Mickey Edwards. If you worry about partisanship, gridlock and the breakdown of the American system, you must read this book. Edwards doesn't just wring his hands. He has a series of practical smart proposals that will pull America off the ledge and give politicians an incentive to make American government work. Now, for "The Last Look."

Posed like chess pieces around the Avenue of Reform in Mexico are monument after monument, some to local heroes, there's the last as tech ruler, some to world heroes, here is Gandhi, and Christopher Columbus, and Abraham Lincoln, and the latest statue to go up is of Heydar Aliyev. You might ask yourself who? That's what the locals are asking, too. He was the authoritarian leader of Azerbaijan, the Central Asian petro-state until he died ten years ago. His son who is currently the president spend $5 million of his nation's oil riches to rebuild some Mexico City parkland. It's now called Azerbaijan Park, and that's where the statue sits. If you take a look at this map, put together by "Radio for Europe," you will see that while this is the first statue of Aliyev in the Americas, similar statues have already conquered much of Eastern Europe and made inroads in Asia. Perhaps this one is coming to a park near you.

The correct answer to our "GPS Challenge" question was C. In 1946, Hungary printed 100 quintillion pengo notes, that's one with 20 zeroes after it. It is said to have been worth about 20 cents. All of those other bills did exist, except the 500 sextillion Somali shilling. That was a red hearing, and the highest denomination is just 5,000. Thanks to all of you for being part of my program this week. I will see you next week. Stay tuned for "Reliable Sources."