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FAREED ZAKARIA GPS

Interview with John Howard; Interview with Lawrence Summers; Interview with David Li

Aired February 17, 2013 - 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.

On today's show, the gun debate and the state of the two biggest economies in the world. First up, on Tuesday, in the State of the Union, President Obama challenged Congress to vote on proposals to get weapons of war off our streets, but will it happen? Can it happen? We'll talk to a world leader who made it happen in his nation.

Then, Larry Summers on how to create jobs in America. The former Treasury Secretary on how the president can achieve the goals he laid out for the economy.

Then, many worry that the world's second largest economy is headed for a crash. A rare inside look at the inner workings of the Chinese economy. What's really happening there?

Also, what in the world will get North Korea to end its nuclear ambitions? I'll give you my plan.

But, first, here's my take. President Obama's State of the Union Address presented an expanded vision of smart government to create jobs and revive the economy. It had many important ideas in it.

Yet he lowered his sights on the single policy that would both jumpstart the economy in the short-term and create the conditions for long-term growth; infrastructure spending.

Having tried several times to propose infrastructure bills of around $50 billion, just 0.3 percent of gross domestic product, the president now further scaled pack proposing a fix it first plan that repairs 70,000 bridges that are literally falling down nationwide.

Maybe this is all he thinks he can get through the Republican House, but it would really just place a Band-Aid on America's cancer of failing infrastructure.

A 2009 study of U.S. infrastructure by the American Society of Civil Engineers concluded that we need $2.2 trillion to be spent over five years to bring the nation's roads, bridges, railway tracks, airports and associated systems up to grade.

Let me make three crucial points. First, this is the big bang. It would be the most effective way to create good jobs. Unemployment in the construction industry is among the nation's highest, around 16 percent. The private sector is still not investing much in construction.

Second, it's cheap. The federal government's borrowing costs today are lower than they are ever likely to be again. Deferring maintenance is not fiscal prudence. When your boiler explodes, it costs more than it would have you just spent the money keeping it in good functioning order. We need to spend that money now.

Third, this is an area where the federal government has always had a big role; one that Republicans have long embraced. In 1930, even as Herbert Hoover was trying to balance the federal budget, he urged large-scale expenditures on infrastructure.

And yet, despite all this, infrastructure spending is politically dead. President Obama invited congressional Republicans to a private screening of Lincoln hoping that they would see compromise in action. Of course, they refused.

Perhaps he should get them to watch the splendid, new American Experience documentary on the making of the Panama Canal.

One hundred years ago, the United States completed what was then the most expensive, complex, but ultimately successful government program in human history. It was a project where everything went wrong.

The French had tried to build the Panama Canal a few years earlier, and, despite putting the builder of the Suez Canal, Ferdinand de Lesseps, on the job, they left in total failure.

The American project's first chief engineer quit after the first year. His replacement left as well. Only with the third did the project start moving.

Yellow fever killed thousands of workers and caused others to flee in fright. The engineering challenges were immense and they often seemed insurmountable. Media reports about the project were largely negative.

Then, in November 1906, Theodore Roosevelt visited the canal. It was the first time an American president had ever left the boundaries of the United States.

Roosevelt, a Republican, was determined that the project continue and it be adequately funded. He turned his visit into on the first great presidential photo ops. Public support for the canal grew sharply after it.

Through sheer perseverance, the age-old fantasy of connecting the world's two great oceans became a reality. The practical result was to cut travel time for goods and cargo between the east and the west coasts by an order of magnitude, igniting an explosion of trade.

Today, more than 14,500 ships and 244 million tons of cargo pass through the canal annually. What are we doing today? What are we building today that people a hundred years from now will look back upon with pride?

For more on this, go to cnn.com/fareed. There is a link to my Washington Post column. Let's get started.

On April 28, 1996, in Port Arthur, Australia, a man named Martin Bryant went on a killing rampage. In the first 15 seconds of his spree, Bryant killed 12 people and injured another 10, all with an AR- 15 assault rifle. In the end, 35 people lie dead, men, women and children.

If his weapon of choice sounds familiar, it should. That's what Adam Lanza is believed to have used in the Newtown, Connecticut, massacre of 20 school children and six educators.

