The NewsHour with Jim Lehrer

TJIM LEHRER: Good evening. I'm Jim Lehrer. On the NewsHour tonight a Newsmaker interview with President Fujimori of Peru about the Lima hostage crisis, a report and a debate about the new idea called "microlending," State of the Union speeches as seen by Michael Beschloss, Haynes Johnson, Doris Kearns Goodwin, and Bill Kristol, an update on the 11 weeks of anti-government protests in Serbia, and our Monday night essay, Roger Rosenblatt talks about beauty and evil. It all follows our summary of the news this Monday. NEWS SUMMARY

JIM LEHRER: President Clinton today praised the president of Peru for skillfully handling the Lima hostage crisis. Mr. Clinton said Alberto Fujimori was walking a fine line to resolve the situation peacefully without giving into terrorists. Gunmen have held 72 people captive at the Japanese ambassador's residence in Lima since December 17th. After a 20-minute Oval Office meeting, the two presidents were photographed saying good-bye, the only news coverage allowed of their private meeting. We'll have a Newsmaker interview with President Fujimori right after this News Summary. Also at the White House today President Clinton told a meeting of the nation's governors he would be responsive to their needs, especially on the costs of federal programs being returned to the states.

PRESIDENT CLINTON: I know that many of you have concerns about welfare reform or Medicaid spending or education and the environment, transportation. I'm looking forward to addressing those concerns beginning today at this meeting but also every day for the next four years. I want every one of you to feel that--that you can always call this White House; that you'll have someone, even if we don't always agree, who understands your concerns and will do his best to address them.

JIM LEHRER: Members of the National Governors Association are holding their winter meeting in Washington. The group is expected to adopt a resolution tomorrow urging Congress to restore welfare benefits to some legal immigrants. But Republican Governor John Engler of Michigan cautioned against reopening last year's welfare legislation.

GOV. JOHN ENGLER, [R] Michigan] There are very strong opponents of welfare reform who would love an opportunity to revisit the issue. They'd love to take another shot at it, and so any excuse that would allow them to say, well, why don't we open the bill up to deal with this issue, oh, while we're here let's deal with these other issues, and so I think that would be the concern. That's one of the reasons that we ended up coming down so firmly against sort of opening this bill up.

PRESIDENT CLINTON: President Clinton's proposed budget for the 1988 fiscal year calls for restoring some immigrant benefits. He told the governors he would address welfare reform, along with other issues, in his State of the Union speech tomorrow night. The practice called "microlending" also had a Washington stage today. First Lady Hillary Clinton told an international conference small business loans to poor people can transform lives in this country and around the world. The conference is trying to generate $21 billion in so-called "microcredit" or "microlending." Mrs. Clinton said the U.S. Government would spend a billion dollars on such projects over the next five years. She said private banks and institutions should also get involved.

HILLARY CLINTON: Although it is called "microcredit," this is a macro idea. This is a big idea, an idea with vast potential. Whether we are talking about a rural area in South Asia or an inner city in the United States, microcredit is an invaluable tool in alleviating poverty, promoting self-sufficiency, and stimulating economic activity.

JIM LEHRER: We'll have more on microlending and microcredit later in the program. Treasury Sec. Rubin testified today against a balanced budget amendment. He told the House Judiciary Committee an amendment could trigger recessions and increase the risk of defaulting on debt.

ROBERT RUBIN, Treasury Secretary: A balanced budget amendment is a threat to our economic health, will expose our economy to unacceptable risks, and should not be adopted. There is a great distinction between balancing the budget and passing a constitutional amendment. When we contemplate an action as significant and as rare as amending the Constitution of the United States, we owe it to the American people to understand exactly what the consequences of that act would be. I believe the balanced budget amendment would subject the nation to unacceptable economic risks in perpetuity.

JIM LEHRER: But Congressman Charles Stenholm, Democrat of Texas, said more than 2/3 of the House agreed a constitutional restraint was needed to produce fiscal discipline. hOwu>OP| CHARL S STENHOLM,H[D] Tetas: The tegj isBn7v whethef 7uE w t an amendment is economic policy but whether it encompasses broad and fundamental principles, and it's importance is far reaching in scope and over time. The need for a balanced budget amendment meets this test. It would protect the fundamental rights of the people by restraining federal government from abusing its power. Requiring a higher threshold of support for deficit spending will protect the rights of future generations who are not represented in our political system but will bear the burden of our decisions today.

JIM LEHRER: The Senate is expected to debate the balanced budget amendment this week. The House is scheduled to vote on it February 26th. In economic news today Americans' incomes rose 5.5 percent last year, according to the Commerce Department. That was down almost 1 percent from the 6.3 percent increase in '95. Today's figures are among the last issued before the Federal Reserve begins a two-day meeting tomorrow to decide whether to adjust interest rates. Overseas today in Serbia at least 60,000 people jammed a square in Central Belgrade to protest police attacks last night on anti-government demonstrators. Empty taxicabs snarled downtown traffic when drivers walked off in protest of the violence. At least 80 people were injured when riot police pushed back the nightly crowd of demonstrators. It was the government's largest show of force since the protest began 11 weeks ago. And that's it for the News Summary tonight. Now it's on to the president of Peru, microlending, State of the Union addresses, protests Yugoslavia, and a Roger Rosenblatt essay. NEWSMAKER

JAMES LEHRER: We go first tonight to the president of Peru on the hostage situation in Lima and to Elizabeth Farnsworth.

