While the improving U.S. economy remains the engine of growth for the world economy, an underlying trend involving "huge imbalances and risks" should be cause for serious alarm, Paul Volcker warned Feb. 11 during a speech on campus. Americans have virtually no savings, the former chairman of the Federal Reserve said, and the nation is consuming more than it is producing. Furthermore, Social Security and Medicare are threatened by the retirement of millions of baby boomers and skyrocketing health care costs. More broadly, he continued, the world economy is lopsided.

"Altogether, the circumstances seem as dangerous and intractable as I can remember," Volcker said during a keynote address at the second annual summit of the Stanford Institute for Economic Policy Research. "But no one is willing to understand [this] and do anything about it."

Volcker spoke at the end of a daylong conference that attracted about 450 corporate leaders, entrepreneurs, policymakers and academics. The event included discussions on the stability of the global economy, the U.S. economic outlook and the role of the Internet in helping to level the competitive playing field worldwide. The conference also featured sessions on outsourcing, Medicaid and Medicare, technology policy and the Sarbanes-Oxley Act, which was implemented in 2002 to restore investor confidence in corporate America following a series of bankruptcies and far-reaching accounting scandals.

During a morning session, William J. Perry, a former secretary of defense and a senior fellow at the Stanford Institute for International Studies, gave a chillingly stark assessment of the crisis of terrorism that was reinforced by George Shultz, a former secretary of state.

"I fear that we're headed toward an unprecedented catastrophe where a nuclear bomb is detonated in an American city," Perry said. "The bomb will not come in a missile at the hands of a hostile nation. It will come in a truck or a freighter at the hands of a terror group."

Perry, who holds the Michael and Barbara Berberian Professorship, said the "awesome military capability" of the United States has had unintended consequences in that it has increased the incentive for a hostile power, unable to compete in conventional warfare, to acquire weapons of mass destruction and launch terror attacks against America. U.S. military superiority is not particularly effective against such tactics, he said. "There exist terror groups, of which al Qaeda is the most prominent, that have the mission, the intent to kill Americans," Perry said. "They have the capability to do so; they have the resources to do so." A truly nightmare scenario would involve a terror group using nuclear weapons acquired clandestinely, he said: "After 9/11 that threat seems all too real."

Such a catastrophe is preventable, but the United States is not taking the necessary measures to avert it, Perry warned. Important steps should include a major expansion of the Nunn-Lugar Cooperative Threat Reduction Program with the support the G-8 group of industrialized nations. The program was created in 1991 to reduce the threat posed by the legacy of the Soviet nuclear arsenal and succeeded in dismantling and destroying weapons in Kazakhstan, Ukraine and Belarus. Furthermore, Perry said, a clear strategy of "coercive diplomacy" should be used against North Korea and Iran, followed by a major diplomatic initiative to convince other nuclear powers that the threats posed by terrorists are real and not just directed at Americans. "While America must show real leadership in dealing with this problem, [it] cannot deal with it alone," he said.

Shultz, the Thomas W. and Susan B. Ford Distinguished Fellow at the Hoover Institution, said the United States faces a huge problem in combating Islamic radicals intent on using terror to achieve their goals. "Eventually, what they want is to change the way the world works by creating a unified Islamic theocratic state," he said. "It's a worldwide agenda."

Shultz argued that the United States must help supporters of mainstream Islam understand the fundamental nature of the problem so they will take action against the radicals themselves.

"That's why Iraq is of such overwhelming importance," he said. "Here we have a country in the heart of the Middle East where there is a chance. If Iraq can emerge as a sensibly governed country--that's a gigantic event in the Middle East and in this war on terror. Our enemies recognize that just as well as we do, and that's why we're having so many problems."

Other measures that Shultz said should receive greater support include efforts to set up independent media in countries such as Iraq, as well as a revival and expansion of the U.S. diplomatic service, which he said was allowed to atrophy after the end of the Cold War. "We have developed an awesome military capability," he said. "We need a diplomatic capability that is as every bit as good." Shultz also stressed the need to reduce U.S. dependence on foreign oil. "We are out of our cotton-picking minds not to be doing much, much more to figure out how to use much, much less oil," he said to applause from the audience.

In the afternoon, Thomas Friedman, a columnist at the New York Times, also called for greater efforts to develop alternative energy supplies. This should be the "moon shot of our generation," he said.

Friedman discussed how the convergence of personal computers, cheap telecommunication and workflow software has changed the way the world works. In his upcoming book, The World Is Flat: A Brief History of the 21st Century, Friedman explained that the world has shrunk to the point where individuals, not countries or companies, are increasingly able to think and act globally. "And it's not just a bunch of white Westerners," he said. "It's going to be driven by individuals of every color of the rainbow."

