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FAREED ZAKARIA GPS

Is It Time to Bomb Iran?; Interview With Mohamed El-Erian

Aired November 13, 2011 - 10:00   ET

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


FAREED ZAKARIA, HOST: This is GPS, THE GLOBAL PUBLIC SQUARE. Welcome to our viewers in the United States and around the world. I'm Fareed Zakaria.

We have a terrific show for you today. It goes all over the world.

We start with the news about Iran's nuclear program and a debate as to whether the time has come for military action.

Then, Europe at the breaking point. We ask Mohamed El-Erian, one of the world's most respected financial minds, to tell us whether the Eurozone is about to come apart.

Why in the world can't North Korean nurses and doctors come back home from the Middle East? It's a fascinating tale.

And, finally, back home, the former governor of Michigan, Jennifer Granholm, tells us what her experience of cutting taxes and reducing spending taught her.

All this, coming up.

But first, here's my take. Last week the International Atomic Energy Agency issued its most serious warning about Iran's nuclear program. It argued that Iran seems to have experimented with various technologies that suggested it was trying to build not just a nuclear program but a nuclear weapons program.

This finding, to be clear, is at odds with the views of the former head of the IAEA, Mohamed ElBaradei, as well as the report issued a few years ago by the United States' National Intelligence Council.

It's difficult to be sure what to make of these intelligence judgments because they are judgments that try to determine the intentions of the Iranian regime. One thing is clear - Iran is developing an increasingly robust nuclear program.

Having read all the reports, I'm still not sure that anyone knows what Iran's plan is. Is it to develop a breakout capacity, meaning a nuclear program and a missile program, but not actually marry the two together? That would keep Iran within the legal framework of the nonproliferation treaty, which it signed and takes pains every year to prove that it adheres to? Or is it to develop the weapons themselves?

Frankly, the former would be the smarter course. It would get the benefits of increased influence. It would be seen as having a nuclear capacity, but not attract a total clampdown on trade and other kinds of sanctions that would come from actually having nuclear weapons.

But let's take the IAEA report as valid. It still makes the case for some kind of contact with Iran.

As he left office as Chairman of the Joint Chiefs of Staff, Michael Mullen said that one of his greatest worries was that we had no communication with Iran. He worried about miscalculations, the misreading of intentions and, thus, war.

Look, at the height of the Cold War, we talked to the Soviet Union, an adversary we were contesting in dozens of countries around the world. We talked to Mao, a man with a large nuclear arsenal who several times said that he would welcome a nuclear war that would destroy half the world. We talked to Moammar Gadhafi.

Meanwhile, we do have a containment policy toward Iran that appears to be having some effect. Its neighbors are allied against it, and with the United States. The pressure has restricted the regime's room for maneuver. There appear to be internal tensions within the regime. And yet, rather than keep the pressure on and see if we can find a way to get inspectors in, we now hear calls for war one more time.

Let's be clear - we are talking about a preventive war against a country that has not attacked us on the basis of intelligence reports. It is easy to start a war. It is very difficult to predict how it will go and where it might end. I think we need to ask some hard questions before we start launching the missiles.

Let's get started.

(BEGIN VIDEOTAPE)

ZAKARIA: And now, time for that debate on Iran.

Bret Stephens is with the "Wall Street Journal" where he writes a column; and Karim Sadjadpour from the Carnegie Endowment in Washington. Welcome.

Bret, you talked about, in your column this week, having a real debate about whether or not there should be military strikes against Iran. But, clearly, you take one side of that debate. You think, despite all the problems, it would make sense to move militarily against Iran, correct?

BRET STEPHENS, FOREIGN AFFAIRS COLUMNIST, WALL STREET JOURNAL: I do, because we've exhausted all the other semi-plausible alternatives. The Obama administration came to office offering its extended hand to Iran, offering diplomacy. That, of course, was tried and failed.

We have ratcheted up sanctions. We're now on the fourth round of U.N. sanctions against Iran. Clearly, from the IAEA report, those sanctions are not having the desired effect on their nuclear programs.

So we're really now faced with the option of either effectively doing more of the same, which means doing nothing, or biting the bullet, so to speak, and taking military action to stop them. Hopefully American, not Israeli military action.

ZAKARIA: Karim, what do you think?

KARIM SADJADPOUR, CARNEGIE ENDOWMENT FOR INTERNATIONAL PEACE: Fareed, I don't think the case for military action is at all compelling. It's a simple mathematical question.

