One of my favorite stories whenever I face a new audience is that of Henry Ford who, after having made all of his millions, wanted to go back to his fatherland in Ireland. His reputation for wealth had long preceded his arrival. When he finally stepped off the plane, there were a group of local town officials seeking contributions for the building of a local hospital. Ford was quite accustomed to being touched in that fashion and he took out his checkbook and made a check out for $5000. The next day in bold print in headline news, it said, "Ford Contributes $50,000 for the Construction of Local Hospital." The town officials came running back to him and said, "Mr. Ford, we are terribly sorry. It was not our fault, it must have been a typographical error. We will be happy to see to it that a retraction is printed in tomorrow's press." Ford said, "Wait a minute. I think I have a better idea. If you give me my wish, I'll give you the balance of $45,000." Of course, they agreed to oblige him with anything Ford wanted. Ford said, "I want, when the hospital is finally complete, to have a quote taken from a source of my choice." He then gave them the $45,000. The hospital was built and still stands with a plaque over the entranceway with a quote taken from the book of Matthew. It says, "I came unto you as a stranger, and you took me in." So I come unto you a little bit as a stranger and I hope you will take me in this morning, although not quite in that fashion.

Let me say, it is always a pleasure to return to California for a visit. My oldest son lived here for nine years before I rescued him and sent him back to get his MBA. He was a screenwriter, like every young man who comes to California. It is a pleasure for me to be back here because, in so many ways, California is always at the forefront of great issues that define our time, be them economic, political, environmental, strategic. You may recall that at the end of the Cold War a book was written by Francis Fukiyama. He talked about the end of history, which then prompted a South African academician by the name of Peter Vail to say, "Rejoice my friends, or weep with sorrow. What California is today, the world will be tomorrow." Now, Californians take a different view of that than perhaps South Africans, but nonetheless, it does reflect the fact that California has been in the forefront and will continue to be in the forefront of many issues for years to come. It is a state with a progressive future, driven by a very vibrant trade-oriented economy. It is a tolerant future enriched by a tapestry of cultures. It is a stable future informed by pragmatic and global outlook on the world.

I have a long prepared text this morning, yet I am going to look at my watch and spare you that. I will perhaps just give you a brief overview of our defense policy and strategic policy and then I would prefer to engage in a colloquy for the rest of the time.

When I took over as Secretary of Defense, it was really quite a remarkable transition for me, having spent 24 years on Capital Hill. I was anxious to become a private citizen and then I got that proverbial phone call and an offer that I could not really reject. It has been one of the most beneficial, exciting, demanding experiences of my life. It is quite a transition from being a legislator to being in the Executive Branch and being in charge of the largest agency in government in terms of the amount of money that we have to budget for, plan for, and then spend. The first thing I had to do was to confront something called the Quadrennial Defense Review. It was those members of Congress who mandated that the Defense Department must review itself, look internally and ask, where is it you want to be, what is your role in the future, how should the military be structured in order to deal with the problems and the challenges of the twenty-first century. So we have the Quadrennial Defense Review, known as the QDR. I had about two and one-half months to indulge myself with this project and we produced a strategy which I believe is relevant not only for today but for future years as well. It is summed up in three very simple words: shape, respond, and prepare. We repeat this almost as a mantra in the Pentagon. But in essence, it says that we want to be forward deployed. We want to have our forces forward deployed throughout the world so that we can shape events in ways that will be advantageous to the American people and to our allies.

When I first took over, I said everything is on the table for review, except we are going to keep 100,000 people in the Asia-Pacific region—that is off the table. (I was on my way to Tokyo at that time.) We want to make sure that we are forward deployed throughout the Asia-Pacific region so that we can help shape events in ways that are friendly to us, and we do that by having a presence. When you have the kind of presence that we have, the dedication and professionalism, the competence and patriotism of the men and women who are serving in our military, and you have them forward deployed, it sends signals. It sends signals to your friends and allies that this is a country that I want to be associated with. I want to be their friend, I want to have an alliance. It also sends a signal to your potential adversaries: this is a country we do not want to challenge. By being forward deployed, we are able to have an influence on people's judgements about us in a positive way.