ELIZABETH FARNSWORTH: Today is the 48th day of Peru's hostage crisis. On December 17th, heavily armed members of the Tupac Amaru Revolutionary Movement, or MRTA, seized more than 400 people attending a diplomatic reception at the residence of the Japanese ambassador in Lima. The rebels made a series of demands, most importantly the release of about 400 of their comrades from prisons around Peru. In the weeks since the takeover all but 72 of the hostages have been released, but those remaining include high officials of Peru's security forces and the younger brother of President Alberto Fujimori. Last week, a new group of Peruvian troops with heavier equipment took over the embassy vigil. They played loud military music and made provocative gestures to the rebels who unleashed a burst of gunfire. That prompted Japan's prime minister, Ryutaro Hashimoto, to publicly urge Peru not to take any unnecessary risks which could endanger the hostages' lives. Late last week President Fujimori went to Canada to meet with Hashimoto. The two leaders said they were in agreement on how to handle the hostage situation but provided few details. President Fujimori then flew to Washington and met this morning with President Clinton. I talked with the Peruvian president at his Washington hotel before the White House meeting.

ELIZABETH FARNSWORTH: Thank you very much for being with us, Mr. President. After your meeting in Toronto with Prime Minister Hashimoto of Japan. Are you any closer to a resolution of the hostage situation in the Japanese embassy in Peru?

PRESIDENT ALBERTO FUJIMORI, Peru: [speaking through interpreter] I think so because we find ourselves in a very unified position, and the strategy has been enhanced so that we think we are closer.

ELIZABETH FARNSWORTH: What agreements did you come to with the Prime Minister?

PRESIDENT ALBERTO FUJIMORI: [speaking through interpreter] We reached important agreements; for example, the use of force would be recurred to only if there were victims within the residence. I think that this is very important. Furthermore, we agreed in definitive terms that the 400 MRTA prisoners' release will not be allowed.

ELIZABETH FARNSWORTH: Okay. On the question of force, if a hostage is hurt in some way, can you use force without contacting Prime Minister Hashimoto, and must you get his permission first?

PRESIDENT ALBERTO FUJIMORI: [speaking through interpreter] We have a hotline open 24 hours, and, of course, we have to have the consent of the prime minister. We hope that this moment doesn't come to pass at all.

ELIZABETH FARNSWORTH: And you said--you told the "Washington Post" in an interview yesterday that, or an interview Saturday, that there is a, I guess, implicit agreement that the rebels inside the embassy have implicitly agreed that they will discuss--they will have discussions with you, and they won't in those discussions demand that their comrades in prison be freed, is that true? That seems to be a big change.

PRESIDENT ALBERTO FUJIMORI: [speaking through interpreter] We were working on a document which is still kept under reserve by agreement of both parties, Monsignor Cipriani, who's played an informal role, and an MRTA group. In this reserve document it doesn't say explicitly anything about the release of the prisoners. Rather, it says that one would work under Peruvian law. So some advances have been made. At least, it doesn't explicitly raise the demand of their release.

ELIZABETH FARNSWORTH: And yet, the head of the rebels in the embassy, Mr. Cerba, said just in the last day that they still demand that what is it, more than 300 of their comrades in prison be released, that that is their basic demand. So are you still essentially deadlocked?

PRESIDENT ALBERTO FUJIMORI: [speaking through interpreter] I don't think we're in a deadlock. I think, rather, that they need to maintain their face vis-a-vis public opinion, but I believe I'm aware that this is impossible.

ELIZABETH FARNSWORTH: So just to summarize, you say that you've made some progress because you have a document in your--is this document a basis for preliminary discussions?

PRESIDENT ALBERTO FUJIMORI: [speaking through interpreter] There's been some progress. We're now moving on to these preliminary conversations in which we could be improving a document, so as on the basis of that document to proceed to definitive conversations.

ELIZABETH FARNSWORTH: Would you be prepared to offer them asylum in a third country?

PRESIDENT ALBERTO FUJIMORI: [speaking through interpreter] Well, there aren't many countries who want to offer them asylum. I suppose that not even the United States would give them asylum because they are terrorists; they are criminals. But in any event, we'll have to seek and prepare ourselves for eventual asylum if they so desire.

ELIZABETH FARNSWORTH: So you are looking for a country that would give them asylum?

PRESIDENT ALBERTO FUJIMORI: [speaking through interpreter] In any event, yes. Of course, we have to be seeking alternatives because at the last moment it would be difficult to find such a place.

ELIZABETH FARNSWORTH: And would you be willing if they settled for this, would you be willing to promise and then make reforms in prisons?

PRESIDENT ALBERTO FUJIMORI: [speaking through interpreter] The Peruvian prisons are among the best penitentiary systems in Latin America. What they say is not true. Of course, the terrorists have a rigorous and maximum security system, not like before when they controlled the prisons. Up until 1992, Shining Path and the MRTA controlled life inside the prisons. They held marches and training. Now they're safe prisons. We've built 23 prisons. We've invested $100 million, which is quite a bit for Peru, and we have one of the best penitentiary systems in Latin America, I repeat, and the thing is that they no longer have control over those prisons. But, no doubt, there are some steps that we, ourselves, as government have taken to improve the prison situation, for example, seeking the proper equipment and some pavilions.

ELIZABETH FARNSWORTH: But the prisons have been criticized by groups beyond the MRTA, Amnesty International and Human Rights Watch, and I believe even our own State Department have criticized the conditions in prisons. So even if you have started improving, would there be more significant moves that you could make that might go some ways toward satisfying the demands of the MRTA people holding the prisoners, holding the hostages?

