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FAREED ZAKARIA GPS

Egypt has a Second Chance; Treasury Secretary Talks About U.S. Economy, Cyber Attacks, IRS scandals and Edward Snowden

Aired July 14, 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: Welcome to all of you in the United States and around the world. I'm Fareed Zakaria.

We have a great show for you today beginning with an exclusive interview with the new Secretary of the Treasury of the United States, Jacob Lew.

I'll ask him about the American recovery, about cyber-attacks from China, Edward Snowden's revelations, the IRS scandals, lots more.

Also, is political Islam dead in the wake of the Egyptian coup or is it now more deadly? We have a terrific panel.

Then, why are Hollywood movies today so bad? So many prequels and sequels and so many formulas and just (inaudible). The producer of Sleepless in Seattle explains that there is hard logic and cold cash behind it all.

And, as Egypt goes through convulsions, we found a dangerous near fail state that is actually looking up.

But, first, here's my take. Let me tell you what worries me most about the events in Egypt. The greatest blow to Islamic terrorism in recent years came not from the killing of Osama bin Laden in his compound in Abbottabad, Pakistan, but rather from the Arab Spring.

When millions of Arabs went out into the streets in protest against their dictators, the world saw that they were asking for freedom and justice, not an Islamic state.

Indeed, perhaps the sharpest blow to the jihadi world view was to see Egypt's Muslim Brotherhood, the largest Islamist organization in the Arab world, join the 2011 mass demonstrations in Tahrir Square to ask for elections, not Sharia law.

The leader of al-Qaeda, Ayman Zawahiri, an Egyptian, certainly saw the danger and he denounced the Brotherhood for participating in the democratic process.

Now, Morsy's government, a disaster in many dimensions, was almost certain to be roundly defeated in the upcoming parliamentary elections. Had it failed politically, electorally and democratically, that would have been a huge boost for the forces of liberalism and reform in the Arab world. It would have sent the signal that political Islam may be a heartwarming, romantic idea, but it is utterly unsuited to governing; that mullahs can preach, but they cannot manage an economy.

Instead, the great danger of what has happened in Egypt is that followers of the Muslim Brotherhood will once again become victims, gaining in stature as they are jailed, persecuted and excluded. And some of them will decide that democracy is a dead end.

The most important debate in Egypt since the July 3 ouster of the democratic government is taking place behind closed doors and on websites and chat rooms, and it revolves around this question: How will followers of political Islam respond to the Brotherhood's ouster?

For decades there has been a dispute among these groups on whether to embrace democracy or work through underground means and methods. The Brotherhood has renounced violence for some 40 years ago and chose to work though social and political organization since then, pressing for democratic change.

This stance was actively criticized and opposed by the many of the more extreme Islamist groups in Egypt and beyond, like al-Qaeda which advocated violent struggle as the only way forward. These groups now feel vindicated.

Somalia's al-Qaeda-affiliated al-Shabab movement weighed in with a series of tweets. Yes, it has a Twitter account. They went like this, "When will the Muslim Brotherhood wake up from their deep slumber and realize the futility of their efforts at instituting change?"

And, "It's time for the Brotherhood to revise its policies, adjust its priorities and turn to the one and the only solution for change, "Jihad."

In Egypt, the Muslim Brotherhood ruled terribly, even unconstitutionally. Were I an Egyptian, I would never vote for the party, but it did win at the polls three times.

It won in the parliamentary elections, in the presidential election and then in its referendum for the new constitution, which passed with 64 percent of the vote.

And what came of all that? Well, last year a judge dissolved the lower house of parliament, and now the constitution has been suspended and the former president is in jail.

Egypt does have a second chance. The military has done some things right since the coup, quickly scheduling elections and the drafting of a new constitution.

But the central challenge it faces is to bring the forces of political Islam, the Muslim Brotherhood, back into the political process. Remember that they still represent millions and millions of Egyptians. The Muslim Brotherhood has to be allowed to compete in elections at every level otherwise Egypt will be neither democratic nor even stable in the foreseeable future.

For more on this, go to cnn.com/fareed. You will find a link to my cover story in Time Magazine this week and let's get started.

This week in Washington, Treasury Secretary Jacob Lew and Secretary of State John Kerry played host to their Chinese counterparts. The annuals meetings are dubbed the U.S.-China Strategic and Economic Dialogue.