There is some sentiment on the part of either the left or the right in our political spectrum saying, "Let's just let the Asians take care of Asia, let the Europeans take care of Europe, and let's come back to the continental United States"—as if we could zip ourselves into a continental cocoon and watch events unfold on CNN. We all know that is not possible. So we want to stay forward deployed, in the Pacific certainly and in Europe as well. That is part of the shaping aspect of our military and foreign policy strategy: being forward deployed with not only our warriors but also our diplomats and our businessmen and -women, which I'll talk about in a moment.

The second part of it has to do with responding. How do we respond to all the challenges that we are called upon to respond to? For example, NEO operations: Non-combattant Evacuation Operations. You have a country that is starting to go under. A country is embroiled in civil war and we have American citizens there. How do we get them out? We must have the capability to go into those kind of environments where you have a collapsed state to get American citizens out. We must be agile and flexible enough to go in and get them out safely.

Along with NEO operations, you have humanitarian operations—when you suddenly have a typhoon or a tidal wave or whatever that suddenly inflicts immense human suffering. We must be able to deal with that as well, and we do. You have the peace-keeping missions, such as we have in Bosnia. We must have forces again that are flexible and agile enough to deal with peace-keeping missions and we are doing an outstanding job by the way, in Bosnia. In fact, we have the highest re-enlistment rates of all the soldiers who once were serving in Bosnia. Then you go all the way up to being able to challenge and confront a Saddam Hussein. You must have that capability as well, to fight a major regional conflict, in addition to having an ability to defend the national integrity of the United States. So we must have a full range of response capabilities.

The next part of it is perhaps the most difficult part: how do we prepare for the future? How do we save enough money in our procurement budget in order to invest in research and development in new technologies? This is where we have been failing in recent years. We have been very unprepared as such to deal with the recurrent contingencies, but we have been really slicing down. Our procurement budget has been cut almost two-thirds since the height of the Cold War. Last year, it was down to about $42 billion dollars; it should be around $60 billion. We now have to climb up to that $60 billion level. How do we get there? We are living in a relatively flat-budget environment. We have a balanced budget that has been agreed to by the Congress and the White House. It will be very hard to get additional dollars in the future, so we must make a number of changes in how we do business. We must squeeze our operations down, not only have a revolution in military affairs, but a revolution of business affairs. We are now adopting and adapting to the business community's genius in restructuring and re-engineering. We are doing the same thing in the Defense Department itself as we try to save enough money to invest in the procurement that will give us the ability to stay one or two generations ahead of our nearest competitor. That is the "prepare" part of our strategy.

I think that whatever year we are talking about, be it 2010 or 2020, we will want to have the same basic strategy of shaping, responding, and preparing for the future. It is a constant dynamic process.

As we look to all of the areas of the world, the Pacific perhaps poses the greatest rewards, but also some of the greatest risks. Many of the arterial flowlines of our economy flow through the Pacific nations. Yet, it is a tinderbox, all the way from the Korean Peninsula right through the Taiwan Straits. You have, of course, the situation in Indonesia now, the economic difficulties that all of the Southeast Asian countries are experiencing. So there is a great challenge for us, as well. How do we maintain stability in that region? I just came from conference at which Senator Ted Stevens of Alaska said, "Look, we are spending too much time and money in Europe. We have to focus on Asia and the Pacific. That is where our interests are going to lie predominantly in the future."