PRESIDENT ALBERTO FUJIMORI: [speaking through interpreter] We're not hearing expbZ_&,Ko from Amnesty International, America's Watch, or the State Department. We govern our country by our laws, and we are up to international standards in our prisons. The thing is that now, I repeat, they no longer control the prisons. And the greatest violators of human rights have been they, themselves. Let's not lose sight of the fact that they assassinated 25,000 people, and they've caused $25 billion of damage. They were the human rights violators. The government, what it has done has been to defend the human rights of 24 million Peruvians.

ELIZABETH FARNSWORTH:@|<k2xyh zx h S Z_| -K -O -K IYiew that you--there would be a way to find concessions which would allow them to save face. What might those concessions be?

PRESIDENT ALBERTO FUJIMORI: [speaking through interpreter] There are very few concessions that we can make because this is a criminal act. The concessions that we can make are those that a serious country where the law is upheld might be able to give, so I couldn't really say very much about this. We have to be very creative.

ELIZABETH FARNSWORTH: And, Mr. President, your brother is in the embassy, and you have said many times that you can't look at the situation any differently because he's there than if he weren't there, but it must be very difficult for you to have him there.

PRESIDENT ALBERTO FUJIMORI: [speaking through interpreter] It isn't. For me, the important thing is to keep the country fully pacified as it is at this time. The treatment of one person who tells, whether it's my brother or someone else, is the same. I would like for Peru to continue to enjoy total peace so that tourists and missions can continue to come to Peru.

ELIZABETH FARNSWORTH: Do you have a model for resolving this crisis? In Colombia in 1980, the M-19 guerrillas took some ambassadors hostage in an embassy, and they were eventually given asylum in Cuba and given some money, and then in Colombia, as elsewhere, the guerrillas were eventually integrated into the political process. There was as peace accord, and they became part of the political process. Could that happen in Peru?

PRESIDENT ALBERTO FUJIMORI: [speaking through interpreter] In no way--and I tell you this in clear cut terms because this is a totally isolated case. The MRTA and Shining Path have been totally dismantled. They don't have any followers. It's a different situation from what happened in Colombia or Central America. There can't be a peace agreement. What possibilities of political recognition can there be for a group of criminals, or criminal group? None whatsoever. And if some of them who've not committed a crime, who've been in the ranks at the MRTA would like to have a political movement, well, that's perfectly fine. They can abide by the law, meet all the requirements, and then as we have full democracy in Peru, they can participate in the political life. But in Peru, there are no guerrilla movements. There have been terrorists. Please, let's make a distinction between guerrillas and terrorism.

ELIZABETH FARNSWORTH: Well, listening to you, it sounds like there is not much room for any compromise because they are insisting on this minimal demand that their prisoners be released, and you are insisting that you can't do that, so it may go on for quite a while, is that true?

PRESIDENT ALBERTO FUJIMORI: Be sure that there is not much room in this conversation for delinquency. There's not much concession. That must be very clear. Let me say this in English.

ELIZABETH FARNSWORTH: No concessions to delinquents, is that what you're saying?

PRESIDENT ALBERTO FUJIMORI: Not much in this case.

ELIZABETH FARNSWORTH: Okay. Finally, what do you want to talk to President Clinton about? What will you be saying to President Clinton?

PRESIDENT ALBERTO FUJIMORI: [speaking through interpreter] No doubt, we'll be talking about the strategy having to do with Peru's security and regional security in light of the current moment, and also the ever-increasing cooperation between Peru and the United States.

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

PRESIDENT ALBERTO FUJIMORI: Welcome. A pleasure. FOCUS - LENDING A HAND

JIM LEHRER: Now that big idea about small loans and credit and to our economics correspondent Paul Solman of WGBH-Boston.

PAUL SOLMAN: The global subject on microlending in Washington this week is being called the first of its kind. To proponents the idea is simple: a market-based solution to one of capitalism's thorniest problems, how to integrate the poor into the economy. We first looked at the microlending phenomenon in 1994. Here's an excerpt from that report.

PAUL SOLMAN: Next to Sue's Pawn Shop in Pine Bluff, Arkansas, a new business is dawning, J.P.'s Sheer Fantasy Beauty Salon. there are really two fantasies here, and both are actually being realized every day. One, ages old, is that women with hair problems like Susan Hunter can re-coif their heads and recoup their self- confidence.

[BONDING ON HAIR]

PAUL SOLMAN: A second fantasy here is somewhat more topical, that Americans on the economic margin, like Jesse Pearl Jackson, can parlay their particular skills into entrepreneurial success, despite some age old hangups about business.

JESSE PEARL JACKSON, Beauty Salon Owner: I had an attitude. Let's just say it. I had an attitude.

PAUL SOLMAN: And was it an attitude about yourself or about business?

JESSE PEARL JACKSON: My attitude was about business.

PAUL SOLMAN: And what was the attitude?

JESSE PEARL JACKSON: The attitude was -- [laughing] -- it's awful.

PAUL SOLMAN: For years, Jackson worked for others or at home. Clients kept telling her to get organized, be a business woman, but she didn't have the attitude, or for that matter the money and know-how to become a capitalist. And then she discovered Good Faith, a nonprofit fund that lends money to would-be micro- entrepreneurs. Good Faith, with initial money from private benefactors, and now the Small Business Administration, was founded five years ago. It's a small part of a larger, private, nonprofit effort to spur economic growth in rural Arkansas. Good Faith's guru--a legendary banker from Bangladesh with a host of admirers, Mohammed Yunus. Establishment bankers think that established businesses are the key to economic growth. Yunus thinks:

MOHAMMED YUNUS, Grameen Bank: This is wrong with the way you are looking at the capitalist system. Capitalist system is people, people and their energy, and in a free market situation exchanging their goods and commodities. That's what the free economy is all about.