According to Israel's best estimates, if they were to bomb Iran's nuclear sites, they would set back Iran's nuclear clock two to three years. My argument is that Israeli or even U.S. military strikes on Iran would resuscitate a deeply unpopular, ideologically bankrupt regime and perhaps prolong the shelf life of the Iranian regime another decade or another generation.

So if the Israelis came and said, listen, we could set back Iran's nuclear clock 10, 15 years with a military strike, I think it would be a much better case. But two to three years, I don't think this is a real serious argument.

STEPHENS: As for the internal dynamics of Iranian politics, I'm not persuaded that having a prestige program destroyed by - by bombs would be - would do very much domestically for this regime. I fear that they would consolidate their position both internationally and domestically if they were able to develop or acquire nuclear weapons in the teeth of so much international opposition.

ZAKARIA: Karim, what do you think the effect would be in Iran?

SADJADPOUR: Well, Fareed, there is a historical precedent here in the Iranian context as well, and that is in the early days of the revolution, Saddam Hussein's Iraq invaded Iran and allowed the hardliners, the Khomeinis in Iran, to essentially consolidate power. And what I see now, three decades after the 1979 revolution, is a population which is incredibly weary, incredibly unhappy with the state of the regime. It's - the regime is ideologically bankrupt, as I mentioned.

And one thing I constantly hear from Iranians - young people, intellectuals, professional classes - is that they're opposed to any type of military action. And what I would like to see is far more focus on what Israel or the United States might do and more focus internally on what's going on in terms of the repression and human rights abuses within Iran.

STEPHENS: Well, I think here Karim and I agree entirely, but the interests here are not simply the interests of the Iranian people. There's also the interest of the international community.

It's notable that the country that has been most vociferous in calling on the United States to take military action against Iran is not Israel. It actually is Saudi Arabia. The rest of the - the rest of the region deeply fears the implications of a nuclear Iran for their - for their security and for their future, and - and rightly so.

And so should the United States. We're not just talking about fears for the region. An Iran that is able to marry a nuclear warhead to a ballistic missile will at some point be able to strike not just Tel Aviv or Dubai, but London and possibly even Washington, D.C. We have a deep security interest, something that we - American leaders of both parties, including President Obama, have said - have said it's an unacceptable outcome, a nuclear - a nuclear Iran.

I fear for the credibility of the United States spending a decade calling this outcome unacceptable and then more or less sliding right towards - right towards it.

ZAKARIA: Every time America has gotten involved in military actions for fear of its credibility, it doesn't always work out as well. You say at the end of your column, you know, this would probably give President Obama a boost if he were to strike Iran militarily. Don't you think it would depend not on how he - how the - how the action begins, but really how it ends?

STEPHENS: Possibly true, although I think Americans recognize that - have long memories about this regime, long memories going back to 1979, the hostage crisis, its responsibility in the death of 258 Americans in Beirut in 1983, the Khobar Towers. And I think Americans also understand that the stakes aren't simply the immediate day-after consequences of what might happen in the Straits of Hormuz or elsewhere in the region, but, over the long term, what it means for American security to have the world's leading sponsor of terrorism armed with nuclear weapons.

ZAKARIA: Karim?

SADJADPOUR: Well, Fareed, there is no doubt that this is an odious regime, but we have to differentiate between regimes which are homicidal and - and regimes which are suicidal.

The Iranian regime brutally suppresses its own population. It has homicidal tendencies at home. But it's a regime which ultimately wants to stay in power. That's what's paramount for them. They're not suicidal.

And, you know, I think, to - to coin a phrase, Fareed, this U.S. foreign policy challenge that it faces with Iran is really a post- American foreign policy challenge, in that we're not going to resolve this issue absent a wide - a kind of a robust international coalition.

And I think the Obama administration, when it comes to options for coercion, basically has two options before it. The first is to pursue very strong sanctions or very strong action with a very weak coalition, or to pursue relatively milder action and have a more robust - a much more robust international coalition.

And I think the reality is that we - Iran is so dependent these days on countries like China and Russia and India and it's been so isolated from countries like the United States and Europe, that option two is really the best option we have.

STEPHENS: I think we shouldn't get carried away with the notion that this is a post-American world or that America doesn't have options before it, or that it can't effect its will against what ultimately means perhaps a dozen, perhaps 20 nuclear installations in relatively poor country. We - we can do that.

