On November 16, 2006, FSI convened its annual international conference, A World at Risk, devoted to systemic and human risk confronting the global community. Remarks by Stanford Provost John Etchemendy, FSI Director Coit D. Blacker, former Secretary of State Warren Christopher, former Secretary of Defense William J. Perry, and former Secretary of State George Shultz set the stage for stimulating discussions. Interactive panel sessions encouraged in-depth exploration of major issues with Stanford faculty, outside experts, and policymakers.

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Invoking Jane and Leland Stanford’s desire to educate students to become useful, contributing citizens, Etchemendy said, “We can best serve that mission today by producing graduates well-versed in the complex problems of a world at risk and willing to make the difficult choices that might lead to their solution.”

“It has been acutely apparent to us at FSI that we must actively engage a world at risk,” stated FSI director Coit D. “Chip” Blacker, “risk posed by the growing number of nuclear issues on the international agenda; the insurgency in Iraq; global poverty, hunger, and environmental degradation; the tensions of nationalism versus regionalism in Asia; infectious diseases; terrorism; and the geopolitical, financial, and ecological risks of the West’s current energy policies, especially its voracious appetite for oil.”

Introducing three Stanford luminaries, Blacker said, “One of the remarkable things about Stanford is the privilege of working with some of the outstanding intellects and statesmen of our time. Warren Christopher, William Perry, and George Shultz tower among them.”

“As Stanford University’s primary forum for the consideration of the major international issues of our time, we at FSI are dedicated to interdisciplinary research and teaching on some of the most pressing and complex problems facing the global community today.” – Coit D. “Chip” Blacker, Director, Freeman Spogli Institute“The Middle East has descended into hate, violence, and chaos,” said Warren Christopher, the nation’s 63rd secretary of state. “It really is a dangerous mess.” Discussing the Israeli incursion into Lebanon, the war in Iraq, and Iran’s regional and nuclear ambitions, he said the U.S. has aggravated these threats by “action and inaction.” Nonetheless, the U.S. remains the most influential foreign power in the region. “We must not give up on the Middle East,” he said. “We have to return to old-fashioned diplomacy with all its frustrations and delays.”

“We live in dangerous times,” stated William J. Perry, the nation’s 19th secretary of defense and an FSI senior fellow. “Last month about 1,000 of our service personnel in Iraq were killed, maimed, or wounded; the Taliban is resurging in Afghanistan; North Korea just tested a nuclear bomb; and Iran is not far behind. China’s power is rising and Russia’s democracy is falling.” As Elie Wiesel wrote, he said, “Peace is not God’s gift to its children. Peace is our gift to each other.” Comparing major security issues of 1994 to today, Perry assessed the nuclear arms race, North Korea, Iran, and Iraq. He noted that the Clinton administration had eliminated more than 10,000 nuclear weapons and urged that the work continue, because “the danger of terrorists getting a nuclear bomb is very real.”

Citing North Korea’s 2006 missile and nuclear tests, Perry said he was concerned that a robust North Korean nuclear program will stimulate a “dangerous arms race in the Pacific” and increase “the danger of a terrorist group getting a nuclear bomb.” “Iran is moving inexorably toward becoming a nuclear power,” Perry said. “We are facing new dangers,” he concluded, “and we must adjust our thinking accordingly.”

“The world has never been at a more promising moment than it is today,” said George Shultz, the nation’s 60th secretary of state. “All across the world, economic expansion is taking place. The U.S. is giving fantastic leadership to the global economy.” For Shultz, the imperative is to prevent the security challenges “from aborting all these fantastic opportunities.”

“The Middle East has descended into hate, violence, and chaos. The U.S. remains the most influential foreign power in the region. We have to return to old-fashioned diplomacy with all its frustrations and delays.” – Former Secretary of State Warren ChristopherU.S. leadership should inspire the world, Shultz said, advocating four initiatives. We should aspire to have a world with no nuclear weapons. We should take a different approach to global warning, based on the Montreal Protocols. “This is a gigantic problem we need to do something about and can do something about,” he said. We should build greater understanding of the world of Islam. We must combat rising protectionism. The postwar system reduced tariffs and quotas, promoting trade and growth. “The best defense is a good offense,” Shultz stated. “We need a lot of leadership in that arena.”