PAUL SOLMAN: So every time you have another micro-entrepreneur, you have a little bit more economic growth.

MOHAMMED YUNUS: Absolutely, because once you have a micro-enterprise coming up, you are allowing a person to show his work and her work.

PAUL SOLMAN: The theory is that as micro-entrepreneurs like J.P. Jackson succeed, they expand their businesses, hire others, and add to economic growth. Jackson needed a $1200 loan from Good Faith to get started, and she needed something else.

SEMINAR LEADER: Now let's suppose that our selling price is fifteen cents, a nickel and a dime.

PAUL SOLMAN: Before would-be borrowers like Jackson can apply for a loan, Good Faith requires that they attend a sort of business boot camp to learn the essentials of entrepreneurship, how to price, how to sell, how to stay in business. The second requirement, if you want a loan, is to join a borrowing group with other aspiring entrepreneurs. Thus, members share their experiences and must approve each other's loan applications.

JESSE PEARL JACKSON: Okay. I wanted to make a presentation to you all so that I could better understand what I needed the loan for.

PAUL SOLMAN: Good Faith's strategy is "trickle up," economic growth loan by loan, job by job. And in Bangladesh, that's just what Good Faith's model, the Grameen Bank, has been doing since the mid 1970s, organizing people into borrowing groups and teaching them the tricks of trade. Recently, at a village outside Dacca, Grameen's local borrowers were rather excited to receive its founder, Prof. Yunus, and to show him the fruits of their loans. This woman now spins yarn into string with results that rival Rumpelstiltskin.

PROF. YUNUS: And she built a new house recently for 25,000 dachas.

PAUL SOLMAN: Another borrower buys flour to make biscuits. And this woman bought straw to make baskets. In a country as poor as Bangladesh, for as little as ten of fifteen dollars, people can create their own businesses, instead of waiting around for a job. Prof. Yunus thinks this is true everywhere.

PROF. YUNUS: People create their own jobs, and that's how the human history began. Would you believe when we were hunters and gatherers of wood we would be waiting around for somebody to hire us? We'd be all finished. We wouldn't be here today. They went out and got their fruits, hunted their animals, and ate themselves. That's their self-employment. Today we just fold our hands and say we don't have a job. Why should you wait for a job? You create your job, but you cannot do that. To create a job, I need money. And banks will not lend me money.

PAUL SOLMAN: The Grameen Bank now lends to -- get this -- 1.6 million micro-entrepreneurs, more than 1 percent of the entire population of Bangladesh. Seventeen years later, it's loaned out almost a billion dollars.

PAUL SOLMAN: Okay. That was part of our report from 1994. Tonight we debate the subject with Mari Otero, executive vice president of Accion International, which does microlending in the United States and Latin America, and Carl Horowitz, Washington correspondent for "Investor's Business Daily." Welcome to you both. Maria Otero, let's start with you. It started a few years ago. How has microlending fared since? Americans are self-employed, and it's not realistic to expect that much--anything more from the welfare recipients.

PAUL SOLMAN: So no more than 10 percent could become entrepreneurs.

CARL HOROWITZ: Well, realistically, it's a ball park figure, yeah.

PAUL SOLMAN: Okay. And your third objection?

CARL HOROWITZ: My third objection--certainly a note of skepticism--is that this has very real implications not only for what we call micro banks but all banks, our entire commercial bank system. The argument is thatif these banks are so wonderful and they're so successful in producing entrepreneurs from the poorest of the poor, and with such a phenomenally high repayment rate on time, one would think why aren't banks rushing to make loans to these people? Well, there are real reasons why.

PAUL SOLMAN: Well, let's get into them in a minute, but those are your three?

CARL HOROWITZ: Yes. I would say those are--

PAUL SOLMAN: All right. So let's take the skepticism or notes of skepticism one at a time. First, subsidize these loans, wouldn't make it without, well, I don't know, sort of left-wing goodwill or something like that. I mean, good--

CARL HOROWITZ: Goodwill for the time being.

PAUL SOLMAN: Subsidy.

MARIA OTERO: Let's look at the experience of in the developing world, which is really where this experience comes from. We, in the last few years, have demonstrated in the last ten years that these programs can cover other costs; that they don't need subsidies. In fact, if we point at some of the most advanced programs in this area, we see, for example, a commercial bank in Bolivia, Banco Sole, which is a bank that specializes in providing micro loans and serves about 7,000 clients in the country. None of the clients it serves could ever access a loan from a regular bank in the country, and yet, this bank is completely self-sufficient. It's even profitable at this level.

PAUL SOLMAN: What's the key to that? I mean, why does it work, if, as you say, it does?

MARIA OTERO: There are several keys, and this makes micro enterprise such a promising strategy. One is that I think we have been able to develop a way of extending loans to the poor in which you are able to substitute collateral.

PAUL SOLMAN: Money you would have, or wealth you would have.

MARIA OTERO: Money that you have, or a way in which you can guarantee your loan in a manner in which you actually are lending against character, and you are giving people an opportunity to pay back if, in fact, they demonstrate that they will use that credit.

PAUL SOLMAN: So what's the problem? If they do pay back and the record is that they do, then why are you skeptical?

