The MacNeil/Lehrer NewsHour

MS. WARNER: Good evening. I'm Margaret Warner in Washington.

MR. MAC NEIL: And I'm Robert MacNeil in New York. After tonight's News Summary, two media analysts discuss the implications of Disney buying ABC Television, then the progress of welfare reform, two governors react to the very different visions outlined today by President Clinton and Sen. Bob Dole. Finally, David Gergen talks to Michael Lind, author of The Next American Nation. NEWS SUMMARY

MS. WARNER: The largest media deal ever was announced today. The Walt Disney Company is buying Capital Cities/ABC, the parent company of the ABC television network. The merger is valued at about $19 billion. The new company will be run by Disney's chairman, Michael Eisner. Eisner was joined by Capital Cities chairman Thomas Murphy at a news conference today in New York.

MICHAEL EISNER, CEO, The Walt Disney Company: These two companies are the premier family entertainment communication companies in this country, and we think the combination of the two together gives us the opportunity around the world to grow so we have a--we have a company, a new company where every area is performing well. All the ABC areas are No. 1 in demographics, of all its competitors. And in the Disney Company, we're having our best year ever in our major theme parks, in our filmed entertainment, our consumer products, our Disney stores, and none of these assets are duplicative. They're all--they all mesh with each other.

MS. WARNER: Murphy and Eisner said they don't expect any layoffs as a result of the deal which might still be approved by shareholders for both companies. Federal regulators will also conduct an antitrust review. We'll have more on the story right after the News Summary. Robin.

MR. MAC NEIL: President Clinton and Senate Majority Leader Dole offered competing proposals for welfare reform today. They both spoke before the annual meeting of the U.S. governors in Burlington, Vermont. The President promised to impose time limits on payments and would cut assistance to welfare recipients who refuse to work. Mr. Clinton also encouraged state governments to conduct their own welfare reform experiments. Sen. Dole's plan would change many welfare programs into block grants for the states. His bill will be introduced in the Senate later this week. We'll have more on this later in the program.

MS. WARNER: Top defense officials from the U.S. and Britain today expressed worry about increasing Croatian involvement in the Bosnian war. Croatian government forces have been helping Bosnian Muslims to defend the Bihac region from Serb attack. U.S. Defense Sec. Perry and British Defense Sec. Michael Portillo discussed the situation at a meeting in Washington. Portillo talked about the Croatian involvement.

MICHAEL PORTILLO, Defense Secretary, Britain: We have for some long time now been fearful that the Croatians would mount operations in that area, and we have for some time been discouraging them from doing so, asking them to hold back because our concern is to save human life and not to see this struggle broaden and deepen. And so, yeah, I am concerned today that there is a greater prospect than before of the Croatians being involved in a wider war at least with the Bosnian Serbs. And so certainly the position of my government, I think the United States government too, will be to continue to urge restraint upon the Croatians, so that we won't see this conflict becoming deeper and broader, with much greater loss of life in the future.

MS. WARNER: There were also reports today of fighting inside Croatia between government forces and Croatian Serbs. A weekend peace accord failed to stop the fighting in the breakaway Russian region of Chechnya today. At least six Russian soldiers were killed in the latest outbreak. The two sides reached an agreement yesterday aimed at stopping the seven-month rebellion that provides for a gradual withdrawal of Russian troops and for elections in Chechnya.

MR. MAC NEIL: In economic news, the Commerce Department issued two reports today. Personal income rose .4 of a percent in June. Wages and salaries increased in all major sectors of the economy. At the same time, consumer spending was up .2 of a percent. The Clinton administration today issued a revised lower estimate of this year's budget deficit. The mid-year review predicted a $160 billion deficit. That's $33 billion lower than previously estimated. White House Chief of Staff Leon Panetta said the change was due to better than expected economic growth and the recently passed spending cuts bill, among other things.

MS. WARNER: Nine oil companies have agreed to give up their plans for oil and gas development on the outer continental shelf in Southwest Florida and Bristol Bay, Alaska. Interior Secretary Bruce Babbitt said the areas were environmentally sensitive, and today's agreement with the government means there will be no off-shore development now and for the foreseeable future.

MR. MAC NEIL: Forecasters said today that Tropical Storm Erin may gain hurricane strength in the next 24 hours. The storm is located about 350 miles Southeast of Miami. Officials say it should move near the Florida coast by tomorrow. An evacuation order has been issued for 300,000 coastal residents and tourists from Miami Beach to the Florida Keys.