How do we maintain that kind of a state of stability in the Asia-Pacific region? The engagement part is the most crucial. As we look at Indonesia or Thailand or Taiwan or China, that is the area on which we really must focus our energies most specifically. How do we do that? Bilateral relations are going to be key to maintaining that flexibility in the future. If you look at what we have been doing, we have a very strong relationship with Japan. That really is the arc that we depend upon for fueling our ability to have influence in the region. We have a very strong bilateral relation with Japan. We have just upgraded that. We have modernized the U.S.-Japan defense guidelines. It has been something of a concern to China and to others, and so what does this mean? It means we have greater clarity and a greater ability to work with our Japanese allies in terms of operating in the region. So we want to make sure that the bilateral relationship remains strong.

We have a strengthened relation with South Korea. President Kim has stated publicly on several occasions that even when that day finally comes when there is a unification of the two Koreas, we will have a presence there. We will have a presence on the Korean Peninsula because it is important for the stability of the region. I can tell you, I must be careful with what I say as Secretary of Defense because when I first went to Japan, I was asked a question by the traveling press corps. They asked me about the QDR and if 100,000 troops would be deployed throughout the Asia-Pacific region. I said absolutely, and they will be there even if the Korean Peninsula is united. I stepped off the plane and the Tokyo paper headline story said, "Cohen Dashes Hopes of Okinawans."

We also have a relationship with other countries in the region. I was most impressed, for example, when I went to Singapore this year. They are building a pier and that pier will accommodate U.S. aircraft carriers. When I arrived in Singapore in January, we had a press conference with the Defense Minister and they announced that the construction of the pier would be completed by the end of 1999, and that they "want the United States to send its aircraft carriers as often as possible." That is a big change in terms of the attitude of those countries in the region. At the same time that we are announcing the attractiveness of U.S. carriers coming into Singapore, we are signing an agreement with the Philippine government, namely that our forces who were visiting there will have a legal environment in which they can operate and be protected. That, too, is a significant change. We have a number of these bilateral relationships that we are building and strengthening.

The third component is having additional multilateral arrangements. The one that is most frequently referred to is the ASEAN Regional Forum. Again, we want to have strong bilateral relations but also strong multilateral relationships. Then, of course, you finally get to China.

I suspect that some of you in the audience have been watching CNN and the coverage of our networks of the President being in China. I believe that it was the right thing for him to do. I think there was no alternative but for us to engage China in a very constructive, clearheaded, hardheaded fashion. I have been traveling to China since 1978, and I must say that there has been a remarkable transformation of that society since I first went there. In 1978, I traveled with Senator Nunn, Senator Glenn, Senator Hart, and I had yet to be sworn in as a senator. On the plane on the way over, they decided what our topics would be when we arrived in Tiananmen Square and went to the Great Hall. I got the subject of human rights. Of course, it was the shortest part of the discussion with Deng Xiaoping, at the time. But they thought that, being the newest member, I should be the boldest and the brashest and I should have the toughest subject, which I did. But I saw a society at that time which was really quite monolithic. There were no automobiles to speak of, no private cars. There were only buses for transportation and military vehicles. But there were hundreds of thousands of bicycles, everybody wearing the Mao suit. It was a very dreary kind of society at that time. There was one hotel, the Peking Hotel.

I have been back on many occasions since that time. For those of you who have traveled to China, you will see a society which is very different. If you go to Beijing today, you will see four- and five- star hotels. You will see a plethora of automobiles. You will see air pollution caused by those automobiles. But you see a remarkably transformed society. If you go to Shanghai, you will see one of the most energetic cities in the world today, with 18 million people and a floating population of another three million people. This is not to say that China is in any way going to replicate or look like the United States as far as our political or societal systems are concerned. But there is a vast change taking place. I have talked to ministers in Shanghai—they are developing a criminal code based on western standards, right to an attorney at time of arrest and so on. So things are taking place below the surface that I think many people have not been aware of. For us to simply take the position, as some would argue, that we should try to contain China, China really can't be contained. It is a power, it is a regional power, and it is rightfully so. We must engage it in a way to hopefully bring it into the world community, establish international norms of good behavior. We do that not by ignoring it or trying to contain it, but rather by trying to engage it. The way in which we engage it is very directly, as President Clinton did during his televised discussion, which was a historic event in China. Many people were completely surprised that the debate was televised live. That is the way that we must deal with China in the future, being able to articulate what our ideals are, what our goals are, and how we can engage in a constructive relationship.