CARL HOROWITZ: Well, the fact is there is no credit history. There is no collateral. Shouldn't that raise a bit of a red flag? The fact is that there is in this part of the world, like the famed Grameen Bank of Bangladesh, there is enormous social pressure, a level of intrusion into the private life of borrowers by the bank, by prior agreement, that simply would not exist, that we would not tolerate in this country even in say small business loans. A typical Grameen loan the first time is like payable in 2 percent increments over 50 weeks, and then you pay the interest in the last two weeks. What you have to go through when you're a woman is take a vow, a series of vows.

PAUL SOLMAN: Because most of them are, in fact, almost all of them are women borrowers?

CARL HOROWITZ: And that in itself makes you wonder, where are the men, why aren't they breadwinners? Can't they be trusted with money, and, if not, what does that say about that part of the world?

PAUL SOLMAN: But your point is it's too intrusive. What's your response to that?

MARIA OTERO: You're looking I think at one approach to working in micro enterprise. I think the Grameen Bank presents one way in which you can work, and Grameen Bank is working with poor, destitute women who can't really have a way out otherwise. There are many other ways of working in it without having to be intrusive. What you're doing is really enabling a person to come to an institution to borrow a loan, and then to be able to pay it back.

PAUL SOLMAN: So what about this point about entrepreneurs that he makes; that most of us simply aren't entrepreneurs, and yes, this is supposedly a strategy to get all the poor out of the problem of poverty?

MARIA OTERO: Well, if you look again in developing countries about anywhere between 40 and 60 percent of people, especially living in the cities, are self-employed, and the people, many of the people the micro loans are made to are people who are already businesses. They're already people who are banging pots on the street, or selling oranges, or are doing something in order to earn a living.

PAUL SOLMAN: Do you really think that most people can become entrepreneurs, I mean, more than the 10 percent? That seems to be a standard figure. It's not just Mr. Horowitz who uses that.

MARIA OTERO: Well, you're using the figure for this country.

CARL HOROWITZ: In this country.

MARIA OTERO: In this country.

CARL HOROWITZ: Yes.

MARIA OTERO: But I think even in this country if you--

PAUL SOLMAN: Well, it's just a guess as to how many people can really be entrepreneurs.

MARIA OTERO: What we have found in this country, and we're lending in six cities for the last three years, and we are, the money that we are lending we are borrowing from commercial banks in order to then lend in small loans, so the only level of subsidy that is required until the program gets large enough is in order to cover the operating costs. What we are finding is that the money that people earn from their self-employment is precisely that amount of their income that keeps them above the poverty level, so the studies that we have done show that it's not necessarily a question whether you're an entrepreneur or you're not entrepreneur. Poor people are basically weaving together their income from different sources.

PAUL SOLMAN: But your point is that banks, if this were really a profitable opportunity, banks would do it?

CARL HOROWITZ: Yeah. Why would banks hesitate? This really--these micro banks in a real sense are economic development agencies, are adjuncts of government, and they--they can be seen as economic development agencies with a welfare or at least poverty to work component, and while the idea is admirable, the bills won't--will come due, maybe not now, but in terms of the losses they rack up. There's a very high likely, I think, that they're going to be--that it's going to have to require constant infusions of government and philanthropy and lines of credit from commercial banks to keep these operations afloat.

PAUL SOLMAN: Now, you don't agree with that, but you just have the last word for a second here. Do you expect there to be an explosion of microlending, even with that note of skepticism, in the private sector?

MARIA OTERO: I think there will be an explosion, and I think what we will see that will be valuable is that the well-performing programs will rise way above what Carl is talking about, will demonstrate their commercial viability, and will be able to reach thousands of people that don't have access to credit.

PAUL SOLMAN: Well, thank you both very much. I'm sure this is a continuing story, and we'll continue to watch it.

CARL HOROWITZ: It was a pleasure.

MARIA OTERO: Thank you.

JIM LEHRER: Still to come on the NewsHour tonight, State of the Union speeches, a Serbia update, and a Roger Rosenblatt essay. FOCUS - PAST AS PROLOGUE

JIM LEHRER: Now, the State of the Union address. On this eve of President Clinton's tomorrow night some thoughts about the importance and impact of these annual speeches, the thoughts of those of NewsHour regulars Presidential Historians Doris K&l ws Goodwin and Michael Beschloss and Journalist/Author Haynes Johnson, joined tonight by Bill Kristol, editor and publisher of the Weekly Standard. First some history, Doris. Take us through why we have State of the Union addresses and how it came about.

DORIS KEARNS GOODWIN, Presidential Historian: Well, as I understand it, the ritual originally derived from the idea that the king in Britain used to give at the opening of the parliament a statement from the throne. So when our first presidents came into office, George Washington and John Adams did the same thing; a statement from the presidential throne. But then when Thomas Jefferson came into office wanting to make a more Republican kind of president, rather than this kingly heritage, he said, oh, no, I'm not going to do this anymore; I'm just sending it up as a written message to be delivered by the clerk in a kind of monotone voice, so it took some of the drama away. And that's the way it continued through the rest of the 19th century until Woodrow Wilson came into the presidency. And he was determined somehow to break that wall that had developed between the president and the congress. So he decided if he went up as a human being on his own to the congress and delivered it in person, it would provide a dramatic mobilizing point. There's a wonderful story. On his way up there, Mrs. Woodrow Wilson said to him, "I bet if Teddy Roosevelt would have thought of this, he would have loved it." And finally, Woodrow Wilson said, "Yeah. I finally outdid Teddy on one thing." So he's up there in person, and, indeed, he then introduced a series of bills to follow his State of the Union which in some ways was the beginning of the president being the legislator that he is today. And from then on, once he did it, the rest would have to do it. And it has become a rallying point for the president's agenda, for setting the direction for the country. Once radio and television comes in, it becomes even more dramatic because you see everybody sitting there. It's the only time where the whole government is in the same place; the Supreme Court files in, the congress, the president comes finally in, and everybody's on their feet. So it really has become a leadership potential that it didn't have at the beginning.