MS. WARNER: That's it for the News Summary. Now it's on to the big media merger, the welfare reform debate, and the overclass. FOCUS - BIG DEAL

MR. MAC NEIL: First tonight, the big deal in the media and entertainment world: The Walt Disney Company's surprise announcement that it will buy Capital Cities/ABC for $19 billion. Disney's main business consists of films, including the recently animated film "Pocahontas," television holdings such as the Disney Channel on cable, theme parks and consumer products. Capital Cities/ABC properties include eight television stations, twenty- one radio stations, and the ABC network, which has two hundred twenty-five affiliates around the country. The deal was announced today in New York by Disney chairman and CEO Michael Eisner and Cap Cities/ABC chairman and CEO Thomas Murphy.

MICHAEL EISNER, CEO, The Walt Disney Company: I am totally optimistic that this entertainment company will stand for things that the country stands for and that our kind of quality entertainment stands for. In addition, of course, you have to understand that there is a new environment, and there's much more competition with direct satellite and with cable and all the rest. And I think because of all the competition, rightly so, some of the rules that were prohibiting incorrectly for too long the networks from competing have already been evaporated; the financial interest and syndicate rules, the prime time access rules, the limitation in the number of stations. Those have been inhibiting the networks from the kind of competition that they are--had every right to be in. And with that, there's some growth, and then, of course, the synergies with Disney, there's growth, and each company on its own has a plethora of creative talent that are thinking up new ideas anyway.

REPORTER: You mentioned synergy. What synergies do you exactly see coming from this merger?

MICHAEL EISNER: There are tremendous synergies. There's obviously the synergy of Disney, intellectual product appearing on ABC. There's the synergies of Disney's distribution systems and syndication syndicating ABC programming. There's obviously the Synergy of putting ESPN and the Disney Channel together around the world, and there are many places in the world like China, India, and other places that do not want to accept programming that has political content but they have no problem with sports, and they have no problem with Disney kind of programming. The leverage of those two together in what used to be third world countries or closed countries is enormous. There are 250 million people in the middle class in India alone. There are other channels they're thinking of doing, some of which Disney products can help launch, whether they're in the children's and family area, whether they're in the daytime or women's service area, and they go on and on and on. The synergies are under ever rock we turn over. Back in the back.

REPORTER: Was there a magic moment?

MICHAEL EISNER: I guess the magic moment was when Tom Murphy called me up and said, okay, if you'll do X, Y, and Z, we'll put these great companies together. I said, what? I said, if you do X, Y, and Z, I said, that's it, we just have to do that? He said, yeah. He said, you can't do anything less, but if you do that, and I hung up.

THOMAS MURPHY, CEO, Capital Cities/ABC: He tried to do less, let me tell you.

MICHAEL EISNER: X, Y, and Z was $65 a share, and one share of Disney stock, X and Y.

THOMAS MURPHY: We wanted to be sure that our stockholders had a ticket on the horse race for the future. That's why we're very interested in having Disney stock, and we obviously wanted Disney stock because we think the combined companies are going to be--do even better than they are separately.

MR. MAC NEIL: Now for some analysis, we turn to Richard MacDonald, a former investment banker at CS First Boston and a summer fellow at the Freedom Forum Media Studies Center at Columbia University, and Thomas Rostenstiel, author of a book about ABC news coverage of the 1992 presidential election. He's the former press and media critic at the "Los Angeles Times," now covers politics and media for "Newsweek" magazine. Starting with you, Richard MacDonald, on the basics, why does it make sense for Disney to buy Cap Cities/ABC?

RICHARD MacDONALD, Media Analyst: Disney needs to find new sources of growth. It's-- has had a contract, in effect, with its shareholders that they'll produce 20 percent earnings growth over the long-term. Most of their businesses, the cartoons, the theme parks, the licensing and so on, have run into--and the stores--have run into limits of growth. So it's very difficult to produce that. Cap Cities is still a great growth engine and still can bring 20 percent earnings growth, so by putting the two companies together, they, in effect, accelerate the rate of growth of their earnings. And it's really--that's what it's done for.

MR. MAC NEIL: Mr. Rosenstiel, do you want to add to that why it makes sense for Disney to buy Cap Cities?

THOMAS ROSENSTIEL, Newsweek: Well, Rupert Murdoch owns a movie studio in Hollywood and now owns a television network, and every one of the networks probably at some point soon is going to be affiliated with a Hollywood studio as Eisner said, the rules that inhibited growth for networks melt away, particularly with a Republican majority in Congress, and the first ones into that merger pool will get the best arrangements. I think if ABC didn't do this now, they might face a hostile situation later. This way, they get the best deal that's out there.