And I would add one more point about Karim. You know, he talks about homicidal versus suicidal regimes, and I - I have no doubt or I'm confident that an Iran armed with a nuclear weapon wouldn't lob it at Tel Aviv or somewhere else as a first order of business. But let's imagine a scenario where Iran is facing a slow motion rebellion in the model or in the mold of what Syria faces today. Is this a regime that, armed with nuclear weapons, is going to go quietly into the night?

That is the scenario that really keeps me awake at night when I think -

(CROSSTALK)

ZAKARIA: What I don't understand, do you mean - do you mean it would use the nuclear weapon on its own people? I -

STEPHENS: No, that it would use the nuclear weapon on perhaps Israel or one of its neighbors if it felt that its - that its life was - that it was facing imminent extinction.

ZAKARIA: Isn't that problem far more acute in Pakistan? Yet I don't see you calling for military strikes on Pakistan's nuclear - in other words, if you assume that a regime would just go crazy when faced with instability, why have you decided that Iran, which doesn't - let's be clear, does not actually have nuclear weapons, is - is the one that you should preemptively strike against?

STEPHENS: Well, let's - let's remember that Pakistan remains, for all of its many problems, a country that has a civilian - that has a civilian government.

But the example of - but the example -

(CROSSTALK)

ZAKARIA: A civilian government that has absolutely no control over the nuclear program, and you know it -

STEPHENS: Well, that's true. But - but then, that's all the more - I mean, look, I'm not - unfortunately, our options have been foreclosed precisely because Pakistan does have a nuclear option, which should make the argument that - or should - should advance the argument that I'm trying to make, which is that regimes like this should not be allowed to acquire nuclear weapons in the first place.

Pakistan is that much scarier a country because it is so unstable and because it has this arsenal of 100 and - or 150 nuclear - nuclear weapons. Why should we want Pakistan redux in a regime that is, if anything, more fanatical and potentially more unstable than Pakistan is today?

ZAKARIA: Karim, you get the last word.

SADJADPOUR: Well, I should make clear, Fareed, that we should vigorously try to prevent the possibility of a nuclear armed Iran. But, for - your friend, Jon Stewart, had a great line. He was talking about Dubai, and he said that Dubai is what happens when Las Vegas and Saudi Arabia have a baby.

And if I had to use that Jon Stewart formulation about Iran, I would say that the Islamic Republic of Iran is kind of a hybrid between the Taliban and the Soviet Union. It's kind of a diluted version of each. It's a Byzantine, authoritarian Islamist regime, which is deeply unpopular and ideologically bankrupt.

And I think that U.S. foreign policy towards the Soviet Union in the 1980s can be a useful template. That was a regime which had hundreds of nuclear weapons. We dialogued with them at a high level. We contain them, and we exhibited moral clarity, and we supported the forces of democracy and human rights.

And, actually, that was one of the last great victories for the neo- conservatives, so I'm surprised that Bret wouldn't champion that approach.

STEPHENS: Well, they also have Gorbachev.

ZAKARIA: On that note, gentlemen, we will reconvene to do round two of this. But thank you very much.

STEPHENS: Thank you, Fareed.

ZAKARIA: And we'll be back.

(END VIDEOTAPE)

(BEGIN VIDEO CLIP)

MOHAMED EL-ERIAN, CEO, PIMCO: One of the tragedies of the Eurozone crisis is that we've waited so long that there is no costless solution. Every solution has enormous consequences, collateral damage, and unintended results.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

ZAKARIA: This week's Europe crisis seemed to reach a breaking point, engulfing Italy, the third largest member of the Eurozone, and representing almost 20 percent of its GDP. What does this mean for Europe and the world?

There are a few people in the world with a better grasp of the ups and down of all these issues than my next guest, Mohamed El-Erian, the CEO of Pimco, the bond-trading giant.

Mohamed, you've been warning about this for a while, the sense that Europe was adopting incremental measures that were not solving the problem. At this point, is it too big to solve in the sense that Italy, because of its size, it's going to need something on the order of 500 billion euros of debt, new debt, in the next two years. Can this even be solved?

EL-ERIAN: So the good news is it's not too late to solve. The bad news is, with Italy, the crisis has entered a very dangerous phase, and Europe cannot wait anymore.

So Europe can no longer kick the can down the road or, I have a better image, which is they've been rolling a snowball down a hill, because a snowball gets bigger. The problems have been getting bigger, and they've been getting more disorderly.