Friedman told the audience that these technological advances quietly unfolded just as the 9/11 terror attacks, the Enron collapse and the dot-com bust grabbed America's attention. "People thought globalization was over but actually it turbo-charged globalization; it drove it overseas," he said. "9/11 completely distracted our administration, and then there was Enron. We have hit a fundamentally transformative moment and no one is talking."

In this new scenario, people anywhere in the world will be able to "innovate and not emigrate" if they have the required skills, Friedman said. This means that engineers in India and China will be able to compete on a level playing field with people in this country. "When the world goes flat, everything changes," he said.

To address this challenge, Friedman said the United States must radically improve science, mathematics and engineering education and encourage young people to enter these fields. "We're not doing that," he said. "In the next two years, five years, it won't matter. In 15 years, which is the time it takes to build an engineer, it will matter. We will not be able to sustain our standard of living."

Elizabeth Sherwood-Randall, a senior research scholar with the Center for International Security and Cooperation (CISAC) at the Stanford Institute for International Studies and a senior adviser to CISAC's Preventive Defense Project, has been selected as a 2004 Carnegie Scholar.

The 15 scholars chosen this year by the Carnegie Corporation of New York will each receive up to $100,000 for a period of two years to pursue research. They join 52 others awarded the fellowships since 2000.

"The Carnegie Corporation has a long history of supporting path-breaking work in international security, and I am truly honored to be included in such a distinguished group of scholars," said Sherwood-Randall. "Given the state of the world -- and the fact that there are few foreign and defense policy goals that we can successfully pursue unilaterally -- I intend to use this support to generate new ideas about the leadership of America's key alliances and partnerships."

Sherwood-Randall's research topic is "Transforming Transatlantic Relations: A New Agenda for a New Era." Her study will seek to understand the elements of continuity and change in the global security environment in order to determine whether and how America's most important alliance, the North Atlantic Treaty Organization, can remain relevant and effective. She intends to publish the results of her work in a journal-length article as well as produce policy memoranda and briefings for appropriate officials in the U.S. government and relevant international organizations.

Sherwood-Randall served as deputy assistant secretary of defense for Russia, Ukraine and Eurasia during the first Clinton Administration (1994-1996). She played a key role in creating a cooperative context for denuclearization efforts in Russia, Ukraine, Belarus and Kazakhstan and in establishing security ties with the new states of Central Asia. Prior to her government service, Sherwood-Randall served as co-founder and associate director of the Harvard Strengthening Democratic Institutions Project, as chief foreign affairs and defense policy advisor to Sen. Joseph R. Biden, Jr., and as a guest scholar in foreign policy studies at the Brookings Institution.

Sherwood-Randall received her B.A. from Harvard-Radcliffe Colleges, magna cum laude. She received her doctorate in International Relations from Oxford University, where she was a Rhodes Scholar.

Chosen in a highly competitive process -- from an initial group of 144 nominees, 54 were invited to provide complete proposals -- the 15 selected Carnegie Scholars will explore issues critical to economic growth and human development. These include the American electoral process; political theory of international law; school reform from an international perspective; a reconsideration of the Iran hostage crisis; the logic of suicide terrorism; local control and federal reform of education; how U.S. transatlantic relations can remain relevant and effective; Hispanic students' achievements in elementary education; justice in education; political obligations in World War I America; the rise of far-right extremist groups and the role masculinity plays in their resurgence; the role of the United States in the 21st century; and the rebirth of democracy in Iraq.

"The annual announcement of the Carnegie Scholars is an opportunity to celebrate original and creative thinking on a wide array of social issues important to the Corporation's strategies," said Vartan Gregorian, president of the Carnegie Corporation of New York, who inaugurated the Scholars Program in 1999 to support innovative and path-breaking scholarship.

"Criteria for selection were based on stringent academic standards and the relevance of the project to Corporation program priorities," said Neil Grabois, Carnegie Corporation's vice president and director for strategic planning and program coordination, who facilitated the various levels of deliberations. "The program's definition of excellence incorporates demonstrating intellectual risk-taking, framing unusual questions, possessing the capacity to communicate clearly and effectively on complex themes, and advancing scholarship in the Corporation's programs."

The Carnegie Corporation of New York was created by Andrew Carnegie in 1911 to promote the advancement and diffusion of knowledge and understanding. As a grant-making foundation, the Corporation seeks to carry out Carnegie's vision of philanthropy, which he said should aim to do real and permanent good in the world. The Corporation's capital fund, originally donated at a value of about $135 million, had a market value of $1.8 billion on Sept. 30, 2003. The Corporation awards grants totaling approximately $80 million a year in the areas of education, international peace and security, international development and strengthening U.S. democracy.