In its time of grief, Australia actually did something about weapons like the AR-15. It banned them. Joining me now from Sydney, the man who made it happen Australia's Former Prime Minister John Howard.

Mr. Howard, welcome.

JOHN HOWARD, FORMER PRIME MINISTER OF AUSTRALIA: Thank you, Fareed.

ZAKARIA: So when you hear about this terrible tragedy, what was your reaction?

HOWARD: Well, my reaction was one of horror and shock. It was the largest single loss of life from one murderous incident by an individual until the Breivik slaughter in Norway a couple of years ago.

So I thought to myself and many of the people around me that we just cannot leave a stone unturned in trying to prevent it happening again. And that's why I resolved, I'd only just been elected prime minister, to use the authority of my new position to try and bring about change.

And can I say on the philosophy of it, this is not a left-right or to use the American terminology, a liberal-conservative issue. It's really a public safety, commonsense issue because that is the attitude that most Australians took.

And I'm very much on the conservative side of politics, but I just saw this as one of those things that demanded the use of the authority of my office to try and change.

ZAKARIA: And you decided on essentially what we call here an assault weapons ban.

HOWARD: Yes, you know, I did. And the power to ban them at that time lay with the states. Australia, like the United States, is a federation. We only have six states and two territories; a much smaller country population-wise. And there were quite a few internal difficulties on my side of politics, particularly from state governments in the largest states like Queensland and Western Australia where the level of gun ownership and the recreational use of guns was higher than it was in the urban areas.

And, on top of that, of course, most of the famers, the ranchers, whatever American term you might want to use, supported our party and many of them were very angry about the ban.

But, in the end, we were able to use the power of public outrage plus the fact that my government had just been elected with a big majority to, in effect, persuade, I'll put it politely, the states to agree to implement the nationwide ban.

And if they hadn't of agreed, we almost certainly would have held a referendum to give the federal government the power to implement the ban, but that did not become necessary.

ZAKARIA: And, then, you faced the problem there were a large number of these guns in circulation. And you came up with a very innovative idea, which was essentially a mandatory buyback, correct?

HOWARD: Yes, we funded, with a one-off tax levy on everybody, the buyback of something like 700,000 guns. The American equivalent of that would be 40 million weapons. And that was implemented over a period of time.

And they were taken in by the police and I have to say the Australian experience, overwhelmingly, was of strong support and, again, I emphasize it came from both sides of politics.

I had people stop me in the streets and say look, I've never voted for you in my life and I never will, I wouldn't if my life depended on it, but I agree with what you did on guns.

And so it's just one of those things that people didn't see in the normal political context. They saw it in the context of a community taking action to try and eliminate the possibility of something of this magnitude happening in the future.

ZAKARIA: When we come back with Australia's Prime Minister John Howard, the crucial question. Did his nation's ban in semi-automatic weapons work and could we do something like it in America? You'll want to hear the answer. Back in a moment.

(COMMERCIAL BREAK)

ZAKARIA: Before the break, you heard that, in 1996, Australia enacted a ban on semi-automatic rifles and shotguns; weapons like the infamous AR-15 which was also used by Adam Lanza in Newtown, Connecticut.

It has been 17 years since Australia's ban, plenty of time to figure out if it worked. More now with the man who pushed it through, John Howard, former Prime Minister of Australia. The results are actually quite stunning. The reduction of rate of gun-related homicide in Australia is either 59 percent if you look at some statistics. By some statistics, it's down 80 percent, gun- related suicide, 65 percent. These numbers must stun even you.

HOWARD: They did and they have been -- the issue has been surveyed and researched now over quite a long period of time. So even the most conservative researchers would acknowledge that a group surveyed over such a long period of time producing figures like that must mean the change was beneficial.

And it was not just murders, but, when I became prime minister in '96, Australia had one of the highest young male suicide rates in the world.

By removing a lot of weapons, particularly in rural areas, the bush as we call it, the potential for young men feeling desperate and so many of them may have a snap point and if there's a gun available, it's easy to give effect to their sense of depression and despair. It's a lot harder when you have to use another method to end your life.

I mean I've often said in this debate that it's fairly easy if somebody reaches a snap point to kill a number of people with a gun. It's a lot harder to do it with another weapon like a knife.