This was the fifth installment and their purpose is to hammer out issues between the two nations. Cyber security issues were to be a big topic here, as they were when President Obama and President Xi met last month in California.

Since then, however, Edward Snowden's leaks have complicated matters quite a bit. I sat down earlier this week for an exclusive interview with Secretary Lew to talk about China and the U.S. economy.

You will notice that the Secretary is positively bullish about the U.S. economy.

(BEGIN VIDEO CLIP)

ZAKARIA: Mr. Secretary, thank you so much for joining us.

JACOB LEW, SECRETARY OF TREASURY: Great to be with you, Fareed.

ZAKARIA: Isn't what Snowden revealed very embarrassing for the U.S. government as it tries to get the Chinese to stop their cyber theft.

LEW: You know, Fareed, I think we have to just be very clear that what we're talking about with cyber theft is just different from any of the other cyber security issues that we've talked about.

It is just a different kind of activity to be stealing trade secrets and to be using them to gain advantage against a competitor.

And we've raised this issue. I raised it when I was in Beijing a couple of months ago. The president raised it when he met with President Xi and it is just a very different issue.

ZAKARIA: So, you're saying if they're doing stuff in terms of national security intelligence and we do it, that's a separate issue. This is about spying on countries for trade secrets.

LEW: Look, I'm -- I think there are issues of cyber security that cut across all boundaries and I've had this conversation a number of times with my Chinese counterparts.

We all face risks in the world. There are kinds of reasons that governments collect information on a variety of topics. It is not accepted practice for a country to steal trade secrets from another country.

And if -- for the two largest economies in the world, this has to be the kind of thing we can talk to each other about openly where -- you know, China wants to sit at the table as one of the leading economies in the world.

They are one of the two largest economies in the world and we welcome that, but this is the kind of issue that we have to work our way through.

ZAKARIA: Let me get a sense from you of what you think of the U.S. economy right now. There are, in a way, two schools of thought. There's one that says the U.S. economy is recovering very nicely, it's moving forward, you know, things are going well.

And there's another that says, when you look at the employment numbers, even more than the unemployment numbers, what you see is this is still a fundamentally depressed economy. We still need -- there still needs to be a lot more effort to stimulate it in various ways. Where do you come out?

LEW: You know, Fareed, I'm pretty optimistic about the American economy. I look at an economy that's proven its resilience. This year, it's outperformed expectations already.

This is a year when, starting out the year, we knew there were going to be some pretty strong headwinds because of government policy. The withdrawal of the payroll tax cut was a planned, you know, headwind.

The imposition of across the board cuts known as sequestration came about because Congress failed to enact, and we still hope will enact, a substitute sensible middle and long-term balanced entitlement and revenue policies instead of across the board cuts.

With those two headwinds, it's roughly a 1.5 percent of GDP drag on the economy. So the economy is growing at about 2 percent at its core. If we didn't have those headwinds, it would be growing faster than that.

It leaves me optimistic that at the end of this year, the beginning of next year, we're going to start seeing, you know, somewhat more robust growth.

If you look at the jobs numbers, you look at the housing numbers, a variety of statistics, you look at manufacturing, it's all been moving in the right direction. We've had four years of consecutive growth and increasing employment.

Now, what I am troubled by is the pace of it. It's not fast enough. We had the deepest recession since the Great Depression and I'm as impatient as can be to catch up and start creating enough jobs so that we're seeing the unemployment rate fall more quickly.

And not just the overall unemployment rate, but that we start getting to the long-term unemployed. You know, what I worry about, we're in a path where, you know, barring a shock to the economy, one can, you know, without being wildly optimistic, see a return to more normal levels of unemployment overall.

But the danger is there could be a lingering long-term unemployment problem, particularly for young people who came out of school during the recession or for older workers who lost their jobs during the recession and haven't been able to get back in.

ZAKARIA: But if you see things as I think bullishly would be a reasonable characterization, do you then agree with those who think the Fed should be talking about and thinking about tapering off the bond purchases -- the extraordinary measures it has been undertaking to stimulate the economy?

LEW: You know, Fareed, as you know, it's a long tradition of Treasury Secretaries to refrain from commenting on monetary policy and I will honor that tradition.

I will say that the core strength of the U.S. economy givens me optimism. I worry about the shocks that we don't control. I worry about developments in the world.