ZAKARIA: The problem - the fundamental problem is Italy is going need to issue all this new debt. The interest rate that the market is now charging Italy is much higher than it was charging it previously, and threatens to be so large that the interest on the debt for Italy will become enormously burdensome. So the key here is creating some kind of sense of confidence that allows the market - that makes the market charge Italy much, much less for its debt, correct?

EL-ERIAN: Correct.

ZAKARIA: So what do you do to make that happen?

EL-ERIAN: So, first of all, to be clear, during the week we saw interest rates go above seven percent for 10 year Italian bonds. At that level, a liquidity problem becomes a solvency problem. It's like a homeowner who sees the interest rate on the mortgage go up. They could have afforded the mortgage at a lower rate, but they cannot afford it at a higher rate. So it's very important to bring it down.

What does it take to bring it down? First and foremost, it takes Italy to convince the market, like others, that they are serious about structural reforms that will allow them to grow. Fareed, without growth, you can't lower your debt burden.

The second issue that - that Europe needs to do is Europe needs to solve its banking problem. You know, the banks hold government debt, so their balance sheet got contaminated, and now the banks are a source of disruption. So you need to do something there.

The third issue is Europe has to draw a line, saying these are solvency cases that require debt reduction and these are liquidity cases. So far Europe hasn't been willing to do that until very recently with Greece. And, until it does that, the market is not going to know where is that line, and, therefore, everything gets contaminated.

And that leads to the fourth issue, which is the hardest issue. Germany needs to take a decision as to what it wants the Eurozone to look like. Germany is the most important country. People look to Germany for decisions.

Germany needs to make one of two decisions if it wants to keep the zone together. Either a completes fiscal union, with closer political integration. Another way of thinking about that is the decision of West Germany vis-a-vis East Germany 20 years ago, which is this is a political decision. We know there's a big bill. We're willing to pay for the politics of it.

The other alternative is to opt for a smaller, less imperfect union of countries with initial condition. Someone has to make that decision.

ZAKARIA: One of the big issues here is, is it possible to get a smaller, more manageable union so that the euro is - is adopted by countries that have similar economies and have something in common? The problem with that I keep hearing is, how do you kick somebody out? How do you - what is the process of exit? So what happens the day that the Greeks exit?

Wouldn't everyone in - in panic about Spain and Ireland and Portugal and take all their money out of there, because, in a sense, what they will feel is, hey, wait. Not all euros are created equal, and I'm going to put my money in the one country that's sure not - sure as hell not going to default, and that's Germany. So -

EL-ERIAN: Yes, the risk is there, and - and one of the tragedies of the Eurozone crisis is that we've waited so long that there is no costless solution. Every solution has enormous consequences, collateral damage and unintended results.

So the question is not - is are the costs, it's rather which alternative has the fewest costs.

ZAKARIA: There's one very powerful actor here from whom we don't hear very much, and that's the European Central Bank. Couldn't the European Central Bank do a version of what the Federal Reserve did when we had our crisis and effectively say, we're guaranteeing everything? And what that will do is it will make the market stop trying to attack all these countries because they'll feel it's futile. Would that work?

EL-ERIAN: The ECB, like the Fed, like the IMF, is a monetary institution. They can build bridges, but they only build bridges. They need to be a bridge to somewhere and, so far, the ECB has been a bridge to nowhere, not because of their fault but because the others haven't stepped up.

ZAKARIA: Others meaning...?

EL-ERIAN: Meaning the individual countries that need to step up their reform effort. Meaning Germany, that needs to decide on how to strengthen the institutional underpinning. And private creditors, who also have to contribute. They also have to carry part of the burden.

This is not a burden that the ECB can or should lift on its own.

ZAKARIA: And the United States, all it can do, even though this is - this potentially has a huge impact on us. Europe is our largest trading partner, our banks are connected, we can just watch from the sidelines?

EL-ERIAN: So - so the U.S. has done two things. First, it has privately urged Europeans to get their act together and, when that didn't work, it went public. It started to publicly lecture Europe, which didn't go down too well because Europe said, hey, wait a minute. We're here because of what happened to you in 2008.

I think the reality is that every country, the U.S. and others, have to hope for the best but plan for the worst. Which means have Plan B ready, to know that if, God forbid, something really terrible were to happen to Europe, how would we insulate other societies from this tsunami wave that will be coming over?

ZAKARIA: You have Italian debt on your books. What - what would you do?