ZAKARIA: What I'm struck by in the debate in the United States is that it takes on a left-right coloration, whereas, in the rest of the world, generally speaking it's conservatives of being tough on guns, if you know what I mean.

They tend to be -- these are the kind of policies that law enforcement officials usually support. And it is conservatives like you. You were a very staunch conservative.

You were a 100 percent support of George Bush during the Iraq War. You know you've always been a tough guy. Do you find it odd to find yourself on the left side of the debate?

HOWARD: This is not a conservative-liberal issue, a left-right issue. We've always seen it as being a question of public safety. And, on this issue, our experience was that we did have gains in public safety, we did have great gains in reduction of mass murder through the ban that we produced.

Now, I know the history of gun ownership in the United States. I respect it. America has a Bill of Rights, Australia does not. The courts in Australia do not have the same capacity to decide these issues as they do in the United States.

So I acknowledge all of the differences and clearly it is a debate that has to go on in the United States without people from outside giving any lectures and I'm not doing that. I'm simply explaining what we did, what our feelings and emotions were. And there was enormous public support, especially in urban areas, for what we did 17 years ago. There was a lot of resistance inside sections of my own political base, but with the experience of 17 years, even the most cynical, skeptical person would acknowledge that we have made a big different with that prohibition.

ZAKARIA: Well, if we look at the 18 years leading up to 1996, there were 13 gun massacres in Australia. Since the law has been passed, there's not been a single one. Gun homicide, as we say, is down somewhere between 59 and 80 percent.

Do you find -- is -- did it change something about the politics? Do you find that people who were on the other side have come around?

HOWARD: I think probably some of them have, but there will always be a group of people who, quite understandably, argue, look, I enjoy shooting, I enjoy hunting, I'm very careful, I'm very scrupulous about keeping my weapons away from other people, I didn't break the law, I didn't murder anybody.

And, therefore, why should you interfere with my freedom to be a happy hunter or a shooter? Now, I understand and respect that point of view, but the sad fact is that it's the ready availability of guns that results in mass murder.

ZAKARIA: When you confronted this issue one of the things that we hear which is, you know, it's really all -- it's popular culture that's to blame. It's all the violence on television and movies and such.

I ask this, of course, because Australians consume much of the same popular culture as we do in the United States, yet you kill very many fewer people.

HOWARD: Well, I did hear those arguments and they are valid. I think the violence that young children are subjected to off and on through videos and television is excessive. I accept that and you could always do better with mental health.

But that is not as dominant an issue in my mind as the enduring problem that when people snap and there's a weapon that can kill a lot of people very rapidly available, in many cases, the person who snaps will use that weapon and you've got to reduce the possibility of that, in my opinion.

That was the view we took in Australia back in 1996. Now, I'm not pretending that our mental health processes of dealing with it are better than anybody else's or I'm not pretending that we don't have violent video.

We do consume practically the same popular culture as America; a lot of it comes from America. We speak the same language sort of. So we have a lot of things in common and it's -- in that way, we should try and share each other's experiences in tackling these problems.

ZAKARIA: John Howard, former prime minister of Australia, thank you very much. HOWARD: Thank you.

ZAKARIA: Up next, What in the World? The knee-jerk reaction to North Korea's latest nuclear test is to call for more punitive action. I'll give you my idea, which is very, very different. It could be more successful.

(COMMERCIAL BREAK)

ZAKARIA: Now, for our What in the World segment.

North Korea's nuclear test drew the usual reprimands from world leaders. President Obama promised swift and credible action. We know what this is likely to mean, more sanctions and greater isolation for Pyongyang.

But what if the answer should really be the opposite? What if the best way to change North Korea is more commerce and communication with it rather than less?

If you look at examples of how we deal with other countries, sanctions rarely work. In Cuba, 54 years of sanctions have kept the Castros in power while its citizens have suffered. They remain isolated with the lowest rate of Internet penetration in the entire western hemisphere.

In Iran, unprecedented sanctions have been in place for years, but there is no clear sign that the real powers that be, the Mullahs, are in peril. In Syria, no amount of pressure has had any impact on Assad's brutality.