Plenary I, chaired by Chip Blacker, examined systemic risk. Elisabeth Paté-Cornell, Burton and Deedee McMurtry Professor and Chair of Management Science and Engineering, discussed how scientists measure risk, asking what can happen, what are the chances it will, and what are the consequences? “The good news is that the worst is not always the most certain,” she noted. Citing challenges of intelligence analysis, she said, “Certainty is rare; signals are imperfect; there is a tendency to focus on one possibility (groupthink) and underestimate others; and it is difficult to assess and communicate uncertainties.” “Success is not guessing in the face of uncertainties,” she said. “It is describing accurately what is known, what is unknown, and what has changed.”

Scott D. Sagan, professor of political science and director of CISAC, examined “Iran and the Collapse of the Global Non-proliferation Regime?” The crux of the issue, Sagan noted, is the emergence of two dangerous beliefs, “deterrence optimism” and “proliferation fatalism.” In Sagan’s view, too little attention has been given to why Iran seeks a nuclear weapon. Arguing that U.N. sanctions are unlikely to work and military options are problematic, Sagan said a negotiated settlement is still possible if the U.S. offers security guarantees to Iran, contingent on Tehran’s agreement to constraints on future nuclear development. As Sagan concluded, “Instead of accepting what appears inevitable, we should work to prevent the unacceptable.”

Siegfried S. Hecker, CISAC co-director, tackled the challenge of “Keeping Fissile Materials out of Terrorist Hands.” Although nuclear terrorism is an old problem, today there is easier access to nuclear materials, greater technological sophistication, and a greater proclivity toward violence. The greatest risk, he said, “is an improvised nuclear device built from stolen or diverted fissile materials.” “Given a few tens of kilograms of fissile material, essentially a grapefruit-sized chunk of plutonium,” he stated, “terrorists will be able to build and detonate an inefficient, but devastating Hiroshima- or Nagasaki-like bomb.” The most likely threat is a so-called “dirty bomb,” he said, which would be a “weapon of mass disruption, not destruction,” but still able to cause panic, contamination, and economic disruption, making risk analysis imperative to mitigate its consequences.

“We are facing new dangers and we must adjust our thinking accordingly. As President Lincoln said, ‘The occasion is piled high with difficulty, and we must rise with the occasion. As our case is new, so we must think anew, and act anew.’” – Former Secretary of Defense William J. PerryTurning to human risk, Michael Osterholm, director of the University of Minnesota’s Center for Infectious Disease Research and Policy, addressed “Pandemic Influenza: Harbinger of Things to Come?” “The risk is one that a pandemic is going to happen,” he told a riveted audience. Comparing the great influenza of 1918 with the pandemics of 1957 and 1968, he noted that pandemics have differed in season of onset, mortality rates, and number of cases. Avian influenza has a 65 percent mortality rate and could affect 30–60 percent of the world’s 6.5 billion people, producing 1.6 billion deaths worldwide and 1.9 million deaths in the U.S. Inevitably, mutation will reduce its lethality.

“It is not a matter of if, just when and where” the pandemic will strike, said Osterholm. Noting that vaccines will not be available in numbers needed, he argued for measures to safeguard families, communities, and essential infrastructure, such as police, firefighters, and health-care workers. Just-in-time inventory practices, he said, have increased vulnerability to disruptions in food supply, transportation, equipment, and communications, making it vital to plan in earnest, now.

Plenary II, chaired by FSI deputy director Michael A. McFaul, assessed risks to humans from “Natural, National, and International Disasters.” Stephen E. Flynn, Jeane J. Kirkpatrick Senior Fellow at the Council on Foreign Relations and a trade and transportation security expert, decried the “artificial firewalls between homeland and national security.” The Hart-Rudman Commission of 1998 warned of a catastrophic attack on U.S. soil, yet we did not rethink national security even after 9/11. We must approach security as a transnational issue, with no clear “domestic” and “international” lines, he urged. More than 65 percent of critical infrastructure is privately owned and has been given inadequate attention by federal authorities. Hurricane Katrina exposed the vulnerabilities. “We face more threats from acts of God than acts of man,” Flynn stated. We need to move from a concept of “security” to one of “resiliency,” he said, greatly improving our ability to withstand a man-made or natural disaster.

David G. Victor, FSI senior fellow and professor of law, addressed three faces of energy security: oil, natural gas, and climate change. Oil prices are volatile, future fields are in places difficult to do business, and the global supply infrastructure is vulnerable, posing the risk of a one- to six-month supply disruption. For Victor, who directs FSI’s Program on Energy and Sustainable Development, the big threat is less supply than a potential demand-side shock, driven by the U.S. and China. Europe relies on an unreliable Russia for 25–30 percent of its natural gas needs, making it imperative to switch to cheaper, more reliable LNG from North Africa and the Middle East. Oil and gas price volatility has driven further dependence on coal-fired plants, with dire consequences for carbon emissions. New coal plant lifetime emissions, Victor said, are equal to all historic coal emissions, making it critical to invest in advanced technology to protect the environment.