EL-ERIAN: So first, Italian, that is de minimis. We were concerned very early on, but people should be generally defensive but also selectively offensive. Why? Because the markets don't distinguish.

I take you back. On Wednesday last week, when suddenly people saw the Italian yield go up over seven percent, 499 stocks in the S&P 500 - so 500 companies, 499 went down. Now, there's no way that 499 companies share the same fate.

But the reason why they're down is because investors are human beings. They said just sell. And, therefore, these very violent moves in markets also create opportunity.

So it's about being generally defensive and selectively offensive.

ZAKARIA: or, as Warren Buffett said, be greedy when he everyone else is scared, and be scared when everyone else is greedy.

EL-ERIAN: Correct. And have the stomach for it.

ZAKARIA: Mohamed El-Erian, pleasure to have you on.

EL-ERIAN: Thank you very much.

ZAKARIA: And we will be back.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

ZAKARIA: Now for our "What in the World?" segment. I noticed a strange item in the news this week. An estimated 200 North Koreans are stranded in Libya right now, among them doctor and nurses whose services are much needed back home. Why are they there? Why can't they go back?

Well, it turns out that they were sent to Libya to earn desperately needed hard currency for North Korea's tyrant, Kim Jong-Il. But now, despite Gadhafi's death and the changing circumstances, he'd rather these essential workers stayed away. The same goes for hundreds of other doctors, nurses, technicians, and other workers in Tunisia and Egypt.

Why? The Arab spring.

The dear leader doesn't want these people, who have seen street protests succeed and dictatorships fall, to return and talk about it. In fact, editorials in South Korean newspapers say that only one percent of North Koreans have even heard of the Arab spring. But how you could have such an exact figure beats me.

What we can say for sure is that the North Korean press has simply not reported on any of the popular uprisings of 2011, obviously for fear of sparking protests within North Korea. In fact, Pyongyang issued a statement in March simply saying Libya's dismantling of its nuclear weapons program made it more vulnerable to western intervention. In other words, we, the North Koreans, will keep our nukes as our insurance policy against regime change. So don't expect Pyongyang to disarm any time soon.

The regime, they interpret the fall of Gadhafi as a cautionary tale. Don't disarm, don't try and talk to the west, don't open up.

Meanwhile, the suffering of the Korean people continues. Just last week, UNICEF reported that millions of children there are at risk of being severely malnourished. These children will be more vulnerable to disease and stunted growth. And there's little hope that the government has the ability to help even if it wanted to.

There's been a major shortage of food for years now compounded by adverse weather conditions, a suspension of food aid programs from the U.S. and South Korea. Even China, Pyongyang's only ally, has cut food aid.

So what happens next? No one predicted the Arab spring, but can one predict a Korean fall? Not really. Most of the tools of popular revolt these days are unavailable in North Korea. Only 400,000 people have mobile phones. That's 1.5 percent of a population of 24 million. Getting a phone requires connections to the regime, Internet penetration aren't unavailable but they're estimated to be just as low. There's no Twitter, no Facebook, no YouTube, no Al Jazeera to coalesce the masses.

So bottom-up change does not look like it's going to happen any time soon. So perhaps change could come when there's change at the top. Despite recent scenes of Kim Jong-Il looking healthy, he was in talks with the Chinese. He is 70 years old. It's been reported he's had a stroke and has had cancer. And he's picked his successor in a rushed manner.

But the army, intelligence apparatus and the police appear to be solidly behind him and his family. We'll probably never know what's really going on in North Korea, and there is little appetite in China, the one country with influence in North Korea, to force change in Pyongyang.

But it is worth remembering that in a time of mass global unrest and popular uprisings, North Korea remains a highly secretive, brutal dictatorship enslaving its people, arguably the world's worst regime.

And we'll be right back.

(BEGIN VIDEO CLIP)

JENNIFER GRANHOLM, FORMER MICHIGAN GOVERNOR: One of the officials, the Chinese officials, pulled me aside and we just had a little conversation, and he said, so when do you think the United States is going to get a national energy policy? And I said, you know, Congress, the Tea Party, divisiveness, I don't know. And he said this, he did this - take your time.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

CANDY CROWLEY, CNN SENIOR POLITICAL CORRESPONDENT: Time for a check of today's top stories.

At the Asia Pacific Economic Cooperation Summit in Hawaii, President Obama pushed for more exports to Asia to create more jobs in this country. During a meeting with China's President Hu Jintao yesterday, Obama brought up concerns about China's currency manipulation and the need to protect U.S. intellectual property.

