The NewsHour with Jim Lehrer

JIM LEHRER: Good evening. I'm Jim Lehrer. On the NewsHour tonight a look at the economics of China; a major focus of President Clinton's Chinese trip; a Newsmaker interview about the overall Asian economic crisis with Deputy Treasury Secretary Larry Summers; four perspectives on some recent problems of the American press; and some closing poetic words about China from poet laureate Robert Pinsky. It all follows our summary of the news this Wednesday.% ? NEWS SUMMARY

JIM LEHRER: President Clinton talked about the environment on day six of his China trip. He said it did not have to be sacrificed for economic development. He spoke at a meeting of US and Chinese business leaders in Shanghai. He praised China's economic advances but warned against industrial age practices that pollute the air and water.

PRESIDENT CLINTON: We must ensure that economic development does not lead to environmental catastrophe. Respiratory illness from air pollution is now China's number one health problem. Every major body of water is polluted. The water table is dropping all over the country. China is about to assume the unfortunate distinction of replacing the United States as the largest emitter of greenhouse gases that are dangerously warming our planet.

JIM LEHRER: We'll have more on the president's China trip right after this News Summary. Tax evasion charges against Webster Hubbell were dismissed today by a federal judge in Washington. Hubbell is a former Justice Department official and friend of President Clinton's. The case was brought by Independent Counsel Kenneth Starr. The judge said Starr built his case on evidence Hubbell provided under a grant of limited immunity. Charges against Hubbell's wife, his accountant, and lawyer were also dropped. Hubbell spoke outside his home in Washington.

WEBSTER HUBBELL: We are just very, very grateful and hopeful that this is the beginning of a long process. The last five years have been very difficult. And we're very happy and very grateful and hopefully, you all won't have to come back here again. Thank you.

JIM LEHRER: The Federal Reserve left interest rates unchanged today. There was no detailed announcement after the two-day meeting in Washington. That means the rate on overnight loans between banks will remain 5.5 percent. In Florida today fires driven by shifting winds produced conflicting evacuation orders in rural Brevard County, about 25 miles east of Orlando. Thousands of residents were ordered to leave their homes, allowed to return, and then told to leave again. Wildfires continued to burn and spread in the hot, dry conditions. Smoke closed sections of Interstate 95 and US 1 in the area. Overseas today the newly-elected Northern Ireland Assembly met in Belfast for the first time. The 108 members chose a Protestant leader and a Catholic deputy. The assembly was created by the Good Friday Peace Accord to govern the divided province. Its members were elected last week. New concerns were raised today at the world AIDS conference in Geneva. Researchers said they are seeing several new strains of drug-resistant HIV, the virus that causes AIDS. Otherwise effective treatments failed to keep the strains from multiplying. The doctors said the findings should be viewed as a warning, not as a cause for panic. And that's it for the News Summary tonight. Now it's on to economics in China, Secretary Summers, agony in the press, and China in poetry.% ? FOCUS - FIGHTING THE ASIAN FLU

JIM LEHRER: Phil Ponce begins our China report.

PHIL PONCE: Today President Clinton wrapped up the Shanghai portion of his nine-day visit to China. This booming cosmopolitan city has become a symbol of China's emergence as a global economic player. Clinton's tour included a private meeting with entrepreneurs at the forefront of China's evolving market system. Later, the President toured Shanghai's new stock exchange, billed as the most modern in the world and another example of China's phenomenal economic growth in the last decade, growth that's been reflected in an average annual increase in the Gross National Product of 11 percent. At a speech in the atrium of new high rise hotel President Clinton praised Shanghai's ingenuity and energy, but he also expressed regrets he and President Jiang Zemin failed to agree on lowering trade barriers and other reforms necessary for China's admittance to the World Trade Organization.

PRESIDENT CLINTON: President Jiang and I agree on the importance of China's entry into the World Trade Organization. There will have to be an individual agreement that recognizes the transition China must undertake. But the terms have to be clear and unambiguous. I'm disappointed that we didn't make more progress on this issue, but we'll keep working at it until we've reached a commercially viable agreement.

PHIL PONCE: China argues the reforms the President wants would slow down its economic growth, something it can't afford to do. It needs to keep growing at a fast pace just to keep up with its population growth. China has also embarked on a radical restructuring of bloated state-owned industries, a restructuring which is already closing factories and putting millions out of work. In addition to its inefficient industries, financial observers point to a dangerous level of bad debt in China's banking system. And its most immediate concern, China now finds itself surrounded by East Asian countries whose economies have gone from boom to a deep and prolonged recession. The economic turmoil in Indonesia, the world's fourth most populous country, toppled former President Suharto's 35-year regime. This year its economy is projected to shrink an alarming 20 percent. To the North, Japan, the world's second largest economy, officially admitted last month that it was in a recession. The banking system is almost paralyzed by hundreds of billions in bad loans, and Japan's currency, the yen, recently plunged to a 10-year low against the dollar. The yen's fall raised warning flags throughout the region that other nations would devalue their currencies to stay competitive. The big question has been China. Though not suffering like other Asian economies, China's growth rate and exports are falling just as its reform of state-owned industries is costing workers their jobs. China could boost exports by devaluing its currency, the yuan, also called the RenMinBi, but early in Asia's financial crisis Chinese officials promised to hold the yuan steady. But when the Japanese yen threatened to go into a freefall last month, the Chinese warned they could be forced to devalue their currency after all. Fearing that step would provoke another round of currency crises, the United States and Japan intervened and started buying yen to stop its slide. This past weekend in Beijing, President Clinton praised China for doing its part.