I had the opportunity to go to China in February, to be the first defense official to be invited to visit their defense center in Beijing. I also addressed the Academy of Sciences, where I looked out and saw a sea of three hundred to four hundred of their intellectuals. I gave a speech about our goals and our strategic policy for the Pacific and why our presence in the Pacific was there, why it was going to stay there, and why it was in their interests for us to be there. I started to read a number of articles, for example, that talked about it being time for Asians to take care of Asia and for China to adopt a larger role—and maybe for the United States to reduce its presence. I pointed out that without our presence in the region, China would not be able to prosper because if we were not there in the numbers that we are, who would fill the void. It would be a contest that would certainly be undertaken. Japan would not likely see the void go unmet, China would not see the void being not fulfilled. You have India and Pakistan, who might have some desires as well. You would have a tremendous contest for influence and prominence in the region. So we have had a very beneficial impact upon all of the ASEAN countries who will not engage in an arms race by virtue of the fact that they know that we are an honest broker, we are not out to conquer any territory. We are there as a stabilizing force so they have been able to prosper in years past—and China has been able to prosper. I was able to say that and to engage the Chinese academicians in ways that perhaps would not have been possible a few years ago.

Something else took place while I was there. There was a tragedy in the form of a major earthquake about a day before I arrived. I arrived from having toured the Gulf states as we prepared to even go to war in Iraq because Saddam Hussein was threatening to shoot down the U-2s and perhaps attack our forces. I left the Gulf states, where the temperature was 92 degrees, and went to China, where it was 22 degrees below zero. It was indeed a cold reception that I got there, but what was interesting was that they had just had a major earthquake and 10,000 people were without homes in bitter cold with thirty mile per hour winds and 25 degree below zero temperatures. We flew in a large aircraft to bring supplies. We brought medical supplies to them, then I met with President Jiang Zemin the next day. I said that we would be prepared to send another aircraft in if that would be agreeable. He said of course. I can tell you from my personal experience, five years ago that never would have happened, that they would be willing to allow an American aircraft to come in and help provide assistance to their suffering people and to film for television American crews unloading this aircraft. That is a remarkable change in attitude in a very short period of time. So I think that anything is possible if you talk to people, engage people, confront people when you have to confront them and challenge them on specific issues. That is precisely why the President is in China. I thought he did an outstanding job as far as the value we place on human rights, criticizing what took place in Tiananmen Square, and to do so with the president of China there, trying to rebut it. It was a remarkable exchange and one that we ought to applaud.

I have been talking about China, but there are so many other areas. You also have Latin America. I made my first official visit as Secretary of Defense to South America last month. Again, another area that we have not been as deeply engage in as we need to be. There is a tremendous opportunity for all of our companies to participate in that economic prosperity.

Let me simply conclude with a quote from Churchill. I remember this from a book written by Stuart Alsop, a noted journalist who was suffering from cancer at the time. He kept a diary, Stay of Execution, talking about his year-long fight against this terrible disease. In it, he recounts a meeting he had with Churchill. They had dinner, several bottles of wine, some champagne, some brandy—it was a typical dinner for Winston Churchill. At the very end of it, Churchill looked at Alsop and he said, "America, it is a great and strong country, like a workhorse pulling the rest of the world up out of despond and despair." Then he looked at Alsop and said, "But will it stay the course." Fifty years later, we can say we have stayed the course. We have stayed the course because that has been our obligation and it has also been our destiny. If we continue to confront issues, as we have done in recent years, by being forward deployed, by shaping, by responding, by preparing, we will continue to have the kind of influence throughout the world that we do today and for the benefit of all mankind.