Italy's top political leaders are meeting today to find a replacement for Former Prime Minister Silvio Berlusconi. Berlusconi resigned yesterday after Italy's Parliament approved austerity measures demanded by Europe to shore up confidence in the country's faltering economy.

Supporters of Syrian President Bashar al Assad protested outside embassies and consulates of countries that vote to suspend Syria's membership in the Arab League. The Arab League's action was in response to Syria's month-long deadly crackdown on pro-democracy demonstrators.

A tense situation in Portland, Oregon, this morning between members of the Occupy Movement and Portland Police. The protesters defied a midnight deadline to leave public parks. There are no reports of arrests, but police surrounded the protesters.

The death toll from Wednesday's 5.6-magnitude earthquake in Eastern Turkey has risen to 40. Turkey's Prime Minister toured the damaged area Saturday. The quake follows another more powerful 7.2-magnitude quake that hit in late October, killing more than 600 people. Sleet, snow, and plunging temperatures also worsened conditions for hundred of thousands of earthquake survivors living outdoors.

And those are your top stories. Now back to FAREED ZAKARIA GPS.

ZAKARIA: The statistics are stark. In the last decade in the United States, 42,000 factories have closed. One-third of all manufacturing jobs have disappeared.

My next guest, Jennifer Granholm, was governor of the State of Michigan for eight of those 10 years, from 2003 to 2011. So she saw those statistics happen in real-time. And now she has a plan to turn them around. She's the author of a new book, "A Governor's Story: The Fight for Jobs and America's Future." She joins me now.

Thanks so much for coming.

GRANHOLM: I am grateful to be on.

ZAKARIA: So when you started out as governor, you had a plan, but it was somewhat different. Your plan was pretty standard -

GRANHOLM: Economy. I mean, the standard was - actually, we were going to invest in education, and we were going to invest in early childhood education. And we were going to focus on land use. And the economists said in early 2003 that we were going through a cycle, that we would rebound at the end of 2003. That jobs would be created, and I thought, what a great time to come into office. Come in in the valley, reap the benefits of the rise in the economy. And what happened was totally different.

ZAKARIA: Well - but - and at the time, with a pretty conservative legislature, you cut taxes and cut spending.

GRANHOLM: Yes. In fact, Fareed, this is what - from the Laboratory of Democracy, here's the empirical data from Michigan. I cut taxes in my first 4-1/2 years 99 times. Big tax cuts, small, targeted, you name it.

By the time I left office, Michigan was 48th in the country in terms of the size of government relative to population. We had cut more employees than any state in the country. I had cut more out of government as a percentage than any state in the country. Our corporate tax burden dropped, the largest amount of any state in the country.

And still we had the highest unemployment rate. Why? Because the structure of our economy had changed, and the playing field had enlarged, and no longer was I just competing against other states. But obviously I was competing against the globe, and therein lies the difference.

What happened in Michigan is going to happen to the United States or is happening right now.

ZAKARIA: So what had happened to Michigan? Explain, you know, why it had become uncompetitive.

GRANHOLM: Well, I mean, I would just say this - can I tell you a quick story. At the end of my first year in office, I got a call from our Michigan Economic Development Corporation who said we have a crisis, we're about to lose a major factory in a little town of 8,000. This is - they're e known as the refrigerator capital of the world. They have the largest refrigerator factory and they employ 2,700 of the town of 8,000.

And I said, well, we'll just go to the refrigerator factory. It was Electrolux. We'll make them an offer they can't refuse. So we went to the town. We put every incentive we possibly could on the table, zero taxes for 20 years. The UAW put out huge amounts of concessions. The Workforce Training Board said we'll train people. We said we'll build them a new factory.

And the management of Electrolux took our incentives and they walked out of the room. They were out of the room for 17 minutes. They came back in and they said, wow, this is the most generous offer we've ever received, but there's nothing you can do to compensate for the fact that we can pay $1.57 an hour in Mexico.

When they said there's nothing you can do, it said to me, this is not just about Greenville, this is not just about Michigan. But there are thousands of communities across the country who are experiencing that very - that kind of loss because of globalization.

So what we did is we did an analysis on our economy. We identified sectors that we knew we would compete in. We made sure we continue to improve both taxation and - and of course reducing the cost of government. But so that we could do public/private partnerships with the private sector to invest in key strategic industries to make them successful in America.