PRESIDENT CLINTON: China has shown great statesmanship and strength in making a strong contribution to the stability not only of the Chinese people and their economy but the entire region by maintaining the value of its currency.

PHIL PONCE: Tomorrow President Clinton travels from Shanghai to Hong Kong, where the Asian economic crisis is already taking a heavy toll.

JIM LEHRER: And to Elizabeth Farnsworth in San Francisco.

ELIZABETH FARNSWORTH: For more we're joined by three economists who watch China. K.C. Fung is Professor of East Asian Economics at the University of California, Santa Cruz. He's co-authoring a book on US/China trade relations; Barry Naughton is Professor of Chinese International Affairs at the Graduate School of Pacific Studies of the University of California, San Diego, he's the author of "Growing Out of the Plan, Chinese Economic Reform;" and Greg Mastel is vice president of the Economic Strategy Institute, a Washington think tank. His recent book is entitled "Rise of the Chinese Economy." Thank you all for being with us.Barry Naughton, how crucial is China's economic role in Asia now, given all of its economic problems?

BARRY NAUGHTON, University of California, San Diego: China's economic role has increased dramatically during the course of the Asian crisis precisely because it's been the one economy that has managed to adapt its policies pretty effectively to the overall growth slowdown. So people have tended to look to China for its new leadership role. But we have to say, in all fairness, that Japan's economy is still by far the largest and most important in the region.

ELIZABETH FARNSWORTH: Professor Naughton, for those of us who don't follow this as closely as you do, explain why China's currency did not fall in value precipitously like Thailand's or Indonesia's did.

BARRY NAUGHTON: Well, China's currency is less exposed to international markets than the currencies of Thailand or Indonesia. It's not convertible on the capital account, so that means if you want to convert the Chinese currency into dollars, it has to be associated with a trade flow, either an important or an export. That means it's not as easy for large amounts of capital to flow in or out, and it's also not as easy for people to bet large amounts of money either for or against the value of the currency.

ELIZABETH FARNSWORTH: But the government can devalue when it wants, right?

BARRY NAUGHTON: The government effectively sets the value of the currency by intervening in the inter-bank market to buy or sell dollars, so, yes, the Chinese government could, in principle, devalue the currency. But if they did that, they'd have to explain the fact that they're devaluing while they have a very large trade surplus.

ELIZABETH FARNSWORTH: Greg Mastel, what are the pressures now to devalue?

GREG MASTEL, Economic Strategy Institute: Well, China is in a tight spot right now. As your setup piece mentioned, it's got great layoffs because of the state-owned enterprise reform, its banks are weak, and its exports are beginning to slump. Now throughout China's grand growth period since 1978, exports and foreign investment have been the engine that really pulled China along. And exports are beginning to slide because it's getting competition from some of its Asian neighbors, and some of its markets may not be absorbing as much Chinese product as they have in the past. That gives China an incentive to try to devalue the RMB to gain a temporary trade advantage, but there's also offsetting interests. Of course, they don't want to-as Professor Naughton mentioned-they don't want to embarrass themselves in the world community, and they enjoy the positive press they've gotten by holding their currency stable throughout the crisis.

ELIZABETH FARNSWORTH: Go ahead.

GREG MASTEL: But I think that six to nine months down the road, if things don't improve, the temptation will really grow in China to think about devaluation as a serious option, particularly if the yen weakens.

ELIZABETH FARNSWORTH: And Professor Mastel, the basic point is they would want to devalue the currency, which you referred to as the RMB, right?

GREG MASTEL: RinMinBi, yes.

ELIZABETH FARNSWORTH: Because it would make their exports cheaper?

GREG MASTEL: Exactly. By devaluing their currency, they gain a temporary trade advantage of making their exports cheaper and imports more expensive.

ELIZABETH FARNSWORTH: How do you, Professor Fung, see the pressures to devalue and the possible outcome?

K.C. FUNG, University of California, Santa Cruz: I feel that at least three reasons why I think the Chinese government will not devalue the currency. One, I think a lot of people would agree that it's not going to work. The reason it's not going to work is because everybody thinks that if China is going to devalue, it's going to generate a new round of competitive devaluation by other currencies as well. So if other countries match the lower price of the exports, then the Chinese exports will not increase. Second, there are alternative ways, while not perfect, that the Chinese government could stimulate domestic economic growth. One is through domestic demand. At this juncture the inflation rate in China is very low, officially at 2.8 last year. It has been practicing tight monetary policy for the last four years. So there is elbow room to stimulate the domestic demand and thus economic growth through expansionary fiscal and monetary policies. And thirdly, I think while everybody talks about the potential benefits of devaluation, there are also costs and not just political. Economically speaking if a devaluation that is not matched by other currencies and if it works, it's going to increase prices of imports into China, and some of these goods are precisely the goods that are necessary to further develop the technology sector in China: machinery, equipment, or purchase of foreign technology. And, as your piece shows previously, there will also be negative repercussion on Hong Kong. It would put pressure on the Hong Kong dollar, which is really the focus of confidence in the Hong Kong economy right now.