MR. MAC NEIL: Well, you started to say why this is good for ABC. Why would the most successful television network at the moment want to sell itself to Disney?

MR. ROSENSTIEL: Well, as I said, every one of these networks is probably going to be affiliated with a Hollywood studio at some point soon. I think in the long run this may be better for Disney.

MR. MAC NEIL: You mean because they just can't get enough product to put on their air without that, without having an in-house producer in Hollywood?

MR. ROSENSTIEL: The way it works under current rules is they're inhibited, the networks are, in terms of how much of the programming they can own and how much of it they can then reap the benefits of syndication and rerun profit. Under the new rules, they'll have very few restrictions on that, and this will be a supplier for them. I think there are problems with that in the long run for ABC in that what--you know, they're no longer going to have freedom to be a gatekeeper over which of these programs they want to buy to the same extent. They're going to have a pipeline into Disney that could be cumbersome and even oppressive in time.

MR. MAC NEIL: What do you see as the advantages for ABC in this?

MR. MacDONALD: It's actually--I'm not exactly clear that the advantages are that direct. I agree with some of the argument that with Murdoch, they're exerting pressure and leverage and so on. There is more incentive to, to find a partner, and they've looked at a partner for at least 10 years, even when CBS was for sale for the first time. But I'm not so sure that those synergies actually apply across businesses. I think they apply in terms of being able to market their products internationally and globally I think ESPN and the Disney Channel do make a good fit overseas, and I think the Disney, in general, the Disney products make sense overseas for others, and I think that's way for Cap Cities/ABC to capture some of those. But I really believe that when these companies to grow at the size they're at now have to find alliances among themselves. They can't find internal growth from creating new products. And I think that's what--what's coming next.

MR. MAC NEIL: Mr. Rosenstiel, you implied the other networks will need the shelter of big show biz parents or, or Hollywood. CBS is apparently about to be taken over by Westinghouse, which is not such a big Hollywood producer, and--

MR. ROSENSTIEL: Right.

MR. MAC NEIL: So what do you see happening in CBS and to NBC as a result of this today, this merger today?

MR. ROSENSTIEL: I--you know, I wonder whether CBS is going to think of the Westinghouse deal as, as good a one today as they did last week. One of the reasons Westinghouse apparently is interested in CBS is because they have a lot of debt, and it makes a lot of sense from an accounting point of view. It may not make as much sense from an operational point of view, although that combined company perhaps could affiliate with a Hollywood studio down the road. There is this perception, I think, that's prevalent among the network executives that they need to have this partnership to have the supply of programming that they will be able to own under the new rules. Again, I would agree with the other guest that this may be better for Disney. It may be better for Mickey Mouse to stand next to Ted Koppel and Peter Jennings than for Peter Jennings to stand next to Mickey Mouse.

MR. MAC NEIL: Why? Because in some way--are you suggesting that in some way it, it puts Ted Koppel and Peter Jennings in a negative light?

MR. ROSENSTIEL: Well, there are some obvious complications for the network. A network is, in addition to being a supplier or a deliverer of a lot of entertainment programs, it's a deliverer of news; in that regard, it has a civic responsibility that most companies don't have. There are some obvious problems. Disney has got problems politically in France with Euro Disney or--and it's in a controversy in Virginia with a theme park. The larger that this news organization--I mean, the larger a company that this news organization's a part of, the less independent, the more its credibility will be challenged. But I also think that the interests of a network which are in playing gatekeeper over what programs they want to provide over their network and the interests of a movie studio to produce product and send it out there and sell it are not necessarily the same, and there may be instances where ABC/Cap Cities isn't going to want to produce the kind of things that, that Disney is offering.

MR. MAC NEIL: Let's take both these points, Richard MacDonald. ABC has the leading news division by far at the moment in terms of success in the ratings. Is it in the nature--you've been studying the Disney Company--is it in the nature of the Disney management to let ABC News do its thing?

MR. MacDONALD: The Disney management is a very tough management. That has been historically for many years, since the very beginning when Walt first got--first had his tough first dealings in Hollywood. I think that it will--there will be a natural tendency for producers at ABC News to try to challenge it right away. I think they'll win too, because I think, if anything, Disney would be crazy not to let them--not to let them do their--do whatever stories they want to do, however they want to do it, even if it's about the Walt Disney Company. So I think that you'll see them move pretty aggressively to challenge that. Now Disney's management, there may come a point where they get pushed too far. It's very clear that they still have that reputation for toughness, and it'll be interesting to see where the line in the sand is.