ZAKARIA: You went to South Korea and that really changed your views.

GRANHOLM: It really did. I mean, in South Korea - and frankly, I just came back from China, too. And it is - it's obviously you know this. It's amazing what's going on.

But in meeting with some of the officials in China, I - it was on an energy tour, we were looking at what China was doing in terms of energy, and, you know, they were showing us all of the - then new jobs they've created and the buildings and the factories.

And one of the officials - the Chinese officials pulled me aside and we just had a little conversation. And he said, so when do you think the United States is going to get a national energy policy?

And I said, you know, Congress, the Tea Party, divisiveness, I don't know. And he said this - he did this. He goes - take your time. Because, of course, they see that as their opportunity and they're not the only ones.

So my point is that I - the urgency of the moment, every single day these businesses, multinational corporations are making decisions about where to locate. And certainly they'll be locating where they can take advantage of developing markets. But if they're locating in developing markets and they're producing products that could be manufactured in the United States and being - are being imported back to the United States, we've lost the opportunity.

And once they locate there, they're not going to move. It's too expensive to do that. So that's why we have to have a partnership to keep them here.

ZAKARIA: How difficult is this message to communicate politically in America?

GRANHOLM: Well, I - this is what I fear. I fear that when people are describing the only solution to our economic challenges as being cutting taxes and cutting government, without something else or without the investment half of that, then it's actually honestly aiding and abetting the flight of jobs from the U.S., because if you have just an across-the-board tax cut without insisting that there be some investment in the United States with the benefit of that extra money, then of course corporations are going to be adhering to their shareholders who want them to increase value, and they're going to invest where they can maximize return.

That investment is not likely to happen in the United States. So if you just cut taxes without any strings attached to insist that something happened here for job creation, then you're only facilitating the flight of jobs from the U.S.

ZAKARIA: Final question I can't not ask you this. How tough is it going to be for President Obama to get re-elected?

GRANHOLM: That's a great question really, Fareed. And it's another chapter in this book because in 2006 I ran for re-election. And I had - you know, Michigan had the highest unemployment rate in the nation. People were very full of anxieties, similar to this situation. I was under water in my approval ratings. The right track and wrong track numbers were horrible. I was wondering whether I should even run again.

And yet, once there became a choice and I ran against somebody who was a businessman, a billionaire who spent a lot of money, but I ended up winning by the largest number of votes ever cast in Michigan because people had a choice. And ultimately, people will want to know who is fighting for me, who's on my side. And if they see the president has a plan, then I think he will pull it out.

ZAKARIA: Governor, thank you so much.

GRANHOLM: You bet.

ZAKARIA: And we will be right back.

(COMMERCIAL BREAK)

ZAKARIA (voice-over): Almost two months after rebel fighters stormed Tripoli and ousted Moammar Gadhafi from power, the man essentially running Libya announced he would resign. Mahmoud Jibril, the Chairman of the Executive Board of Libya's National Transitional Council is a U.S.-educated economist and a former Gadhafi official.

He is credited with garnering international support for NATO's March campaign which played a key role in defeating Gadhafi. And now Jibril, once-acting Prime Minister has turned over his reign to a successor, potentially leaving the nation in a perilous transitional state.

(on camera): Welcome, Mr. Jibril.

MAHMOUD JIBRIL, FORMER INTERIM PRIME MINISTER, LIBYA: Thank you very much. Nice to be here.

ZAKARIA: So the first thing I have to ask you is, why are you leaving at such a critical moment?

JIBRIL: Well, I'm not leaving. I'm just trying to play a different role. And I think it's a more critical role, you know. Trying to --

ZAKARIA: But you said - but you said when you sort of intimated your resignation, you said, look, in order to run - to do my job, I need an army, I need functioning police, I need to be able to take control of this country. And I don't have any of that. So I'm leaving. That's a pretty - that's a pretty bleak picture of how things are going in Libya.

JIBRIL: Well, that's - that's the truth to some extent. You see, the reason for that, I think we have started the political battle a little bit prematurely, you know. What happened by deliberation of Tripoli all of a sudden the political competition started.

We, who were involved with the liberation of Tripoli and the total Libyan territory, were not prepared for that. Therefore, I thought - I'm not equipped, and I am not ready for such a political battle for the time being. And I thought probably a more important role was to devote my time and activity to develop those young people, women, and have them ready for Election Day.