ELIZABETH FARNSWORTH: Barry Naughton, how much has China opened up? How far has the reform gone, and how much more vulnerable does that make China?

BARRY NAUGHTON: China has, in a sense, has gone sort of most of the way towards the market and most of the way towards an open economy. But it still has some very important barriers to still cross. Those barriers are, on the one hand, the problems that are preventing China and the United States from agreeing on WTO membership. But there are also some of the additional weapons that allow China to keep its economy insulated from the Asian flu. So I think right now they have the technical ability to maintain their currency value, and I think, as Professor Fung pointed out, they also have a very good likelihood that they'll be able to stimulate the domestic economy to replace the growth impetus that would have come otherwise from growing exports.

ELIZABETH FARNSWORTH: Greg Mastel, is that how you see it? And comment too on how vulnerable you think China's economic reforms make it.

GREG MASTEL: Well, I think China is going through a very critical periodof economic reform right now. As I said, there are big problems out there, state-owned enterprise reform. The banking sector is weak, and China's trying to deal with those problems bravely by reforming the state-owned enterprises. But that causes considerable cost in China. Unemployment is rising. There are some financial problems. The Chinese could embark on a bold course-can open up, need to adjoin the WTO and use exports, and economic reform is the engine growth-or they could retrench and try to stop reforms and use the Asian economic crisis as a reason to wait for a while and watch and see if infectious reform is really a good idea or not. I'm not sure what direction the Chinese will go, and a lot depends on what happens in the next six months. As I say, if economic conditions improve, I think the Chinese will continue on a course toward reform. If they deteriorate, I think we might see some entrenchment.

ELIZABETH FARNSWORTH: And when we're talking about-Professor Fung, when we talk about-when you talk about unemployment, we're not just talking about numbers, we're talking about a real potential for some social upheaval here, right? How many people are we talking about who could be left unemployed by the changeover from state-owned industries to private ones?

K.C. FUNG: I think estimates by World Bank put the number at 10 to 20 million people by the end of 2000. Now, of course, it's very difficult to forecast exactly what it is. It is, no doubt, a critical juncture for the reform process of China. Having said that, though, given the current record of how China has been able to carry out some of the difficult reforms, including achieving a soft landing, of reducing inflation rates from very high and almost socially dangerous level-

ELIZABETH FARNSWORTH: By soft landing, you mean reducing inflation rates without too much-

K.C. FUNG: Without too much-

ELIZABETH FARNSWORTH: --negative effect.

K.C. FUNG: --negative economic effects. The growth rate, it slowed down, but partly that's again explained by the slowdown in Asia as well. So given those current records, I'm still confident that they're able to achieve a satisfactory outcome.

ELIZABETH FARNSWORTH: Barry Naughton, what do you think China's leaders are learning from the economic crisis? What conclusions are they drawing?

BARRY NAUGHTON: Well, I think they're learning that in the last step of a transition to a market there are some very significant dangers that you have to be very careful to avoid. It's not enough to create the institutions that work adequately in a market economy. You also-there's a very difficult period where you have to let go of your children and let them walk by themselves for the first time. And that's a difficult stage, because that's precisely the stage when an economy is most likely to run into difficult problems and into crises. But I think the thing we really need to keep in mind here is that this process of change that Professors Fung and Mastel are talking about is already well underway. I mean, the restructuring of enterprises is going on right now. The unemployment has been created, but so has the re-employment of many of these laid-off workers. So it's an economy that's in the middle of a process of very dramatic change. And I think that, although that carries dangers, it's also a very promising development for us.

ELIZABETH FARNSWORTH: And Greg Mastel, you've said something about this, but expand a little on what you think the Chinese leaders have-what kind of conclusions they've drawn from what's happened around them in Asia.

GREG MASTEL: Well, I think that's a huge question. I think we hope they've learned that there are-that you have to be careful in managing a market economy. This next step is critical, as we hope they've learned. I think we fear they may have learned that maybe this market reform is not such a good idea, maybe it makes sense to maintain government control, and to maintain some of those state limits on trade and on the currency exchange, and to hold back reform, or move much more slowly. I guess I fear they've actually taken this as a lesson that they need to be much more conservative, and this may actually slow it down the pace of reform in China, the recent events in Asia.

ELIZABETH FARNSWORTH: Why do you fear that, Mr. Mastel?

GREG MASTEL: Well, I think the Chinese believe that the reason they weren't swept up in the Asian economic crisis, the only reason they weren't swept up, is because they maintain controls in their currency. They didn't have this control, because they were more market-oriented like Indonesia and Thailand. It would have been swept right along. And that may have been true in isolation, but it ignores the fact that if they had a fully developed market economy and a sound banking system, they wouldn't run the same risk of being swept up in currency speculation. But, again, the lesson the Chinese I think have taken from it is, it's better to have some controls in place, it's better to go slow, maybe even slow down entirely on the reform process. So I'm concerned that despite the optimism we heard from the other two panelists, that China may not be moving in a happy, positive direction in the future. In fact, it may be slowing down the reforms that it undertook in the last 20 years.

ELIZABETH FARNSWORTH: And you're not so concerned about that, are you?

K.C. FUNG: I think there are two parts to that. One is the control on the capital account. And I think that would likely going to stay-

ELIZABETH FARNSWORTH: Explain what that is.