“The world has never been at a more promising moment than it is today. All across the world economic expansion is taking place. Poverty is being reduced dramatically as China and India expand, along with Brazil.” – Former Secretary of State George ShultzPeter Bergen, CNN terrorism analyst and producer of Osama bin Laden’s first television interview, offered the dinner keynote, “Successes and Failures of the War on Terrorism Since 9/11.” Assessing negatives, Bergen noted that al Qaeda continues to carry on attacks from its base in Pakistan; Afghanistan is beset by instability; more than 20 million Muslims in Europe remain dangerously un-integrated; bin Laden has not been apprehended and continues to inspire followers through terrorist attacks; Iraq is an unstable breeding ground for jihad; and anti-Americanism is on the rise. Enumerating positives, there has been no follow-on attack on the U.S.; the government has made the country safer; many Muslims have rejected jihad; plots have been foiled and suspects apprehended across the globe. Weighing whether fighting the terrorists abroad has made the U.S. safer here, Bergen was equivocal: The U.S. can identify and eliminate only so many people and cannot stay in Bagdad forever. A network of educated, dedicated terrorists remains, he warned, capable of bringing down commercial aircraft or deploying a radiological bomb.

Are federal fiscal deficits accelerating deindustrialisation in the United States? For four decades, employment in U.S. manufacturing as a share of the labour force has fallen further and faster than in other industrial countries. In the mid-1960s, manufacturing output was 27 per cent of gross national product and manufacturing's share of employment was 24 percent. By 2003, these numbers had fallen to about 13.8 percent and 10.5 percent respectively. Employment in manufacturing remains weak, with an absolute decline of 18,000 jobs in September shown in the Labor Department's payroll survey.

At the same time, the orgy of tax-cutting, with big revenue losses, continues unabated. On October 6, House and Senate negotiators approved an expansive tax bill that showers businesses and farmers with about $145bn in rate cuts and new loopholes -- on top of what were already unprecedented fiscal deficits. These are principally financed by foreign central banks, which hold more than half the outstanding stock of US Treasury bonds. Moreover, meagre saving by American households is forcing US companies also to borrow heavily abroad.

The upshot is a current account deficit of more than $600 billion a year. America's cumulative net foreign indebtedness is about 30 percent of gross domestic product and rising fast. How will this affect manufacturing? The transfer of foreign savings to the US is embodied more in goods than in services. Outsourcing to India aside, most services are not so easily traded internationally. Thus when U.S. spending rises above output (income), the net absorption of foreign goods -- largely raw materials and manufactures -- increases. True, in this year and last the high price of oil has also boosted the current account deficit. However, since the early 1980s, the trade deficit in manufactures alone has been about as big as the current account deficit -- that is, as big as America's saving shortfall (for more detail, see http://siepr.stanford.edu).

If U.S. households' and companies' spending on manufactures is more or less independent of whether the goods are produced at home or abroad, domestic production shrinks by the amount of the trade deficit in manufactures. The consequent job loss depends on labor productivity in manufacturing, which rises strongly through time. If the trade deficit in manufactures is added back to domestic production to get "adjusted manufactured output", and labor productivity (output per person) in manufacturing stays constant, we get projected manufacturing employment. In 2003, actual manufacturing employment was just 10.5 percent of the US labor force, but it would have been 13.9 percent without a trade deficit in manufactures: the difference is 4.7m lost jobs.

In the 1980s, employment in manufacturing began to shrink substantially because of the then large current account deficit attributed to the then large fiscal deficit: Ronald Reagan's infamous twin deficits. With fiscal consolidation under Bill Clinton, the savings gap narrowed but was not closed because personal saving weakened. Now under George W. Bush, the fiscal deficit has exploded while private saving is still weak. The result is heavy borrowing from foreigners and all-time highs in the current account deficit. The main component remains the trade deficit in manufactures, intensifying the shrinkage in manufacturing jobs.

Is there cause for concern? Note that I do not suggest that the trend in overall employment has decreased, but only that its composition has tilted away from tradable goods -- largely manufactures. In the long run, growth in service employment will largely offset the decline in manufacturing. However, the rate of technical change in manufacturing is higher than in other sectors. It is hard to imagine the US sustaining its technological leadership with no manufacturing sector at all.