Now, if you ask Asian diplomats, they will point to Myanmar as embodying the opposite approach. Asian countries traded with Burma, invited it to diplomatic gatherings and, over time, persuaded the military junta to open itself up, both domestically and to the world.

There's a pattern in the last two decades of negotiations with North Korea. First comes a missile test, closely followed by a nuclear test, global sanctions, then some talk of rapprochement (ph) and, then, back to square one, more provocations.

All the while, the people of North Korea have suffered. In the 1990s, an estimated 2 million people died in a nationwide famine. North Koreans have almost no contact with the outside world.

Less than 10 percent of them even have mobile phones and those are not allowed to call outside the country. Per capita income is estimated to be somewhere around $1,000 a year, about 1/20 of that neighboring South Korea. The best path to open up with North Korea might be trade deals, travel programs. We could start with student exchange programs.

About a decade ago, Syracuse University started a research collaboration with North Korea's Kim Chaek University of Technology. The partnership has lead to the creation of North Korea's first digital library. Technology from that partnership enabled the New York Philharmonic to broadcast its recent concert in Pyongyang.

We might need more of these partnerships, not fewer. Google's founder, Eric Schmidt, recently visited North Korea. We may need more such trips by more entrepreneurs like him.

In the very short run, they do give the regime some credibility, but in the long run, capitalism and commerce are the assets of modernity that always wear down dictatorships.

Up next, How to Create Jobs in America, my discussion with the former Treasury Secretary Larry Summers. Don't miss it.

(COMMERCIAL BREAK)

CANDY CROWLEY, CNN ANCHOR: I'm Candy Crowley in Washington with a check of the headlines. At least 21 people were killed and 125 others wounded in a series of car bombs and roadside explosions today in Iraq. The blast mainly targeted Shiite neighborhoods in Baghdad. Recent attack in Shiite areas have spread fear among Iraqis that sectarian violence may be overtaking the country again.

Police in Pakistan say a suicide bomber was behind an attack that killed 83 people at a busy market place. The Saturday explosion targeted Shiite Muslim just outside the southwestern city of Quetta, authorities originally said explosives were packed into a parked water tanker and remotely detonated.

In one of his final public appearances Pope Benedict XVI recited the Angelus from St. Peter Square this morning. Before a larger than usual crowd, he thanked the faithful for their prayers and asked them to pray for the next pope. Benedict officially steps down at the end of the month. Roman Catholics cardinals will meet by mid-March to select a new pontiff before Easter. And those are your headlines.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES OF AMERICA: Mr. Speaker, Mr. Vice President ....

(END VIDEO CLIP)

ZAKARIA: President Obama's State of the Union speech contained nearly 6,500 words. Now, look at this word cloud of his speech. The more often he used a word, the bigger it appears. Jobs is by far the most prominent. He said the word job or jobs 47 times. The president wants to create more jobs. So do most Americans. So how to do it? I spoke with a man uniquely positioned to know. Larry Summers has been one of the world's leading economists for 30 years. He has served as Treasury Secretary, President of Harvard and director of the National Economic Council. Welcome, Larry Summers.

LARRY SUMMERS, FORMER TREASURY SECRETARY: Good to be with you, Fareed.

ZAKARIA: So, the president wants to create jobs. Everyone tells him this is the number one priority that the administration should have. Put very simply, why has it been so difficult so far? Why are we so many years, almost five years into a recovery and the distinctive feature of it is that just aren't those many jobs.

SUMMERS: Fareed, this has been a unique, not unique, but unusual kind of downturn. It's a downturn that came because there was too much leverage. Asset prices got too high. And then the bubbles burst. And when the bubbles burst, everybody wants to save. They want to take down their debt. They don't want to spend. And so, it's very hard to achieve rapid growth. Yes, it's true. This was caused by too much borrowing and spending. But the irony of a crisis like this is that it's only resolved with more borrowing and spending. That's why it would be madness to let the sequester go brutally into effect a month from now and slash federal spending quickly. Spending, taxing, it all does have to be adjusted over time, but not immediately.