I mean the U.S. growth will not be able to completely offset slow growth or recession in other important parts of the world, which is one of the reasons I spent a fair amount of time with my European colleagues because if Europe grows 1 percent faster, that's a good thing for the American economy. It's our largest export market.

And why we spend so much time worrying about the Chinese economy. We know China's not going to stay at 10 percent, but it makes a big difference if it settles off at 8, 7, or 6 percent.

The United States, even if we were growing at 3 percent, can't grow at 5, 6, or 7 percent so these 1 percent differences in Europe and China make all the difference in the world in terms of the overall global growth.

So, there are a lot of risks out there. The one thing I can say with some, you know, conviction is that we in Washington have to make sure that Washington does not cause any more self-inflicted wounds to the economy.

In 2011, we saw with the debate over the debt limit, the debate over whether or not the United States should default. The first time in our history there was a debate about whether or not we should default.

It caused real damage to the economy. That can never be allowed to happen again. That's one of the reasons the president said Congress had to just increase the debt limit and we have to put at ease the concerns that the United States could, once again, find itself in a crisis of its own making.

(END VIDEO CLIP)

ZAKARIA: When we come back, we're going to talk to Secretary of Treasury Jack Lew about precisely that. How do avoid another debt limit debacle.

(BEGIN VIDEO CLIP)

JACOB LEW, SECRETARY OF THE TREASURAY: They know they can't go back to where they were in 2011. It was a terrible thing for the economy.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

ZAKARIA: We are back with the Secretary of the Treasury, Jack Lew.

Mr. Secretary, before the break, you were saying the one thing you've got to avoid is another one of these debt ceiling dramas, but the House Republicans, many of them, have talked about doing precisely that.

You know, people like Paul Ryan and John Boehner, they say we're not going to increase the debt limit for nothing. What do you say to that?

LEW: You know, I would say to them what I would to say to them in private, what I say publicly is the same thing, they know they can't go back to where they were in 2011. It was a terrible thing for the economy.

The world has changed since 2011. In 2011, we hadn't done a great deal of deficit reduction. At this point, if you look at -- with all the noise and all the messiness of the Washington political process, we're in a very different place than we were four years ago.

Four years ago, we hadn't cut discretionary spending, we hadn't done an increase in the tax rates at the top rate. Between those two decisions, we took care of about 60 percent of the deficit problem.

There was an agreement that we had a $4 trillion problem over 10 years. Now, sequestration kicked in because Congress ...

ZAKARIA: That was the Simpson-Bowles number was they were trying to get it down $4 trillion over 10 years.

LEW: It was Simpson-Bowles and it was also kind of a broad, bipartisan consensus in Washington that the goal for this 10-year period was $4 trillion.

Now, in the Budget Control Act in 2011, this process of across the board cuts was put in place because it was seen as so odious, so bad for domestic and defense policy that it would make it necessary and possible for Congress to make hard decisions to have balanced entitlement reforms and tax reforms to cut spending and raise revenue in the longer term.

Now, that hasn't happened. Instead, these across the board cuts have kicked in, but when you combine together the decisions that were made and the policies that have now kicked in that gives you $4 trillion of deficit reduction.

So, the debate we have on fiscal policy ...

ZAKARIA: Does it give you $4 trillion or does it ...

LEW: With interest, just about. I mean it's in the range. It's almost $3 trillion of policy and then interest on top of that.

And I think that the question is now a question of composition. And our argument on budget -- we are open to compromise on budget.

When we say that won't negotiate over the debt limit that we can't debate over whether or not the government of the United States should default for the first time in 237 years that is a different question than are we open to a reasonable accommodation on budget policy.

ZAKARIA: You are saying that you will not negotiate on the debt ceiling?

LEW: The president has made very clear that we will not negotiate over whether or not the government should default and we will not get into negotiation like 2011 over the debt ceiling.

And I'm trying to separate the issues of the debt ceiling and the larger fiscal questions.

ZAKARIA: I have to ask you about the IRS. Many Americans were stunned to discover that the IRS seemed to be targeting groups for political reasons.

Do you believe that that was a real problem and has it been cleared up?

LEW: Well, Fareed, I think it's now been pretty clearly established that the IRS, in its implementation of the tax exempt program, was making lists and scrutinizing not just one side, but both sides of the political ledger.

They were trying to implement the program to determine whether or not there was political activity. I've said many times that they exercised bad judgment in the criteria they used in terms of identifying institutions.