More uncomfortably, more Congressmen, pundits and voters feel justified in claiming that foreigners use unfair trade practices to steal U.S. jobs, particularly in manufacturing, and hence in urging protectionism. The irony is that, if imports were somehow greatly reduced, this would prevent the transfer of foreign saving to the United States and lead to a credit crunch, with a possibly even greater loss of US jobs.

The answer is not tariffs, exchange rate changes or subsidies to manufacturing that further increase the fiscal deficit. The proper way of reducing protectionist pressure and relieving anxiety about U.S. manufacturing is for the government to consolidate its finances and move deliberately towards running surpluses -- in short, to eliminate the U.S. economy's saving deficiency.

For months now, it's been popular in the United States to whack China for its trade and currency policies. But India could soon become the next political whipping boy because it has been snaring U.S. hi-tech jobs. Recently unemployed computer professionals, labour unions and politicians have become alarmed that U.S. companies are moving growing numbers of information-technology jobs to India.

The Politics of Unemployment

Joblessness among tech workers in the U.S. is stubbornly high. Meanwhile, U.S. firms are exporting tech jobs to low-cost India. As an election nears, American politicians see votes in complaining about offshore outsourcing. In mid-September, technology workers staged a protest at a San Francisco conference promoting offshore outsourcing of service jobs to countries like India. The protesters were backed by a unit of one of America's most powerful unions, the Communications Workers of America. The unit, called the Washington Alliance of Technology Workers, or WashTech, was set up to fight the exodus of jobs overseas. The protesters carried such signs as "Chip in, don't chip out." A new group of unemployed computer specialists calling itself the Organization for the Rights of American Workers, or Toraw, protested at a similar job outsourcing conference in New York in July.

These sentiments were bolstered in mid-October when Intel Chairman Andy Grove warned at a software conference that a huge number of IT jobs could move from America to countries like India and China in the next decade. The hi-tech pioneer added that his California-based semiconductor manufacturing firm had "no choice" but to continue sending work offshore because of rising costs and the pressure to increase productivity.

It would be one thing if the protests and dire warnings stayed confined to angst-ridden words, but now American legislators are getting involved. Faced with an election next year, many smell a populist, potentially vote-attracting issue. On October 20, the House of Representatives' small-business committee held a hearing on the exodus of white-collar jobs. "At what point will we send so many jobs overseas that we won't have any jobs here to buy the products, regardless of where they're made?" asked the committee's chairman, Donald Manzullo of Illinois.

One of those who testified was California engineer Natasha Humphries, who was laid off in August by hand-held computing-device provider Palm Inc. several months after she was sent to India to train Indian engineers to perform her job. Humphries, who joined TechsUnited.org, a group created to protest against the departure of U.S. hi-tech jobs, believes that "offshoring has created a devastating economic climate."

There is an irony in Humphries' words that goes beyond her travelling to India to train the people who may have taken her job. Only a few years ago, American technology companies were accused of stealing some of the best and brightest engineering and scientific minds from India to meet a severe talent shortage. But now that the global economy has struggled for many months, technology unemployment in the U.S. is high and the jobs are moving to India.

Some industry insiders blame at least part of the unemployment problem on the U.S. programme of granting temporary work visas to hi-tech workers from India. Ron Hira of the Institute of Electrical and Electronics Engineers told the October 20 hearing that many of those who come to the U.S. under this visa scheme go home to set up or work for companies that compete with American companies. He called the visas for these workers "a subsidy promoting the movement of American jobs overseas."

This concern has prompted legislators in at least nine states to join the fight to slow job migration. New Jersey took the lead in drafting legislation after lawmakers learned that a company hired to help welfare recipients had moved its help-centre jobs to Mumbai. Legislation requiring state government contractors to use U.S.-based employees is still stuck in various committees. But the threat of the new law was enough to persuade the welfare-help contractor, eFunds Corp., to move the jobs back to New Jersey.

A flurry of comparable bills in several states has prompted India's National Association of Software and Service Companies, an umbrella grouping of some 850 companies, to hire high-powered lobbying firm Hill & Knowlton. "India is being made to look like the enemy in some parts of the media," says Nasscom's president, Kiran Karnik. "The popular mood is reinforced by politicians, and those statements make customers wary. They're concerned, as are we."

So far, none of the state-level bills have become law. If they did, however, "purely on a business plane, it wouldn't matter at all," says Karnik, since the bulk of India's outsourcing comes from private-sector customers, not from government contracts.