ZAKARIA: A lot of people listen to that advice and say, but, but isn't there something different this time? This old Keynesian formula that what you should do is spend your way out of a recession isn't going to work because debt is 70 percent of GDP. We're in a global economy, the constraints are different and, look, it hasn't worked they say. We're, you know, we're five years into it, we had the biggest stimulus in American history. You've - the Fed has kept rates extraordinarily low. There has already, I mean, you read this in "The Wall Street Journal" editorial page every other day. There has already been an enormous Keynesian monetary and fiscal stimulus and it hasn't worked.

SUMMERS: That's the kind of thinking that in the 1930s made the depression great. First, you look at 2008, the fall of 2008, it was worse than the fall of 1929. Yet, we are in a profoundly different place today than we were in the 1930s. Look at the countries that have had more stimulus. They have had more growth. Look at the parts of the United States that have had more stimulus. They have had more growth. So, I would argue that the right reading of the evidence is that it does work, but, we're in a very big hole and we need to keep, we need to keep on doing it. But I think where the critics are right is that some people portray this as being all about government spending. And that's wrong. It's about unlocking private spending.

ZAKARIA: A lot of people would argue that the key to getting private sector spending going is to reduce uncertainty. This somewhat vague word, but the idea is that there's $2 trillion of cash sitting on corporate balance sheets. They've earned this money and they are not spending it. And they are actually, if you look at the last month or two, they're spending even less than they were planning to. How do you on - how do you get that going? A lot of Republicans, as you know, say well that's where the president's agenda is because he needs comprehensive tax reform, he needs all these things that will give business a feeling it's OK to spend money.

SUMMERS: Well, in one area I think there's real truth in that. Think about a library that has a lot of overdue books out and there keep being rumors that there is going to be a library amnesty two or three months from now. That's the single worst way you can have policy for getting the books back. It might be a good idea to give the amnesty, it might be a good idea to say that the amnesty will never come. But if you say there might be an amnesty in two months, that's when you'll never get any books back. That's exactly what we're doing with our corporate tax reform debate. And so, that's an area where Washington absolutely should provide clarity or certainty this year. It should do whatever it's going to do on corporate tax reform and then it should make clear that those rules are going to be in place for the next five years. That will contribute to bringing money home and getting it reinvested in the U.S. economy.

ZAKARIA: So, what would you do when we talk about jobs and you look at the focus and you say, OK, so you know what, we need to do is not do austerity, do more stimulus. You were there for the passage of the first stimulus bill. How would you do it this time in a way that's smart, that's effective? What are the lessons you've learned about how do you create jobs?

SUMMERS: We've got to make the growth deficit a priority in just the way we've been making the fiscal deficit a priority. Because the truth is, we are never going to resolve the fiscal deficit in any ultimate sense in an economy that's growing at one or one and a half percent or even two percent a year. We've got to move to a focus on the growth deficit and if we do that, I think we'll be surprised at how rapidly we'll see improvement in the fiscal picture and I think we'll see a variety of ...

ZAKARIA: Because of these extra ...

SUMMERS: ... because extra tax revenues will come in, because there will be less need to pay unemployment insurance benefits. And I think we'll also be surprised at, as the economy starts to grow, businesses will be able to invest more in innovation. There's a tendency, which I think is badly wrong, to argue that we need to stop focusing on the short run and we need to focus on the long run instead. I think when we put the focus on stopping stagnation and having America be a rapid escalator, again, what we are doing is the policy that will best prepare us for the long run.

ZAKARIA: So, what you are saying, finally, is that the whole effort of kind of the conventional wisdom around Simpson-Bowles and around all those kind of tenure packages is really just wrong right now and that the focus needs to be on this question of growth, getting the economy on an escape velocity and then maybe looking into that?

SUMMERS: Fareed, I believe that a healthy individual can walk and chew gum at the same time and a healthy government can pay attention to long-run deficit reduction. Because look, we do have to make those adjustments. And if we don't make those adjustments, we're exposing ourselves to substantial risks that we shouldn't. So, I'm not here to say that long-run deficit reduction is unnecessary. I am here to say that it is widely insufficient. That's why I put such urgency on having a growth strategy and it's not that we shouldn't be paying attention to the fiscal issues. It's that we should not be solely paying attention to the fiscal issues. And that's been my concern about too much of our economic debate.