But I think it's been clearly established that it was not politically motivated, that it was bad judgment and, you know, when we appointed an acting commissioner of the IRS, I gave him three tasks.

One was to take action where individuals needed to be held accountable, he's done that; to identify the process problems in this tax exempt program and fix it, he's done that.

And, third, to look more broadly at whether there's a systemic problem in the IRS and he's the process now of doing that, but I must say I was pleased in his 30-day report to learn that he did not think that there were broad problems in the IRS. ZAKARIA: All right. I got to ask you in closing. So, you have a new signature for the currency. Are you going to keep your old signature for your old checkbook? So, now are there two Jack Lews? How does it work?

LEW: Well, I would just say that it has been a work in progress for well over 40 years of me trying to have legible hand-writing. And I suspect that that will be a project that continues.

ZAKARIA: Mr. Secretary, pleasure to have you on.

LEW: Pleasure to be with you, Fareed.

(END VIDEO CLIP)

ZAKARIA: Up next, What in the World. Why the country once called the world's most dangerous now has reason to be hopeful. Right back.

(COMMERCIAL BREAK)

ZAKARIA: Now, for our What in the World segment. Many of the countries we were so hopeful about only a couple of years ago are in turmoil. Egypt's stability is precarious. Turkey has been rocked by protests. The BRIC nations are sagging economically.

On the other hand, there is one place, once described as the world's most dangerous country, that's offering up a pleasant surprise, Pakistan.

I know, I know, it's full of Islamic radicals, nuclear weapons, ambitious generals, and corrupt politicians, but things are changing.

Pakistan has just accomplished a first in its history, an elected government completed its five-year term, giving way to a new set of democratically elected leaders.

This was never allowed to happen before. Every prior civilian government in Pakistan had been deposed by a military coup. You see, Pakistan's military is the world's seventh largest, and has ruled the country for almost half its existence.

The elections are even more exceptional when you consider the conditions. The Pakistani Taliban had declared war against democracy, targeting three major political parties for elimination.

As a result, the campaign period turned out to be the bloodiest in Pakistan's history. At least 80 people were killed and 400 injured in dozens of attacks. Would you go to the polling booth in these conditions? I wouldn't.

And yet, voter turnout topped 55 percent, nearly the same as the last U.S. presidential election. In part, this is because Pakistan's demographics are vibrant.

A third of the electorate is under the age of 30. These are voters who are not burdened by the memories and missteps of the past. Instead, they're optimistic and forward-looking about their country.

Pakistan's economy remains in critical condition. Foreign investment is drying up, deficits crippling its government. But the new Prime Minister Nawaz Sharif has announced a series of measures to run state-owned companies more efficiently, to get the country's fiscal house in order, and to open up the economy.

Most tantalizing is the prospect of better economic relations with India. Pakistan would get a huge boost if the government would remove barriers and burdens that are a product of old animosities rather than any sensible economic thinking.

This week, Al Jazeera this week leaked an astounding report on Pakistan. The Supreme Court investigated how on earth Osama bin Laden managed to live there for so long, undetected.

The report reveals a completely inept police and military. And, it hints that certain elements within the Pakistani establishment may have known about bin Laden. It said, "connivance, collaboration, and cooperation cannot be entirely discounted."

The message should be clear. Pakistan's main enemies are not the ones its military would have you believe; India, Afghanistan, or the United States.

The real enemies lie within; extremism, military dictatorship, weak institutions, and corruption. Islamabad now has a mandate and the time to fight those enemies. Pakistan is still a dangerous country, but for once there are hopeful signs from there as well.

Up next, another country where the military has tussled with elected leaders, Egypt. Where is its revolution headed? I have a great panel.