Cheap, Tech-Savvy Workers

Seeking to cut costs, U.S. multinationals such as General Electric, Honeywell and Citigroup have for years moved jobs to India, seeking to capitalize on the country's inexpensive but technology-savvy, English-speaking workforce. Nasscom estimates that job outsourcing to India saved U.S. companies $10 billion-11 billion in 2001 and was accompanied by a $3 billion increase in American exports to India that year.

The migration of these jobs wasn't a big issue when the U.S. economy was roaring and companies had a hard time filling job openings. But that attitude changed abruptly with the dotcom bust in 2000 and subsequent recession in the industry. Today, despite a tentative recovery, U.S. technology jobs remain scarce.

The exact number of jobs that have moved to India isn't known. The Communications Workers of America estimates that 400,000 white-collar jobs have already been lost, particularly to India, and projects that a good proportion of 3 million more expected to migrate offshore by 2012 will go to India as well. "This is not about protectionism," says Marcus Courtney of WashTech, the union affiliate that organized the San Francisco protest. "We have to find a way to engage in globalization so that it doesn't come at the expense of our best workers."

More of Courtney's anger is directed at U.S. companies than at India. "This is an issue about how companies want to increase profits at the expense of highly-skilled American employees," he says.

Others believe the figures cited by labour unions are exaggerated. Economist Rafiq Dossani of Stanford University cites Nasscom statistics estimating that India had 171,500 "business processes" jobs by March 2003, up from 106,000 a year earlier. And that number is expected to grow annually by about 45% over the next five years to be nearly 1 million by 2008. But even that heady growth is substantially less alarmist than what labour unions warn will be India's job-grab from America.

"Am I concerned that the U.S. information-technology industry will end up in India over the next year?" asks Harris Miller, who heads the Information Technology Association of America that includes America's leading multinationals. "That's rubbish. Only about 6%-8% of the all information-technology outsourcing will move offshore. Now it's only 2%."

Miller argues that the best way to protect U.S. jobs is to promote free trade. He believes that there are steps the U.S. government could take to bolster job growth, including such measures as establishing a tax credit for companies that engage in research and development. Miller also says that the current surplus of hi-tech workers in the U.S. will dissipate as the baby-boomer generation retires.

Others add that sending work offshore leads to important benefits to the U.S. John Chen, who heads Sybase, the software giant, argues that "when we spend $1 in India and China, 65 cents comes back" in the form of orders for hi-tech equipment.

Still, the new breed of hi-tech activists can boast of at least one recent success. They helped persuade a majority in the U.S. Congress to let lapse on September 30 a measure that had temporarily tripled the number of foreign professional workers, many from India, admitted to work in the U.S.--to 195,000 a year up from the usual 65,000.

But this victory may be short-lived. Utah Senator Orrin Hatch, the influential chairman of the Senate Judiciary Committee, is in the early stages of floating a proposal that would introduce a variety of exemptions that would effectively circumvent the 65,000-visa limit. If the proposal succeeds--and that's not assured--the number of hi-tech workers admitted into the U.S., many from India, could again top 100,000 a year.

Any moves to expand the number of visas for foreign hi-tech workers will likely be opposed by groups such as Toraw, the one founded last December by recently unemployed information-technology workers. These are people like John Bauman, a computer expert who lost his job in Connecticut a year ago. Toraw is lobbying Connecticut and other state governments to pass legislation making it illegal for a company in the U.S. to bring in a foreign worker and lay off an American employee within six months. "We'd like to see tax incentives for companies that don't offshore work and tax penalties for every job offshored," says Bauman. "I'm going to tell my kids to go into [car] repair so they can't be offshored," he adds.

If tech jobs in the U.S. remain scarce, the biggest uncertainty as to whether the U.S. ultimately takes action on the issue of outsourced jobs is the U.S. election coming up in November 2004. "It's anyone's guess as to which way the political roulette wheel will spin," says Vivek Paul, vice-chairman of Wipro, one of India's largest software firms. "We will definitely see more posturing, but the question is: Will we see regulatory action?"

Still, even if outsourcing opponents are big election winners, analysts doubt that India will face the strident critiques that China is likely to experience in the months ahead.

"There's no constituency for bashing India," says James Steinberg, a foreign-policy analyst in the Brookings Institution think-tank. Steinberg, who served as No. 2 in the Clinton administration's National Security Council, points out that it's politically easier in the U.S. to attack Beijing's communist government than the world's largest democracy. On top of that, American politicians raise a lot of money from Indian Americans. Says Steinberg: "There are only two countries that get an applause line when they're bashed [in the U.S.]: China and France."