ZAKARIA: Larry Summers, pleasure to have you. SUMMERS: Thank you.

ZAKARIA: Up next, what happens to the world if China slows down? I had a fascinating conversation with one of China's top economists. Right back.

(COMMERCIAL BREAK)

ZAKARIA: China's rapid rise over the last three decades is unprecedented in history. The growing demand of its $1.3 billion people has fueled growth in many parts of the world. But what happens if China's economy hits a wall? Won't that stop us all in our tracks? I had a fascinating conversation recently with a top Chinese economist. David Li is a professor at Tsinghua University. We met him at Davos, Switzerland. If you want to understand how the Chinese are thinking, listen in.

(BEGIN VIDEOTAPE)

ZAKARIA: David, thank you for joining us.

DAVID LI, FORMER ADVISER TO CHINA'S CENTRAL BANK: My pleasure.

ZAKARIA: One of the big questions that people have had in the world, not just the Western world, but everywhere. Is China going to have a hard landing? Meaning is the economy going to have a more dramatic slow down than any would - anybody expect, which would then have ripple effects throughout the world economy? So, on that big issue, what do you think?

LI: Well, to me, it's a small issue. I think that (inaudible) now the judgment, I think is basically out there. That is soft landing is there. Hard landing has been already avoided. I've been talking about this for the past two years, maybe two and a half years. That is the growth rate will slow down a little bit and then pick up.

ZAKARIA: What, why is it that the hard landing was averted? Was it that the government did something extraordinary that has avoided that prospect?

LI: Well, the immediate, immediate solution was government putting a few projects, speeding up, the reviving the speed of rapid rail construction and building high-tech steel plants, replacing the old ones. These are immediate and superficial policies. I think fundamentally it's because the economy is still a poor economy. Per capita income is still 18 percent of the U.S. per capita income. So, there is a long way to go for the Chinese economy to catch up. So that fundamentally, they are still basic forces, both on the demand side, supply side, so on, so forth to push the economy to grow reasonably fast.

ZAKARIA: People have been talking a lot about corruption in China, because over the last few months we've heard a lot of stories, various members of standing committee, and, you know, this is generally a conversation even beyond that that there is more than people think there is, it's just gets hidden. Is corruption a big problem in China?

LI: Yes, it is a problem. It is a political problem more than an economic problem.

ZAKARIA: Why is it an economic problem?

LI: I often joke, this is off, I warn people and this is the oversimplifying line. I often joke that in China corruption is done. While things and investments are done. Whereas in many parts of the world corruption happens without actual investments being done. Which is better? Of course, Chinese (inaudible) better, of course, I'm not defending corruption.

ZAKARIA: But it's pro-growth corruption as opposed to ...

LI Exactly.

ZAKARIA: Growth corruption.

LI: But this corruption, whatever form it is, is a political problem, because it is a form of distrust. It's a cancerous - it has cancerous growth. It creates political problem among the grassroot level. But right now as we speak, there are tremendous, tremendous initiatives being implemented at top level to try to clean up. As we speak right now, the Chinese central government sent out a small contingent to go to Hong Kong to study the Hong Kong practice of cleaning up corruption. Hong Kong used to be 40, 50 - 40, 30 years ago was very corrupt. But almost overnight the system changed, cleaned up overnight and there are, there are tangible ways to do it. And ozone, let me quickly add. Right now in today's China there is a tremendous force from the grassroot level to push for the senior top leadership's initiative to do - to clean up corruption. That is Twitter. We call Weibo.

ZAKARIA: Yeah. Chinese Weibo, yes.

LI: Many, many - many, many officials got into trouble, right. Today the joke is that when officials give interviews or PR and TV don't show your watches. Because people watch the TV will figure out how expensive your watch is and that watch may well be beyond your official salary. Then the investigations will be spread out in the Internet going after this official.

ZAKARIA: What can we make of the new president and vice president of China? The two top officials and, particularly, in the realm of economic policy because it's an unusual situation. They are both Ph.D.s in economics. They looked at Deng Xiaoping's model as the - as, you know, as the formative years of their intellectual development and they understand the importance of markets because they've done economics training. All of which would suggest we should see the kind of reforms that people have talked about in the economic sphere. Do you think we will also see reforms in the political sphere?