Faced with the deadly menace posed by transnational terror organizations, the nations of the world must redouble their cooperative efforts. The tasks ahead -- to disrupt terror groups and preempt their attacks -- require intense coordination among a multitude of national intelligence, national law enforcement, and military organizations. Unprecedented cooperation among all of the nuclear powers is needed to prevent nuclear weapons from falling into the hands of terror groups.

Yet, paradoxically, the two nations that have suffered the worst terror attacks -- the United States and Russia -- are regressing more and more to national strategies. They have been unwilling to make the extra effort to reap the benefits of real international cooperation.

I believe that the United States' strategic vision of the war on terrorism is flawed. I fear it is following the isolationist path of the United States after World War I rather than pursuing the broad international programs it successfully undertook to protect its security interests after World War II.

The terrorists posing the greatest threat to the United States and to Russia are transnational, with cells in many different countries. To support their training and operations, they raise funds in many countries and maintain these in international bank accounts. They use satellite-based television as their principal means of propaganda, the World Wide Web as their principal means of communication and international airlines as their principal means of transportation. Their efforts to get weapons of mass destruction are based on penetrating the weakest security links among the nations possessing these weapons, and their successful guerrilla operations depend on their ability to get support from sympathizers among the more than 1 billion Islamic people around the world.

An international operation is clearly needed to successfully deal with this threat. But the United States is not making full use of other nations and international institutions to dry up the terrorists' funds in international bank accounts, to gain intelligence on their planning for future attacks, to penetrate their cells so that it has a chance of preempting these attacks, to organize all nuclear powers with effective security of their nuclear weapons and fissile material, and to conduct counterinsurgency operations wherever they are needed. Dealing effectively with transnational terror groups that operate with impunity across borders requires an international operation with the full cooperation of allies and partners in Europe and Asia.

This is not "mission impossible." In 1993, the United States was able to get all of the former members of the Warsaw Pact to join up with NATO in forming the Partnership for Peace to cooperate in peacekeeping operations. In 1994, the United States with the full cooperation of Russia was able to negotiate an agreement by which all nuclear weapons were removed from Uzbekistan, Belarus and Kazakhstan and by which substantial improvements were made in the security of nuclear weapons in Russia. In 1995, the United States was able to get an agreement under which NATO took responsibility for the peacekeeping operations in Bosnia, an operation that was believed at the time to be as dangerous and filled with religious and sectarian strife as Iraq today, and it was able to get dozens of non-NATO nations -- notably including Russia -- to join it in that operation.

Securing Russian cooperation required listening to Russian views and making accommodations wherever possible. As U.S. defense secretary, I had to meet with my Russian counterpart four different times before I came to understand how to structure the command in Bosnia in a way acceptable to both Russians and NATO. The general lesson from this example, which is still applicable today, was best expressed by Winston Churchill, who observed during World War II, "The problem with allies is they sometimes have ideas of their own." But in reflecting on that problem, he also said, "The only thing worse than fighting a war with allies is trying to fight a war without allies."

What lessons can we learn from Churchill today? Had the Bush administration understood better the dangers of the post-conflict phase, surely it would have worked harder to get the support of those countries before invading Iraq. In any event, after the war it would have reached out to them and tried to achieve an accommodation that would have allowed their support during the reconstruction phase.

Instead, the administration took the position that any nation that was not with the United States during the war would not have a role in the reconstruction. To compound the problem, the United States did not seek meaningful assistance from the United Nations. Today, in the light of the difficulties experienced in restoring security in Iraq, the administration is reaching out to the United Nations and requesting that it play a major role in the political reconstitution of Iraq, but it is still not working effectively with the governments of France, Germany and Russia.

Just as the United States erred in believing that it did not need more international support in Iraq, so did the Russian government err in believing that it did not need more international support as it reconstituted its government after the Soviet era. The Putin administration believed -- correctly -- that it could turn around the Russian economy without significant assistance from other countries, and it believed that it could deal most effectively with its terrorist threat without interference from other countries. It also apparently believed that moving toward a level of democracy conflicted with the controls necessary for economic recovery and for fighting its terror war. So today we see a Russia that has enjoyed a healthy 7 percent growth rate each of these past five years, but has stopped -- indeed reversed -- its move towards becoming a liberal democracy. This reversal over the long term will have profoundly negative consequences for the Russian economy and for the Russian people, and unquestionably it is setting Russia on a course that will alienate it both from the United States and the European Union.

Both the Bush administration and the Putin administration have apparently made the decision that they can achieve their goals without broad international support. Both governments have erred in that judgment. But it is not too late to correct the judgment, and I fervently hope that both of governments will do so. The most important step in that process is reviving cooperation between the United States and Russia.