ZAKARIA: So what you're describing is what many people fear in Libya that you have a kind of free for all. That once you got rid of Gadhafi and once the regime fell, whatever even symbolic unity there was among the opposition is fracturing, and now you're seeing the Islamist on one side and other groups on the other, and tribal allegiances. How will this work itself out?

JIBRIL: Well, I think this is an accurate diagnosis of the picture right now, you know? Hopefully looking at the future and the future of our generations of our kids, you know, will unify the people and make them focus on more important issues.

ZAKARIA: But your resignation surely is an act of frustration and a sense of disappointment with the people who are becoming powerful in Libya now. A lot of them are tribal leaders, some Islamic forces. Do you worry about the rise of political Islam in Libya? A very important leader said he wanted Sharia law in Libya.

JIBRIL: I don't worry about the rise of any political thought whether it's Islamist, whether it's liberal. Any type of political thought as long as that political thought prevails through elections, through the free will of the Libyans. This is the name of the game.

Libyans should have a choice to choose their free government, their own leadership. If we reach this stage and Libyans decide, then it doesn't matter who's in power. Whether it's Islamist forces, whether it's liberal, whether it's secular. Any force, as long as it serves the interests of Libyans, I am all the way for that.

ZAKARIA: But what do you think of what is going on in Syria? Watching as you did and helping organize the Libyan revolt, do you think the revolt in Syria can succeed? JIBRIL: I think Syria might move to the Libyan phase now, you know. Because unfortunately Mr. Bashar al Assad is following the Libyan model so far, you know? He should realize that this is not a successful model at all, you know? Just looking at the fate of Gadhafi, he should realize that the power always rests with the people and that history is always written by the people. Not by rulers, you know.

ZAKARIA: Do you think it was a mistake to kill Gadhafi? Would you have preferred to see him tried?

JIBRIL: Oh, yes. At the personal level I would love to see him tried instead of killing him. Too many things should have been discovered through him. This man has been a black box, you know, for too many things. Our relationship with different countries, with different leaders, our money abroad, how it was spent. Too many secrets have been just vanished, you know, when he was killed.

ZAKARIA: When will the elections be held in Libya?

JIBRIL: Well, according to the constitutional declaration, within eight months from now.

ZAKARIA: And you're optimistic?

JIBRIL: Oh, I am very much optimistic because as long as there are young people and there are too many women in the street, you know, I think this is the new driving force of history. And I think they're going to prevail at the end.

ZAKARIA: Mr. Jibril, thank you very much.

JIBRIL: Thanks for having me. Thank you.

ZAKARIA: And we will be back.

(COMMERCIAL BREAK)

ZAKARIA: Now for our "Question of the Week" from the "GPS Challenge"

With all the gloomy economic news from Europe and beyond, we thought we'd ask you which country reports being the most upbeat about the economy? Actually expecting good times despite the global economic crisis. Is it, A) Ecuador; B) Germany; C) Nigeria; or D) Russia?

Stay tuned, we'll tell you the correct answer. Go to CNN.com/GPS for ten more questions. And while you're there, check out our website, the Global Public Square. You'll find fresh content all the time, interviews, analysis, insight into the events changing our world.

And don't forget you can follow us on Twitter and Facebook.

This week's "Book of the Week" is titled "My Long Trip Home." It's by Mark Whitaker, the former editor of "Newsweek" and now the Managing Editor of CNN. I don't read a lot of memoirs, but this one is really fascinating. It starts out as if it is a story about race in America. Whitaker's father is African-American, and his mother is white.

But it is really a much more universal story about the relationship between a son and his parents. Whitaker is a great journalist, so the research is impeccable, and it's beautifully written. Really worth getting.

Now for "The Last Look." If Nero fiddled while Rome burned, Silvio Berlusconi has apparently been singing while the city, indeed, the entire country collapses. It's been a tough week for the cruise ship crooner-turned-billionaire businessman-turned Italian prime minister.

But don't be sad for Silvio. He's already lined up his next gig.

In just a few weeks, he'll release his fourth musical album. This one is called "True Love." If his previous albums are any indication, he's clearly aiming to have the ladies swooning.

The correct answer to our challenge question was C. More than 70 percent of Nigerians expect good times, according to a BBC World Service Survey of 25 countries. Go to our web site for more.

And that's it for "GPS." Thanks for joining me this week. See you next week. Stay tuned for "RELIABLE SOURCES."