(BEGIN VIDEO CLIP): TAREK MASOUD, ASSOCIATE PROFESSOR OF PUBLIC POLICY, HARVARD UNIVERSITY'S JOHN F. KENNEDY SCHOOL OF GOVERNMENT: The big problem in Egypt is that respect for constitutions in this country is somewhat lacking and you can imagine the same thing that happened on February 11, 2011 and that happened on July 3, 2013, will happen at some future date because whatever constitution we're going to get, there's no real public commitment.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

CROWLEY: I'm Candy Crowley in Washington with a check of the headlines. Hollywood is mourning the loss of "Glee" star Cory Monteith, who was found dead in a Vancouver, Canada hotel room Saturday. Police say the cause of death is not immediately apparent but they have ruled out foul play. The 31-year-old actor spent time in rehab this year and had been frank about his struggles with substance abuse. Medical examiners are expected to conduct an autopsy tomorrow. Asiana Airlines is considering legal action against Oakland television station KTVU and the National Transportation Safety Board. The TV station read fake names on the air supposedly of the four pilots in the Asiana Airline crash in San Francisco. Those names, phonetically spelled out embarrassing phrases. An NTSB summer intern reportedly confirmed the names to the TV station by mistake. Both KTVU and the NTSB have apologized.

NSA leaker Edward Snowden has more damaging information. That could be a "nightmare" for the U.S. government. That's according to the journalist who first published his documents. The "Guardian's" Glenn Greenwald tells an Argentine newspaper Snowden has a large number of documents relating to software and he's given copies to several people. Snowden faces espionage charges in the U.S. He's currently holed up in the transit area of a Moscow airport as he looks for a country to grant him asylum.

Mohamed ElBaradei has been sworn in as Egypt's interim vice president for foreign relations. It's a key step toward establishing a temporary government in the wake of a recent historic coup. The interim prime minister reportedly will meet with cabinet nominees today and tomorrow in an effort to complete the new government this week. The move comes as Egyptian authorities launch an investigation of ousted President Mohamed Morsy.

Those are your top stories. A special edition of "New Day" is coming up at the top of the hour and a live "State of the Union" at noon Eastern on the latest in the Zimmerman verdict.

Now back to "Fareed Zakaria GPS."

ZAKARIA: This week Egypt filled out its interim government, mostly with liberals. More importantly, perhaps, the Muslim Brotherhood has said it would not participate unless Morsy is reinstalled as president. So what in the world does Egypt do to heal its wounds? Joining me now, a great panel. Dalia Mogahed is the former executive director of the Gallup Center for Muslim Studies and the co-author of "Who Speaks for Islam?" Steven Cook is a senior fellow for Middle East studies at the council on foreign relations and Tarek Masoud, of course, is Middle East specialist who teaches public policy at Harvard University. So Tarek, where are we now in Egypt?

TAREK MASOUD, PROFESSOR, HARVARD UNIVERSITY: Well, as you noted in your intro, the interim government with this newly installed president, has put forward a road map for Egypt's new bright democratic future. And this includes constitutional amendments that are going to take three and a half months for them to write, and then they'll put that to a referendum. And then they'll have parliamentary elections. And so ...

ZAKARIA: And then presidential elections.

MASOUD: And then presidential elections at some future point. So what one worries about, right? The big problem in Egypt. And I think it was revealed on June 30th, is that respect for constitutions in this country is somewhat lacking. And the idea that now they're going to put out this constitution in three and a half months and have a rapid vote on it, it clearly means that there's not going to be kind of public process of buy-in to get people behind this document. And so you can imagine the same thing that happened on February 11th, 2011 and that happened on July 3rd, 2013 will happen at some future days because whatever constitution we're going to get there's no real public commitment to.

ZAKARIA: And, you know, the polling you've seen suggests that while there was a strong public support for the ouster of Morsy there was also strong public support for Morsy, right?

DALIA MOGAHED, FORMER EXEC., DIR., GALLUP CENTER FOR MUSLIM STUDIES: Yes, there was. I mean what we see in recent polls is that while 50 percent of the public said that they supported the rebellion campaign, the one that was asking for Morsy to step down, 50 percent actually opposed it. So this was not by any means a question of the people versus a regime or the people versus a group of fanatics, as it's been framed by some opposition leaders. This was truly a case of the people versus the people.

ZAKARIA: So, how do you get the Muslim Brotherhood to buy into this process? Because right now they're saying we won't participate in the government, we are not going to -- as far as I can tell this, and we're not going to contest these elections because they see the whole edifice as being unconstitutional.