K.C. FUNG: That is whether people can convert a currency for activities that are not related with import and exports. That has always been seen, I think, increasingly, so even by mainstream economists that the flow of hot money in and out of economies can have very dangerous consequences. But on the other part-

ELIZABETH FARNSWORTH: Hot moneys being moneys that aren't related to definite and specific-

K.C. FUNG: Fundamental economic factors.

ELIZABETH FARNSWORTH: But that's not happening in China.

K.C. FUNG: That is not happening right now, and in the past, there have been urges by outside commentators that they should open it up more quickly. But the banking reforms, I think, in the sense that getting-trying to get rid-or get a handle on that non-performing loans-I think that is proceeding, so one part of the whole reform package may be delayed, and then the other part is going to increase actually.

ELIZABETH FARNSWORTH: So you think the message is that they're taking from the crisis is actually not to slow down reforms too much.

K.C. FUNG: No. No.

ELIZABETH FARNSWORTH: Well, thank you all very much for being with us.

JIM LEHRER: And now the US Government view of all of this. It comes from Deputy Treasury Secretary Lawrence Summers. Mr. Secretary, welcome.

LAWRENCE SUMMERS, Deputy Treasury Secretary: Good to be with you, Jim.

JIM LEHRER: What is your reading of why China has not been sucked into the overall Asian crisis thus far?

LAWRENCE SUMMERS: I think the Chinese have been moving ahead with economic reform. They've got real challenges in their state enterprise sector, in the banking sector. They've been working those challenges. They're at an earlier stage of development towards the market than many of the other Asian countries. And that makes the difference as well, but-

JIM LEHRER: But you agree the controls that they still have have helped them avoid these problems?

LAWRENCE SUMMERS: Well, I think the fact that they're at an earlier stage of development in terms of market institutions has meant that they hadn't received the same kinds of capital flows and the same kinds of forms that other countries had. But I think the really important thing in China is to avoid these problems in the future is that it continue the momentum of economic reform, that it work through the problems in the state enterprise sector at large industries that employ a lot of people, that it work on its banking system, because we've seen around the world that when banking systems get into trouble, their economies very soon follow and certainly focus on the Chinese banking system will be important.

JIM LEHRER: Has China been helpful in aiding in the rest of Asia and the crisis elsewhere?

LAWRENCE SUMMERS: We've had very good cooperation with the Chinese on these issues. Of course, China's maintaining exchange rate stability has been helpful, China's participation in the dialogue in the Manila group that has structured some of these programs has played a good role. I think they've been very good partners in responding to these problems in Asia, most importantly because they've been working on their own economy and maintaining stability there.

JIM LEHRER: Now they have a connection directly, do they not, to the Japanese economy?

LAWRENCE SUMMERS: Well, China and Japan have significant trading relationships. They are the two largest economies in Asia and clearly when you think about Asia, there are three crucial economies. There is ours and we're doing well, and we're doing our part by bringing down our budget deficit. There's China, which is working on reform, and it maintained its exchange rate stability, and there's Japan, which as we've seen in recent weeks is really central for the whole region, and that's why the dialogue with Japan and the question of Japanese economic policy has been so central for us.

JIM LEHRER: Because Chinese officials said, look, if the yen falls any more we may have to devalue, which seemed to show a very, very strong connection here.

LAWRENCE SUMMERS: Well, I think, Jim, the Chinese situation is clearly stressed by what's happened in Japan and any time you have a number of different currencies when one of them falls, it puts pressure on the other. I think if you look at those Chinese statements carefully, they've indicated their commitment is to maintain stability of their currency come what may. They've emphasized that it's important that others focus on doing what's necessary to strengthen their economies, to strengthen their currency, and that, of course, was the objective of the meeting that we had in Tokyo that brought together the G-7 countries with the Chinese and nine other Asian economies to discuss with Japan these crucial economic issues 10 day ago.

JIM LEHRER: Now you were very much involved in the decision of the U.S. to intervene in the currency markets and buy yen. Any second thoughts?

LAWRENCE SUMMERS: No. I think we did the right thing in the context of the Japanese plans, but as Secretary Rubin said, what's ultimately important is less intervention than policies. What will really matter were Japan for the yen, for the Asian economies is the steps that Japan is able to take to work through the problems at the banking system, to stimulate its economy so that it can have growth that comes within, domestic demand-led growth, as we put it, so that it can open its market, so we can be a source of strength, rather than a source of weakness for the other economies in the region. It's ultimately those fundamentals that are the most important thing with respect to Japan.

JIM LEHRER: So what the US did was very much a temporary kind of bandaid sort of thing?

LAWRENCE SUMMERS: I think what we-I think the step we took in the context of Japan's plans and the context of encouraging those plans was useful. As we said, it created a kind of window of opportunity. But what's going to be important is the steps that Japan takes, because one thing we've learned in this crisis is that it's country's own policies and the strength of those policies that ultimately affects fundamentals and ultimately affects how their economies perform. And that's much more important than anything that comes from the outside.

JIM LEHRER: There has been no sign of improvement thus far, has there, in the economy of Japan?

LAWRENCE SUMMERS: Well, there's been some movement in the currency relative to where-

JIM LEHRER: But that's the temporary.