JIM LEHRER: And Michael, also as a matter of history, has it had an impact? Has it worked for these? Did it work for Woodrow Wilson and the other presidents to get to do what--as Doris says--they set out to do?

MICHAEL BESCHLOSS, Presidential Historian: It's worked for most of them. And, you know, the interesting thing is that you can almost relate use of a State of the Union in a big way with strong presidents. Thomas Jefferson and then Woodrow Wilson in 1913 proposed a little thing called the Federal Reserve System. That's what he used that State of the Union--

JIM LEHRER: That's why he wanted to go up there and do that.

MICHAEL BESCHLOSS: Absolutely, because he knew that that was a big weapon for a president who doesn't have many powers under the Constitution to be able to go into the well of the House and call on Congress to do something that's very important. And other presidents followed his lead. You see Franklin Roosevelt, particularly 1937, beginning a second term when he was a lame duck, felt his powers ebbing. He used that to announce much of the New Deal's social legislation he wanted to continue to have passed. Harry Truman first used the term "fair deal" in 1949 at a time when his power was thought to be ebbing; Lyndon Johnson in '65 announced a lot of the Great Society. So these are big opportunities for a president not only to announce a program but also take some risks, to say something that perhaps other politicians are not thinking, get the congress to follow along, and that's one way that a second term president particularly becomes a lot more powerful than otherwise he might be.

JIM LEHRER: Well, Bill, is the audience still the people in the congress, or is it now because of radio and television, as Doris was saying, is it now a public event? It's really talking over those folks to the rest of the people in the country. WILLIAM KRISTOL, The Weekly Standard: Well, that's why I think Woodrow Wilson wanted to go to speak to congress, precisely to give himself a bully pulpit to speak to the country and to put some pressure on congress, and, of course, that's been intensified with modern communications. A political scientist named Jeffrey Toole has wrote a book called the "Rhetorical Presidency," and he makes the point that only in the modern--post Woodrow Wilson, post Teddy Roosevelt, post Woodrow Wilson presidency do you have the idea of the president using rhetoric to push public opinion, to move public opinion, to put pressure on congress. 19th century presidents didn't try to do that much. 20th century presidents have tried to do that. Bill Clinton is going to try to do it tomorrow night, and it's especially important I think when congress is controlled by the opposite party. Now you have the Republicans in congress setting the legislative agenda. They've scheduled the balanced budget amendment as the first big vote, not something Bill Clinton is for. If you're the president, how do you fight against a Republican congress? This is the one moment you speak to tens of millions of Americans; they watch you; there's a little bit of Republican response after the speech, but that doesn't compete in grandeur with the president speaking to the congress. It's really his chance to lay out his agenda.

JIM LEHRER: And the public is watching him speak to the Republican leadership at the same time.

WILLIAM KRISTOL: Right.

JIM LEHRER: Because they're, as Doris said, they're all there. What's the record--your examination of the record, Haynes, as to whether or not it has worked, particularly in recent times? Has the president said something and because of the State of the Union address something happened?

HAYNES JOHNSON, Journalist/Author: No. I don't think so. I think really you go back to Lyndon Johnson, maybe the war on poverty, or the Great Society would be the last time I can think of. Reagan laid out his tax plans and so forth, bringing real particulars, and it worked, it got through. But it is really what we've all been saying. It's a spectacle. It's a Roman circus.

JIM LEHRER: It's a ritual, another ritual.

HAYNES JOHNSON: It's more than that in the sense it really is a Colosseum. You're looking down this pit. We all are participants at this moment, and you could see how the president's reacting. We're all sort of in the age of television, we're all voyeurs. We're a nation of voyeurs, and we watch our spectacles. And this is one you can see the president's face. Behind him will be Newt Gingrich. Now just those two pictures on the screen are probably going to be far more interesting than anything the president says. And you may see Trent Lott when the camera focuses in on him, you say, ah ha, there's the new majority leader, so the power. Will the Republicans standup and jeer, as they did with Bill Clinton twice before? Probably not. Congress is now much more chastened. Their power is much more divisive, divided.

JIM LEHRER: When did they do that?

HAYNES JOHNSON: Two years ago. Sure. When the president gave his speech and he was a weakened president and they actually jeered him.

JIM LEHRER: Jeered him. That's right. That's right. That's an interesting--

HAYNES JOHNSON: Yeah. I mean, so I doubt that that will happen this time, but what it is, is a chance for the country, as Doris said at the beginning, when Michael--and we've all--Bill has echoed--this is the one time, the one time all of the government is together in our national living room, the television camera.

JIM LEHRER: Doris, what would you--can you cite something that- -of historical importance that came about as the result of a State of the Union address?