LI: Very good question. Let me - very good question. Let me quickly, quickly add that I am not 100 percent optimistic. I do see dangers. One of them is in the political area. Political reforms certainly have to be done, in my view. And I strongly believe that they will be done because these people at the very top know better than, frankly speaking, you and I, that China has to implement fundamental political reform. What it is, besides the issue, but reforms have to be done. But the danger is the following. The danger is that the Internet people are very, I call, inpatient. They want a quick change. They are also super nationalistic. So the international relations. The relations with Japan and in some cases with the U.S. can complicate the domestic, political changes. So, there's a race. People say there's a race between reform and the local and the grassroot people's impatience.

ZAKARIA: Do you - talk for a minute about that nationalism. I know that this is not your field of specialty.

LI: Right.

ZAKARIA: But it must trouble you to see China's relations with Japan, with the Philippines, with Vietnam. All of a sudden things have gotten more sour. For 25, 27 years since Deng Xiaoping's set China on its modern course, China had managed to be very diplomatic and not aroused the suspicion and envy of its neighbors. But things seem to have changed in the last few years.

LI: Very good observation. The world has changed a lot. One of the things is China's economic emergence, right? Especially in the past ten years. Which surprised people like me. I'm serious. Also, which surprised and worried our neighbors. Maybe including some people in the U.S. (inaudible), right? So, I think this is the fundamental force. Nobody should be blamed alone. On the Chinese side, of course, we have to educate. We have to communicate with our young kids to stay cool. Don't be superemotional. And external China and the rest of the world, we'll also have to face reality that a stronger and emerging China we'll have to change. One way or the other we'll change the world order. So, there's homework to be done on both sides.

ZAKARIA: David Li, thank you. Fascinating conversation.

LI: My pleasure.

(END VIDEOTAPE)

ZAKARIA: Up next, learning a lesson from Canada. It's made a smart cost-saving decision and maybe we can do the same. Right back.

(COMMERCIAL BREAK)

ZAKARIA: Pope Benedict XVI announced his resignation this week and that prompted thought about the future of the Catholic Church. My question this week from the "GPS Challenge" is about its present. Which nation has the largest number of Catholics? And I'm looking for raw numbers here, not proportions. Is it "A", Italy, "B," Brazil, "C," Mexico or "D" India. Stay tuned and we'll tell you the correct answer. Go to cnn.com/fareed for more of the "GPS Challenge" and lots of insight and analysis. You can also follow us on Twitter and Facebook. Also, go to iTunes.com/fareed if you ever miss a show or a special. You can get the audio podcast for free or you can buy the video version.

This week's book is "Engineers of Victory" by Paul Kennedy. This is a fascinating, brilliant book about the 18 months that led to D- Day. It tells the tales of the scientists, engineers and businessmen whose ideas, innovations and inventions produced the allied victory against the Nazis. We tend to think of grand strategy as all happening at the top. Churchill, Roosevelt. This book shows you the people below who actually made it all happen.

And now for the last look. Take a last look at Canada's penny. As of last week, it has gone the way of Canada's dollar bill. Relegated to the dust heap of history. Why? For logical reasons. It's expensive. For starters, it costs more than a cent to make a penny. It's also inefficient. The opportunity cost of all its 35 million citizens counting out their change to the cent in every transaction is far greater than the value. Many other nations have already gotten rid of their penny equivalence. Australia, Brazil, Finland, Israel, the Netherlands, New Zealand, Norway, Sweden, Switzerland, to name just a few. So, give me a penny for my thoughts. Can we please get rid of our penny? The savings are small, for sure. But how about bucking those zinc and copper lobbies and making the American penny something we only see at the Smithsonian.

The correct answer to our "GPS Challenge" question was "B". Brazil is said to have more than 125 million Catholics. That's more Catholics than any other nation. The highest percentages of Catholics can be found unsurprisingly at the Vatican. 99 percent. The state with the second highest percentage of Catholics, 98 percent is 7,700 miles away from St. Peter's. Timor-Leste.

Thanks to all of you for being part of my program this week. I will see you next week. Stay tuned for "Reliable Sources."