LAWRENCE SUMMERS: Relative to where it was, and the Japanese are in very active discussions with respect to their policies, particularly in the banking area, where we expect to see policy announcements in the very-in the very near future. Just what the content of those announcements will be, just what the effectiveness of implementation is, those are obviously crucial issues, but really what we're looking for at this stage is the policies, particularly in the banking area, particularly in stimulating domestic demand, and then ultimately that's what will affect the economy and can bring about some change in the economy, but these problems were a long time in the making, and they're going to take time to address.

JIM LEHRER: Explain to us why the United States and only the United States could intervene, buy the yen, and come to Japan's rescue.

LAWRENCE SUMMERS: Well, it wasn't a question of coming to Japan's rescue. It was a question of reflecting what had been a shared concern that we and the Japanese had been expressing for some time about the weakness of the yen and creating a window of opportunity. These are actions that took place in the context of G-7's interactions on this, and the concern about Japanese policy is one that is very widely, very widely shared. And ultimately, that's why we all came together in Tokyo to discuss these issues with the Japanese. It's why I think there's a greater recognition in Japan of the importance of strong-of strong policy in these areas.

JIM LEHRER: But why only the US? I mean, is it-could only the United States have done what Japan felt it needed done at that moment?

LAWRENCE SUMMERS: No. I think it was question of traditionally there's the yen currency is measured against the dollar, and so the natural counterpart and natural partner for a yen intervention was the United States, and that's why it was a United States/Japan intervention. When there have been currency interventions involving the yen in the past, going back 20 years, they've always been America/Japan interventions.

JIM LEHRER: Is it an oversimplified thing to say the reason that Japan is so important is that it is 70 percent of the Asian economy? Is it just that simple?

LAWRENCE SUMMERS: It's large; it's large; and therefore it's important, important for our trade, important, therefore, for our jobs, important-

JIM LEHRER: For our jobs-US jobs-

LAWRENCE SUMMERS: For our jobs. It's important for our market, because it is such a large capital market, itself, and it's important for stability in the region, because, as you say, it's 70 percent of the Asian economy, a currency value, and, therefore, it's a major source of strength, potential major source of strength with the other economies when it imports the goods that they produce.

JIM LEHRER: But Japan and the other ones, Indonesia, Thailand, Malaysia, you go through the whole list, when are things going to start getting better?

LAWRENCE SUMMERS: Jim, that's going to differ from country to country. In Korea, in Thailand, you have seen a period of stability after a period of instability. And while they face large challenges, you're starting to see some resumption of confidence. You're starting to see some capital flow in. In Japan, what's going to depend critically is how they implement policy going forward. And I'm hopeful that the stimulus package, very large, 2 percent of GNP, what would be the equivalent of $160 billion, if it were implemented here, is something that can start to add some strength to the economy. In Indonesia, what's going to be really crucial is the government's commitment to the right kind of transition in which all Indonesians are included, and that'll be a basis for starting to restore economic strength.

JIM LEHRER: Many question marks and much time still to go?

LAWRENCE SUMMERS: This is-these are very large forces that are operating and these things do take substantial time to work through, but I think with a sound approach based on strong policies and based on external support in support of those policies, I think we can make a difference.

JIM LEHRER: All right. Mr. Secretary, thank you.

LAWRENCE SUMMERS: Thank you.% ? FOCUS - MAKING NEWS

JIM LEHRER: Still to come on the NewsHour tonight problems with the press and some Chinese poetry.

JIM LEHRER: Spencer Michels begins our news story.

SPENCER MICHELS: Recently, some of the people who write the news are making it--bringing the ethics and reliability of news gathering--and reporting--into the spotlight. In May, the editors of "The New Republic" magazine discovered their reporter, Stephen Glass, had fabricated facts, sources, and quotes in 27 articles over the last three years. The magazine published an apology, and immediately terminated the 25-year-old reporter's contract--as did Harpers, George, and Rolling Stone-all publications Glass contributed to. Glass apologized for his actions, but offered no explanation. Soon after--it was a respected Boston Globe columnist who apparently transgressed. Patricia Smith resigned after her editors discovered she had fabricated people and quotes in four of her columns published this year. The Globe discovered Ms. Smith's fabrications during normal monitoring by senior editors who occasionally double check columnists' sources. In another case of journalism under fire, Time Magazine and CNN announced a formal investigation into the accuracy of a report broadcast on CNN's newly-launched news magazine show "Newsstand: CNN & Time". The controversial report accused the army of using nerve gas to hunt down and kill American defectors during the Vietnam War. The report was also published in Time Magazine.

ANCHOR: A "Newsstand: CNN & Time" investigation has revealed that-

SPENCER MICHELS: CNN was also criticized for leading its regular newscasts with the controversial investigative report. The story itself has been challenged by other news organizations, including Time's rival--Newsweek Magazine --which published a story raising doubt about the allegations of American use of nerve gas. And critics have challenged the reliability of some online news services. Matt Drudge, creator of a political gossip and news web site, caused a stir by breaking the Monica Lewinsky story before other mainstream media thought it was ready for publication. Criticized for not checking his facts, Drudge defended his work at the National Press Club last month and speculated about the future of news.

MATT DRUDGE: We have entered an era vibrating with the din of small voices. Every citizen can be a reporter, can take on the powers that be. The Net gives as much voice to a 13-year-old computer geek like me as to a CEO or Speaker of the House. We all become equal-and you would be amazed what the ordinary guy knows.