STEVEN COOK, SENIOR FELLOW, COUNCIL ON FOREIGN RELATIONS: In fact, they see it as illegitimate. And their political strategy is to stay outside of the political process and try to undermine this political process for any illegitimate coup d'etat that brought down a democratically elected government. That's why there's a crackdown on the Brotherhood. I mean in part why there's a crackdown on the brotherhood right now. There's also been the implicit language about violence that they have used. But nevertheless, the Brotherhood is going to be outside of this process, which throws into question this whole idea of building a new democratic Egypt. This is a very important group, despite the fact that Morsy was brought down, and the only way it seems to keep them from either agitating or worse, taking up arms, and there are some who have called for this kind of thing, is through a crackdown. Something akin to 1954, when Gamal Abdul Nasser essentially systematically undermined the Brotherhood, threw them in jail and they ceased to be a political force in the political arena for 20 years.

ZAKARIA: And so, if that happens, Tarek, if the Muslim Brotherhood stays out of the process ...

TAREK: Yeah.

ZAKARIA: ... then you do end up with this terrible psycho where you end up with a government that is seen as somewhat illegitimate because it doesn't represent, you know, all the people but then an opposition that becomes more extreme because it's underground.

MASOUD: Well, so, I don't know what exactly is going to happen. I will note that your viewers can go on the Muslim Brotherhood's English language website where they've actually put up a poll. They've said now that elections have been abrogated, should we ever run in elections again, yes or no, and you can vote on this issue on their website.

ZAKARIA: Really?

MASOUD: Look, I think that the Muslim Brotherhood, that this organization has been committed to running in elections for the last 30 years and it's very makeup now. It's a political party. So for them to move to become a kind of violent actor I think is unlikely. Especially since I think there will have to be some accommodation that's made with the brothers at some point in this process. I mean you saw that the interim government tried to put the Muslim Brotherhood, give them some cabinet positions. I imagine that will not be the last of these moves that they'll make. And then so the question is as this negotiation process happens, is there a way that they'll come on board. And if I had to bet, I'd say yes, there is.

ZAKARIA: Do you believe that this will strengthen or weaken the appeal of the Brotherhood and political Islam? Because, you know, now they are being seen as victims. I mean a month ago they were seen as the corrupt, you know, incompetent administrators of Egypt. Is there a danger that they now go back to being seen as these romantic victims?

MOGAHED: I think there is a danger. I think that their strength was always when they were underground and didn't have the burden of having to govern. Had they been actually beaten in an election, had they actually been kicked out of office in the next parliamentary election, for example, then we would have truly seen the diminishing of that -- about romanticism. But the more the government cracks down, the more it puts -- you know, brings about violence rather than accommodation, the reconciliation, the more we have a danger of further romanticizing the Muslim Brotherhood.

ZAKARIA: The irony here, Steve, is that the Egyptian liberals are now using as their mechanism back into power the military, but then the Saudi monarchy, the Kuwaiti monarchy, the UAE, which have provided $12 billion of aid, is this a good thing for Egypt or bad? Because I look at it and think this means the army doesn't get out of the economy, this means they don't do the reforms they need to because they've just been bought off with a lot of cash.

COOK: It's amazing. This country has great history, but people have very short memories. It is not a good thing for the military to be back and resetting the political process and people to be welcoming them. Military coups, military interventions do not create environments for democratic change. And it's not that the army and the people are one hand. We have seen, and we saw during the transition from Mubarak to Morsy that the military has the capacity to pursue its own interests at the expense of the will of the people.

ZAKARIA: Last thought.

MASOUD: Shall -- you know, I think we should be a little bit careful in viewing this as the resurgence of the Egyptian military. Clearly you're right that the Egyptian military has played a role here, but let's not forget there were millions of people out in the streets and the -- this may have been a coup by the dictionary definition, but it reveals how limited the dictionary definition is. How many coups do you know of that install a judge as president afterwards? So, I think that there is still some space for some democratic development here.

ZAKARIA: Tarek Masoud, Steven Cook, Dalia, pleasure to have you all on. Up next we're going to talk about movies, why so many of them are so bad. So many prequels, sequels, part 4s. I have a great guest, a Hollywood insider to explain.

(BEGIN VIDEO CLIP)

LYNDA OBST, AUTHOR, "SLEEPLESS IN HOLLYWOOD: Suddenly I wasn't able to get the movies that I'd always gotten made in the first half of my career made. Scripts that were made because they were good, because they were terrific scripts, because movie stars wanted to do them, because they were funny, because they were nuanced. Something new had -- have happened in Hollywood, and I wanted to figure out why that was.

(END VIDEO CLIP)

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UNIDENTIFIED MALE: This ship has no offensive capabilities.