DORIS KEARNS GOODWIN: Well, I think two things absolutely. The first one that I can think of is that in 1941, when Roosevelt went before the country for his State of the Union, he said right from the start, the state of this union is grim unless we can support England in its struggle against Germany, and then he asked for a major change in public opinion to support a lend-lease program. At the time of his State of the Union the country was isolationist, not wanting to help England in its problems. The Republicans did not clap a single clap in the middle of that speech they were so angry at him for doing this; they were still isolationists. Two months later, however, he had rallied public opinion to the point where the lend-lease vote came to the congress; it passed; and it passed not by a small margin; it passed big. And then suddenly the country was internationalist. And they were behind him on the war which means you should take a risk. You shouldn't just be in there looking for applause. I mean, when Lyndon Johnson gave his Great Society speech in '65, that's another time when I think it made a difference. He called for a Voting Rights Act. He called for everything, for air purification, for water purification, ocean purification. It was an incredible speech, but the most amazing anecdote that comes out of that speech is the audience loved it. Even the Republicans knew that something was happening in the country at large, so they had to say it was eloquent. And Jack Valenti dutifully came up to Johnson afterward and said, Mr. President, they applauded you 79 times. Lyndon looks at him in an angry voice and says, no, sir, it was 80 times; I counted it while I was giving the speech. But that speech gave that agenda to the congress. He had the majority behind him, and it became the Great Society congress. Those are the only two examples, though, I think in the last thirty/forty years that you could absolutely see that impact right away.

JIM LEHRER: Michael?

MICHAEL BESCHLOSS: And the examples that Doris mentioned were during a period of strong presidents, the imperial presidency from the 1930's to the beginning of the 1990's, this was a time when Americans gave presidents a certain degree of influence just because they were ruling during this period. Now, here we are, 1997, in the period after the Cold War, after the strong presidency, as Bill mentioned, Bill Clinton does not have the congress. He's weak for a lot of other reasons. He's got very few weapons, so one weapon he has got tomorrow night is to give a speech that not only is well structured but, as I think as we're all saying, does break new ground in a way that shows him to be a president who's willing to take a couple of risks. That was not on display in 1995 and 1996, speeches that were largely influenced by Dick Morris, who told him to stick to things that were very popular with the American people. I think if he follows that kind of tactic tomorrow night, it's not the kind of thing that historians will like 30 years from now, and we can get back to that on this program 30 years from tomorrow night.

HAYNES JOHNSON: You may--

MICHAEL BESCHLOSS: But the other thing is that he will have lost a very big opportunity to bring himself a degree of power that he otherwise won't have.

JIM LEHRER: Degree of power, Bill, kid Kristol, do you think--do you think that that is--that that is a possibility tomorrow night?

WILLIAM KRISTOL: It's a possibility. I think lots of us in Washington think, oh, another State of the Union address, can't watch our favorite TV shows; it's going to be a boring laundry list. But it is the one time the president speaks to tens of millions of Americans. Now, I do think--I don't know if he has to be bold, but I think he should be clear about his agenda. The great danger of these speeches is that they are huge laundry lists of issues, and people don't remember them two days later. If Bill Clinton stands up tomorrow, even though he's a weakened president, even though the Republicans control congress, and says, look, I want these three things passed this year: campaign finance reform and family leave and whatever he says, and I'm going to fight for these, and here's why they're important, and I'm going to ask the American people to tell their congressmen that we need to make these--pass these laws, make these reforms, I think that could be pretty effective.

JIM LEHRER: And that could matter, Haynes.

HAYNES JOHNSON: Yes. It's the last chance for Bill Clinton, and in a funny way, second terms--we haven't had this for a Democratic president in 60 years, and this is his chance, the inaugural address didn't quite ring the bell, this is his last chance for the whole country--Bill--we've all said--we'll be watching. And if he, if he will take some risks--I don't know if he will or not--but this is the opportunity because after that, the clock runs very quickly in a second term. You're already getting into the off-year election and the lame duck sets in, you can't succeed yourself in office, so if he really wants to seize imagination of the country, this is the chance, the form, the vehicle. The stage is set. The curtain is open. We'll see.

JIM LEHRER: And this is different than all other of his--all other Clinton State of the Union speeches?

HAYNES JOHNSON: Oh, I think so, very much so. Jim, if you remember four years ago, of course, when he first spoke, there was this enthusiasm for the new president. I think two years and one year ago he seemed doomed, and now he has this one brief moment to start fresh as a new second-term president, rare in our Democratic history in 60 years, and so this is his shot.

JIM LEHRER: All right. We have to leave it there. Doris, gentlemen, thank you all very much. UPDATE - UNDER PROTEST

JIM LEHRER: Next, an update on the protest in Yugoslavia now entering week number 11. Gaby Rado of Independent Television News reports.

GABY RADO, ITN: This evening's Serbian riot police charged a group of demonstrators who split off from the main protest rally in the center of Belgrade and began to throw stones at the lines of security forces. A protest movement which has for 77 days remained largely peaceful and good-humored has in the past 24 hours turned violent. It's an outcome which both sides have been trying to avoid. This morning after the worst conflict of the 11-week-long street campaign, the first thing protesters did was return to the bridge where last night's battle with police had taken place. They scored a moral victory at least as they were allowed to walk unhindered by the security forces to the building housing the offices of President Milosevic's Socialist Party. The bandaged hand of Vesna Pesic, one of the opposition party leaders, also became a symbol of a kinder victory. She is one of 80 odd people injured in last night's violence, but this afternoon she was back with the demonstrators, her presence intended to show that no amount of repression would end the campaign to force President Milosevic to honor the opposition victories in November's local elections.

VUK DRASKOVIC, Opposition Leader: The fact that some people have broken legs and arms is a living proof to the brutality of Milosevic police.