SPENCER MICHELS: Amid all these cases of questionable journalism, a new watchdog of the media--"Brill's Content"--hit the newsstands last month. The magazine's lead article, written by publisher and editor Steven Brill was a sharp, critical look at the media's coverage of the Monica Lewinsky story. Brill asserted that many of the early articles and reports on the Lewinsky case were based on innuendo and unnamed, unconfirmed sources. He also claimed that in their over-reliance on leaks, some reporters allowed themselves to be manipulated by key players in the story. But Brill's own reporting methods came under fire before the ink was dry. Many journalists accused Brill of misquoting sources, not getting some of his facts correct, and quoting people out of context. Brill eventually had to apologize to the Wall Street Journal for misreporting some facts. But he defended himself--and his magazine-on NBC's "Meet the Press."

STEVEN BRILL: I am proud of this article. But I am willing to admit my mistakes, and I have a reputation for that. And one of the reasons I started this magazine is that the rest of the media never seems to be willing to admit even the smallest mistake.

SPENCER MICHELS: One newspaper that was admitting a mistake last week was the "Cincinnati Enquirer." The paper fired reporter Michael Gallagher for "theft" in obtaining voice-mail information from Chiquita Brands for use in a May 3rd report on Chiquita's business practices in Central America. In a front page story Sunday, the Enquirer's editor and publisher said: "We want to send a strong message that deception and unlawful conduct has no place in legitimate news reporting at the Enquirer." The paper has agreed to pay Chiquita Brands more than $10 million.

JIM LEHRER: And to Margaret Warner.

MARGARET WARNER: For more on this we're joined by: Steve Sidlo, managing editor of the Dayton Daily News in Ohio, which won this year's Pulitzer Prize for National Reporting; Betty Baye, a columnist for the Courier-Journal in Louisville, Kentucky; Tom Rosenstiel, director of the Project for Excellence in Journalism, he was formerly a correspondent for Newsweek Magazine and for the Los Angeles Times; and Marvin Kalb, former chief diplomatic correspondent for CBS and NBC News. He's now director of the Shorenstein Center on the Press, Politics, & Public Policy at Harvard University.

MARGARET WARNER: Marvin Kalb, what is your diagnosis of what's gone wrong here?

MARVIN KALB, Harvard University: Well, there's a new kind of journalism, I think. We see in Patricia Smith and Steven Glass only the tips of the iceberg, and we focus on them in a way, because it's so obvious what they did was so glaringly wrong. But what about all of the journalists just deeper into that iceberg, layers of deception? What about people who don't use sources correctly, who don't check out facts correctly? What about people driven by intense competition? What about the proliferation of all of these talk programs where the biggest two words are "I think," rather than what used to be I guess called "I know?" And so there's a general lowering of journalistic standards, and I think the American people perceive this and are worried about it.

MARGARET WARNER: Steve Sidlo, would you agree, a lowering of journalistic standards?

STEVE SIDLO, Dayton Daily News: Not entirely. I think that news organizations have been doing bad journalism for a long time. I at various times-

MARGARET WARNER: Nothing new.

STEVE SIDLO: I don't think it's anything new. I think what is new and I think it's healthy is that there's a recognition that there is a perception among a lot of the people who consume the news, who read newspapers, and watch it on TV, and listen to it, read it on the web, that it's-they don't like it, and that news organizations pay a price when they lose credibility with our customers. So I think news organizations are trying very hard to clean up their act when they have a problem. I think that's healthy. I think Cincinnati-

MARGARET WARNER: Do you agree with Marvin Kalb, though, that this-these recent cases aren't just an aberration, they're the tip of an iceberg?

STEVE SIDLO: I don't think it's the tip of an iceberg. I think stories have been mishandled for a long time. I think you're seeing news organizations being more willing to do public mea culpas and clean it up publicly, rather than privately.

MARGARET WARNER: Tom Rosenstiel, what's your diagnosis of what's happening here?

TOM ROSENSTIEL, Project for Excellence in Journalism: Well, I agree with Steve that, you know, there was never a golden moment. In the days of the "Front Page" there was a lot of stuff made up.

MARGARET WARNER: You're talking about the play and the movie.

TOM ROSENSTIEL: Right. In the 1920's, in the tabloids, traditions of the press. In many ways we've cleaned up our act a lot. We don't take freebies. We have ethics codes. And there are higher expectations on the part of the public today about press performance in part because we in journalism have claimed that we're a profession and that we should be granted special rights, and that we have the power to take down presidents and question the government over matters like Vietnam. We're more intrusive press than we've ever been. There are, however, new commercial pressures on us. There are more and more outlets competing for fewer and fewer readers and viewers. And this is putting pressure on everybody to go for the new voice, to have something that stands out, to be provocative, to push the envelope. And against those kinds of pressures news organizations can be vulnerable to the sort of the Steven Glass phenomena in which a 25-year-old with no training is given enormous leeway, making up anecdotes which are pretty clearly faked, raising suspicions for a long time, and instead of getting the whistle blown on him gets contracts from four of the most prominent publications in the country. So we're a little of both at the same time.

MARGARET WARNER: Betty Baye, do you agree with Tom Rosenstiel that there are these new pressures on columnists like yourself and on reporters to have presence, to create a buzz, to create a stir?