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ZAKARIA: "Star Trek into Darkness," "Man of Steel," "The Lone Ranger," "Fast & Furious part 6," "The Hangover" part 3," "Despicable Me, part 2," "VHS part 2," "Grown-Ups 2," "The Smurfs 2," "Kick-Ass 2," these are the summer movies of 2013. Do you notice a trend? Each one is a tried and true formula. Either a well-known franchise or a sequel or a prequel or in the case of "Fast & Furious" the sixth installment. I don't know what one would call it. Why is this? The answer is fascinating. And for it I turn to Lynda Obst. She is the producer of such films as "Contact" and "Sleepless in Seattle." She has a new book out, "Sleepless in Hollywood." Welcome to the show.

LYNDA OBST, AUTHOR, "SLEEPLESS IN HOLLYWOOD": Thank you so much, Fareed.

ZAKARIA: So you sort of answer the question that many of us have had, which is quite simply why are there so few good movies out? And you start by contrasting between the movies I think from 1991, roughly speaking 20 years ago, and you say if you look at the top ten movies, let's say seven or eight of them were original screenplays. And if you look at the top ten movies in 2012, zero have original screenplays. What does that mean? What does that shift tell us?

OBST: It tells us that the movie business went -- underwent a fundamental shift in its dynamics and its business model. And my point was to try to figure out why that was. I was experiencing it existentially. But I didn't understand, what was it about the business model that made that happen?

ZAKARIA: What do you mean you were experiencing it existentially?

OBST: Well, suddenly I wasn't able to get the movies that I'd always gotten made in the first half of my career made. Scripts that were made because they were good, because they were terrific scripts, because movie stars wanted to do them, because they were funny, because they were nuanced, because ....

ZAKARIA: Basically, great stories.

OBST: Great stories.

ZAKARIA: Great stories with great characters.

OBST: Exactly.

ZAKARIA: And you found nobody wanted to make these anymore?

OBST: I mean occasionally a miracle slips through. But something new had -- had happened in Hollywood, and I wanted to figure out why that was. And if I had to keep -- now start making movies that all were sequelizable.

ZAKARIA: So, the first thing you point out that happens in the 1990s is that the DVD business starts collapsing.

OBST: Right. And the market completely collapsed because of technology. When all around the world everybody could download the movies that we were making, even in America we could download the movies that we were making for free, when our movies were being pirated all over the streets of Hong Kong, Beijing, everywhere, then suddenly there was no need to buy our DVDs anymore. And the DVDs, and this was astonishing to me, were responsible for 50 percent of the profit margin of the movie business. And we think of the movie business as it's a grand moneymaking machine that makes profits of billions of dollars. But in fact, very few movies make that much money. And the rest of them pay for the losses of those movies. But the constant profit, the constant profit stream was the DVD library, buying the movies you used to love, and people buying a copy of their favorite movie to watch forever.

ZAKARIA: And the new model of sort of iTunes and Roku and people look at these, the problem there is we just don't pay enough for them, right?

OBST: Exactly.

ZAKARIA: You can't charge a lot for them.

OBST: It's a fraction of the cost. Michael Lynton, the head of Sony, said to me if you look at a penny and you look at all of the resources they're now getting from the new technology, it probably amounts to a fifth of the penny, where the full penny, you know, was coming in from DVDs.

ZAKARIA: So that -- that stream of revenue that was supporting a lot of good movies is collapsing. Meanwhile, you point out there's another trend that is rising and increasing at the very same time.

OBST: A huge new trend. And what it was, it was globalization. And the arrival of a huge foreign market that was developing at an exponential rate during globalization. And the most important of those markets became Russia, Brazil and South America, and then ultimately and most importantly China, which is making theaters, creating new theaters at ten theaters a day. It's now the number two market in the world. And by 2020 it's going to be the number one market in the world.

ZAKARIA: So, describe what happens in real time with a movie like "Ice Age" and its sequels.