GABY RADO: The riot police were deployed in the city streets. Their role has been an inconsistent one. Officially, all marches blocking traffic are banned but the rule is enforced only at the will of the authorities. The water canons seen in Belgrade last night are the first time in this way that protests were a reminder of the force used by President Milosevic to cross the opposition in 1991. Then, as now, it seemed as if the people on the streets had the motivation and the determination to overthrow him. The difference is that in 1991, Slobodan Milosevic called in the tanks within days. Now he's appeared uncertain of what to do for two and a half months. Today there was a rare glimpse of the president. Perhaps significantly, he allowed himself to be filmed in discussion with his interior minister and other chiefs of the security forces. It's rumored that he's torn between a faction calling for concessions and hard-liners wanting a crackdown.

LORD DAVID OWEN, Former Yugoslavia Negotiator: My own view is that it's probably no longer containable by a crackdown; that it might have been a few months back, but he has so lost authority that he'd be extremely unwise to do this. I think it would have a very, very dramatic effect. The only peaceful route through this is a negotiation and a negotiation from a position of weakness in the case of President Milosevic.

GABY RADO: One of those said to be urging President Milosevic against giving in his wife, Mira Markovic. In the year since the war in Bosnia ended, she's risen to political prominence after founding a left-wing party now in coalition with her husband's Socialists. But demonstrators have been encouraged by the unanimous chorus of criticism aimed at Slobodan Milosevic from western countries, Britain, France, and Germany today all deploring the violence. The French government even invited the leaders of the Serbian opposition to Paris. As tension remains high in the center of Belgrade, the student demonstrators have a released statement demanding that President Milosevic immediately withdraw all police forces blocking their demonstrations, or resigns immediately. It's the most open, brazen challenge to date against the authority of the Serbian leader. ESSAY - BEAUTY AND THE BEAST : Finally tonight our Monday essay. Roger Rosenblatt offers some thoughts about the coexistence of beauty and evil.

ROGER ROSENBLATT: Everyone knows what happened to Stanford White, the gilded architect of the gilded age, who made buildings to take your breath away and who was shot to death by an enraged husband. The husband was Harry K. Thaw, the Pittsburgh millionaire whose wife, Evelyn Nesbit, White had seduced when she was 16 and with whom he continued a sick affair until that night in 1906 when Harry caught White on the Rooftop Theater of Madison Square Garden. For the moment of the murder trial, the whole story of White's depraved sex life opened and then closed again, like one of the heavy magnificent doors to the mansions he designed. His family too remained closed behind a door until his great granddaughter, Suzannah Lessard, decided to give the house an airing. She has written a terrific book, "The Architect of Desire," in the interests of knowing White, beauty, terror, and herself. The book is about two questions: The more obvious one, which the author does not belabor, is whether a bad person can create great works. The question has been knocked about recently in biographical quarrels that involved Einstein's behavior towards his wife, Herman Melville's towards his wife, Phillip Roth towards his. The hardly- concealed fact that T.S. Elliot was an anti-Semite is now revived in a reconsideration of the quality of his poems. Picasso's personal cruelty is under examination. In bewildering contrast to Stanford White's nightly prowlings stand glorious works of unapologetic elegance. Surely, a man who could see such rich beauty in stone could not have a heart of the same material, yet, he did. But Suzannah Lessard's main question which has to do with herself as a biological heir to her great grandfather concerns the penalties we pay for insisting on the beautiful to represent us, for shrouding excess sin and violence under the proper wish that all appear serene and harmonious. Even White's name is a cover-up, an irony. The world that refuses to acknowledge the black spot of hell in the soul creates an equally destructive heaven. No wonder Lucifer wanted out. One does not need to follow Stanford White into the debauched pits of the candle-lit city to appreciate that human experience to be human, such as everything. We only know ourselves completely when we recognize the handsome monster in the streets. If this were not so, we would not cling to such strange tales of our divided nature as "The Picture of Dorian Gray," "Dr. Jekyll and Mr. Hyde," or those oafish werewolf movies of the 1940's. See poor Lon Chaney, Jr., galumphing around in his bewildered misery, powerless to hold back the full and menacing moon. At its light he killed. In the morning he repented. But there was nothing he could do to keep the wolf from the door. A telling moment in stories where people are turned into monsters occurs when they die and are turned back again into people, usually with angelic expressions. A man becomes a wolf, becomes a man. Beauty is the beast. In art or architecture it is fairly easy to accommodate the excessive move, the wild thought that spoils the symmetry. In life, when one is out of control, it is much harder to bring things into balance. The conventional solution is to pretend that nothing horrible has happened or is happening or ever will happen. But the ploy is a sham. Even hell must have light. Lessard says it as well as it might be said. "We cannot know ourselves truly without seeing when there is terror in harmony," she writes. "We try to strive toward a whole world because an un- whole world is ghostly. No matter how beautiful it might be, no connection is possible there. We do this not to place blame but to make connection possible. We do this to live." I'm Roger Rosenblatt. RECAP

JIM LEHRER: Again, the major stories of this Monday, President Clinton met Peru's PresidentFujimori and praised him for his handling of the hostage crisis in Lima. Mr. Clinton also told the nation's governors he would be responsive to their concerns about welfare reform and Medicaid spending. And the Commerce Department reported American incomes rose 5.5 percent last year. We'll see you on-line and again here tomorrow evening for the State of the Union preview. I'm Jim Lehrer. Thank you and good night.