BETTY BAYE, Courier-Journal: I think that that's really true and Tom was getting to where I'm at at the end-at the end of what he was saying-which is that it's hard to know who's a journalist now and who is, in fact, representing some organization or some interest. A lot of the people who are in the media now have moved straight from government into being analysts, into being journalists, so the public is probably confused about who's who, who's a journalist, who's trained to be a journalist, and who simply came out of somebody's political camp, and now is writing a column as if it's something objective, when actually they're extensions of the White House or the administrations that they previously worked for.

MARGARET WARNER: Steve Sidlo, you deal with these reporters every day. When-I'm sure you've gotten stories sent to you that you question or you question parts of it-when there are unfair or inaccurate stories, what's the failure really at the reporting level? I mean, is it because the reporter's feeling the pressures Tom Rosenstiel talked about, or does he have a bias, as Betty Baye was saying, or what is it exactly when you actually deal one to one with a reporter?

STEVE SIDLO: Well, when you have a bad story published, it's not just the reporter's fault; it's the fault of the institution ultimately and the process that allowed that story to get in the paper. A good newspaper or any kind of good news organization has, I believe, ought to have a system that challenges stories before they're published or broadcast. And if you don't have that system, bad things can slip in the paper, errors and biases, and just outright inaccurate information.

MARGARET WARNER: Marvin Kalb, I want to get to the editor's responsibility, but first to the reporter's, because I don't think most viewers understand how our craft works. You were a working reporter for years. What is it when-what occurs when reporters go over the edge?

MARVIN KALB: I think that a reporter, a good reporter, probably knows when he or she is going over the edge. But in my time there was, of course, intense competition then too. But I think-and I disagree very respectfully with a number of my colleagues who think that there is nothing new going on here now-I think that there are a number of new things. One of the new things has to do with the new technology that is driving the industry, has to do with the new economics these mega corporations now owning news organizations and demanding essentially not a public service from them but a large profit from them. I think there is a new journalistic ethos that is at work as well. Journalists know when they're doing the right thing, but they are under the most ferocious kind of pressures now to be first, to be sensational, and it's the responsibility, it seems to me, of the editor, of the publisher, of the executive producer, to say this far and no further unless you have absolute proof that you can support this story.

MARGARET WARNER: Betty Baye, do you agree those pressures exist on working reporters and columnists?

BETTY BAE: Yes, I think they do exist in terms of working faster, trying to compete with 24 hour news programs. I mean, as soon as it's said, it's all over the world. Lots of times you don't have enough time to check it out. But at the same time I think there's something else that's going on. I think that even when I came in the business almost 20 years ago, there seemed to be more old timers around to give guidance, to help a young reporter, to help you on the small issues, that would help you to be a better journalist. And increasingly, everyone in the news room is the same age. The editor tends to be as young as you are and maybe as inexperienced, so wealso have the fact that a lot of the more experienced people have been either moved out of the business in the interests of youth or they've been moved out of the business to pursue other things that are more lucrative than what they were doing in the news room. And I think those of us who are still in the news room have lost the benefit of that great wisdom and counsel that some older reporters used to get from people who had been around the block a time or two.

MARGARET WARNER: Do you agree that's part of the problem?

TOM ROSENSTIEL: Yes. There is particularly in television, there is a real new reason for being, which is making a profit. And today in network television in particular the news divisions are being asked to subsidize sports contracts, so you have a situation for instance-

MARGARET WARNER: You mean, as opposed to the news divisions being a lost leader, not even having to make a profit?

TOM ROSENSTIEL: Right, and there to establish the credibility of the network. Now when you get a situation like that, as in the Times/CNN case, there's every reason to believe that they needed a big, big story for their inaugural program to get into the prime time magazine business to compete with the other networks. If that program doesn't make money and doesn't generate high ratings, it'll be off the air, and the people associated with it will have a black mark. Well, that's very different than the reason for being that we traditionally had in our minds, which was to get the story right, to pursue a kind of truth even in the days of partisan journalism. Their political liberty and debate was the fundamental bedrock purpose of the news organization. It may have been ideological, but it wasn't there to generate a profit. And today increasingly, we are seeing a market first orientation to journalism. And that's a big pressure on people that come up with stories that are really going to attract attention.

MARGARET WARNER: Steve Sidlo, how does a good editor withstand those pressures and add to that the pressures also that Marvin Kalb talked about and Betty Bae as well, the pressure of the 24 hour news channels, the Internet, the constant competition?

STEVE SIDLO: Well, it's hard to do, frankly, but you go back and try to focus on your core values in your organization and communicate to your staff members that you value accuracy and integrity, and if you send them that message every day, they'll get it. And they'll follow your lead. I think that partly what we have here is a clash of standards. Traditional news room standards would make it harder for a reporter to make up quotes, for example. But on the web you've got no standards at all, no tradition, like you have in a newspaper or in a television news room, and so you've got people who feel very free to put almost anything, publish it on the web, kind of on a whim. And newspapers and television stations to a degree are competing with those kinds of news disseminators. So that does put pressure on it, so you can avoid that if you recognize what your core values are and share 'em with your staff, and make sure you stick with 'em.

MARGARET WARNER: Betty Bae, how do you-how would you like to see your editors withstand those pressures?