OBST: Well, "Ice Age, Jim Gianopulos who's the head of Fox, and when I met him, he was head of international at Fox as one of the most wonderful people in the movie business. He's really smart, he understands the world, he loves movies. And he tried to explain sequelitis as I call it, to me, and why it works. And if we look at the example of "Ice Age" he showed me this page of profits comparing domestic, that's, you know, North America, and international profits. And the first "Ice Age" made I think $170 million internationally -- domestically. And then 190 internationally. Then -- which is about even. The second one, the domestic, "Ice Age 2," the domestic went up $20 million, but the international doubled, went to $400 million. The third one flattened domestically, did no additional business, and went up $270 million. By the fourth "Ice Age" the domestic went down and the international continued to rise at this exponential rate. Now, what that tells us, is another key component of what I call this era of the new abnormal that so changed the way we made movies and why, which movies we would make. Which is pre-awareness. We can't afford to market a movie, an original movie, the way we do domestically internationally. When we break a movie the way we broke "Sleepless in Seattle" or "The Fisher King" or even "Contact" or any great movie, "Black Swan" or "Argo." we buy tons and tons of television advertising. Tons and tons of trailers. And we penetrate all of America to create word of mouth. Well, there's no possible way that you can afford to do that around the world. That's just incalculably expensive.

ZAKARIA: So, what do you -- so ...

OBST: So, we need pre-awareness. We need people to under -- to now our title, to know the name of the movie, to be familiar with it before it's even marketed. So that means either a movie star's name. That's one form of pre-awareness. But increasingly what that means is the name of the title.

ZAKARIA: "Superman," "Batman."

OBST: "Superman," "Batman," "Pirates of the Caribbean" man. Any man movie. Any comic book hero that we've grown up with. Harry Potter. Any title with that kind of international recognition people will go to.

ZAKARIA: You answer a question I'd always wondered, which is why there are so many movies being made in 3D when 3D doesn't really work well. Well, it turns out that the answer is China.

OBST: China will not let the new 14 movies they allowed in over the quota of 20 -- that is, now only 34, it was increased from 20, American films can enter China. And they all have to be 3D and IMAX. 3D is adored overseas while we're completely exhausted with it. So they have to release it in two formats domestically and 3D overseas.

ZAKARIA: As always, the key to the puzzle becomes China. This is a terrific book. Thank you so much.

OBST: Thank you very much.

ZAKARIA: Up next -- America is no longer number one at being the rich world's most obese nation. Who took our crown? When we come back.

(COMMERCIAL BREAK)

ZAKARIA: This cute baby was born 100 years ago today and given the name Leslie Lynch King Jr. His name was changed, and it is by that new name that he will be remembered in history books. What name do you know Leslie Lynch King better by? A, President Gerald Ford. B, President Richard Nixon. C, union leader Jimmy Hoffa. D, German Chancellor Willy Brandt. Stay tuned. We'll tell you the correct answer. Go to cnn.com/Fareed for more of the "GPS Challenge" and lots of insight and analysis. And you can follow us on Twitter and Facebook.

This week's book of the week is "The Metropolitan Revolution" by Bruce Katz and Jennifer Bradley. If you think that America is dysfunctional and its politics broken, you have to read this powerful corrective. The authors who are scholars of the Brookings Institution, argue that across America mayors and metropolitan governments are reaching across party lines, partnering with the private sector, and solving problems. America is growing, but from the bottom up, not the top down.

Now for "The Last Look." The United States got some good news this week. It is no longer the most obese developed nation in the world, according to the U.N. Mexico is now the heavyweight champion of the industrialized world. As countries develop, one unfortunate side effect is that their people also grow fatter. Look at the rich Gulf states. The U.N.'s latest numbers have 42.8 percent of Kuwait's adult population obese. That's compared with 31.8 percent in the U.S., 35.2 percent in Saudi Arabia, and 33.1 percent in Qatar. And with Ramadan starting this past week and the fasting that comes with it, amazingly the problem only gets worse. Qataris' grocery bills are said to double during Ramadan as people fast but then gorge during break fast. So Qatar has decided to do something about the problem. The solution, a campaign to get its people moving. At least 10,000 steps a day. But how to do that in a country where summer temperatures top 120 degrees Fahrenheit? Well, walk in air- conditioned malls. They've set out courses with maps that tell you how far you've traveled, all in shopping malls. Now, here's the bad news. We've tried this in America, and obviously it hasn't worked. The correct answer to our "GPS Challenge" question was a, Gerald Ford was born 100 years ago today as Leslie Lynch King Jr. Three years later the future president's mother married Gerald Rudolph Ford and began calling her son Gerald R. Ford Jr. His name wasn't officially changed until he was 22 years old. Thanks to all of you for being part of my program this week. I will see you next week. Stay tuned for "Reliable Sources."