BETTY BAE: Well, I think that I benefit, because beside being a columnist, I'm also an editorial writer, which means, which gets to another issue that sort of I think contributes to it, and that is that the technology is allowing a lot of people to work at home, so that working in isolation, where I come into the office, I meet with the editorial board, I get a chance to test out not just my editorials but my ideas for my columns with my colleagues. When you're working by yourself, sometimes you don't have the benefit of just bumping up against other people and what they think about what you're saying or what you're doing or giving you another source or another way to go. And apparently the future of this business is that more people are going to be working at home. And I think when part of what journalism is that being out among the people-and if journalists become isolated, we become like a novelist. We can sit in our lonely rooms and just create anything we want to.

MARGARET WARNER: Interesting. Marvin Kalb, what do you think, if there is a solution here, one, do you think there's a solution, and, if so, how? I mean, the editors who actually have to approve stories before they go on the air or get in print are the last gate. How can they resist all these pressures?

MARVIN KALB: I think it's very, very difficult to resist all of these pressures. I'm delighted that I don't have that job frankly. Steve spoke before about core values, and sticking to them. But every single time, Margaret, that we have come upon another example of gross excess, whether it was Princess Diana, Vercace, Monica right now, the press complains about what it's doing, it analyzes what it's doing, it pats itself on the back or spanks itself, but at the same time continues to go down the path, rather than up to some new height of accomplishment. I don't know what it should do right now, except what Steve says, go back to core values. And I simply don't see that happening.

MARGARET WARNER: Do you see it happening?

TOM ROSENSTIEL: There's a strange paradox going on. As we sort of drift towards info-tainment and punditry, we're seeing our audience structurally decline, particularly in television, a massive hemorrhaging of viewers, so this path isn't working. I think the solution is to recognize that long-term we're not in the information business. Information is increasingly available. We're in the credibility business, and that in a sense you can-you can make-you can draw a crowd by going down to the corner and taking your clothes off, but over five years you can probably attract more people by going down to that corner and playing the violin. And right at the moment we're in the naked business and not the violin business.

MARGARET WARNER: All right. We're going to have to leave it there. Thank you all four very much.% ? FINALLY - IMAGES OF CHINA

JIM LEHRER: Finally tonight another view of China. It comes from NewsHour contributor Robert Pinsky, the poet laureate of the United States.

ROBERT PINSKY, Poet Laureate: Here are two images of China from Chinese poetry. First, from a famous poem by Du Fu, perhaps the greatest Chinese poet. Writing in the eighth century, Du Fu describes a massive ancient cypress tree, the symbol of the legendary Zhu-Ge Liang but also a symbol of China itself. "Ballad of the Old Cypress:" "In front of the temple of Zhu-Ge Liang there's an old cypress. Its branches are like green bronze, its roots like rock. Around its great girth of 40 spans its rimy bark withstands the washing of the rain. Its jet-colored top rises 2,000 feet to greet the sky. Prince and statesman have long since paid their debt to time, but the tree continues to be cherished among men. This cypress here, though it holds its ground well, clinging with wide, encompassing, snake-like hold, yet, because of its lonely height rising into the gloom of the sky meets much of the wind's fierce blast. Nothing but the power of divine providence could have kept it standing so long. Its straightness must be the work of the Creator, Himself. If a great hall had collapsed and beams for it were needed, 10,000 oxen might turn their heads inquiringly to look at such a mountain of a load. But it's already marvel enough to astonish the world, without any need to undergo a craftsman's embellishing. It has never refused the ax. There's simply no one who could carry it away if it were felled. Its bitter heart has not escaped the ants, but there have always been phoenixes roosting in its scented leaves. Men of ambition and you who dwell unseen do not cry out in despair. From of old, the really great has never been found a use for." That's Du Fu's image of China in David Hawks's translation, alive, rocky, obdurate, massive, ancient. And here's another, different image. In 1989, the pro-democracy demonstrators posted on the wall in Tiananmen Square many poems. Here's a student poem from that era, choosing instead of an image of great strength and stability, the idea of pent-up explosive forces. "Vesuvius Volcano:" "Once, twice, countless times I douse my raging flames, once, twice, countless times I swallowed my boiling tears, deep in a nightmarish sleep. I dozed centuries on centuries. Look at the ice in my mouth, the snow on my face, and the thorns on my arms and legs crawling with venomous scorpions. Oh, great earth, you are not a song, nor a psalm. Look, great earth, my breast heeds, my lips crack with fury, I want with 24 hours of silent eruption. I wait to mourn the deathly silence of a hundred thousand hells. I want to use my sulfur, my lava, my showers of stones to destroy your coliseum, your temples, your cities, to destroy your sun god, your moon god, your Supreme Being, to destroy everything, everything that you have forced upon me."% ? RECAP

JIM LEHRER: Again, the major stories of this Wednesday, a federal judge in Washington dismissed tax evasion charged against former Justice Department official Webster Hubbell and the Federal Reserve left interest rates unchanged. An editor's note before we go tonight: It has to do with the funding of our program. Tonight marks the debut of the Traveler's Group, including their subsidiary, Salomon Smith Barney. They join Archer Daniels Midland as a NewsHour underwriter and in welcoming them, I would like also to say a farewell thanks to New York Life for its five years of support. We'll see you on-line and again here tomorrow evening. I'm Jim Lehrer. Thank you and good night.