MR. MAC NEIL: The--ABC News has grown over the last 10 or more years because of pretty heavy investment by Cap Cities/ABC in the news department. Is it in the nature of Disney to want to keep doing that?

MR. MacDONALD: Well, the interesting thing is, is that may be a real loss to Cap to ABC, from losing the, the original spirit of Cap Cities, because Cap Cities, in effect, built their company on local news. They applied a lot of the same principles to the network news business and as a result, they've got the leading network news organization today. So it'll be interesting to see if their departure, and if Disney's takeover, has a negative effect in that sense.

MR. MAC NEIL: You've studied the ABC News operation, Mr. Rosenstiel. What--do you have any observations on this?

MR. ROSENSTIEL: Well, one of the reasons that ABC in the last ten years has thrived while CBS and NBC have had a harder time in news is precisely as your other guest said. Cap Cities was a broadcasting company. It came from that culture, and they devoted the resources. They spent the money to acquire the best correspondents and producers, stealing them away from other networks, and they maintained particularly because of the integrity of certain individuals in the news division like Roon Arledge and Peter Jennings and Ted Koppel. They put a break on some of the tendencies that were occurring in the rest of the television news. It is not an accident that the, the news division with the highest quality has the highest ratings. That has been true through the course of television history, first with Huntley-Brinkley at NBC and then Cronkite at CBS. Quality, if you're willing to put up with the investment initially, will get you ratings in television news.

MR. MAC NEIL: So what's--

MR. ROSENSTIEL: It's a long-term strategy.

MR. MAC NEIL: So what's your observation on how this may, this merger may affect that?

MR. ROSENSTIEL: I am a believer that, that corporate culture is very important in terms of determining the nature of and the quality of product, and I don't--I'm uneasy with the corporate culture of a Hollywood studio and a network news division. While that may not be the essence of Cap Cities/ABC, while they do other things, I don't see this kind of marriage as a positive thing for any news division.

MR. MAC NEIL: Other suitors mentioned as frequently as hungry for a television network include Ted Turner of CNN and Turner Broadcasting. There were rumors that he was tempted to bid for CBS when the recent Westinghouse thing came. What is your speculation about what this is going to do to people like Turner?

MR. MacDONALD: Well, it's going to--it's going to create an awful lot of buzz and fervor, and they're going to feel some energy to go out and get something done. But I don't think any of the major players are going to move any more quickly than they have already because they've already been very active. Ted's been very active. There have been a number of other players working hard, so I don't see it having a dramatic short-term effect. I will--I do think that it's going to help if CBS is for sale. I think it will probably help the price because it'll validate whoever is out there buying it now, if it's Westinghouse or somebody else, so I think it'll help the price and maybe speed the process but not dramatically.

MR. MAC NEIL: Tom Rosenstiel, it's a paradox that the networks were supposed to be thought up till a couple of years ago anachronisms. They were losing share, audience share mightily to cable television, and now they are these valued products. What's happened to change the dynamic of what was happening with cable stealing their audience?

MR. ROSENSTIEL: Well, a couple of things. First of all, ABC/Cap Cities got into the cable business. They own 80 percent of ESPN, and they own Lifetime and are affiliated with that and some other programs, but I think what we saw was that this whole cable universe has a lot of stuff on it that's pretty similar to what's on other cable networks. We're in an environment now where no show ever goes off the air. It's into reruns forever, and we're seeing the 1950's relived on Nick at Night every day. And the networks, these three old anachronistic networks, are the primary source for higher quality programming or at least the most innovative sort of popular culture programming. You can see on Lifetime, which is an ABC/Cap Cities product, sort of old-style network television like the biography and things like that which are interesting and sort of higher, higher tone, but when it comes to sort of the best sitcoms on TV or the best hour dramas, those are still on the three networks because it's very difficult to know how to put those things on, what the public taste is going to be, and the companies that have been in that business the longest are the three networks.

MR. MAC NEIL: Do you have an observation on that, why the networks are such commodities?

MR. MacDONALD: For one thing, business is great. The economy is booming. There's a lot of new programming on the air, and so it's been--business has been great for the network business. I think actually it's a cyclical phenomenon. It happens every five or six years, and then they turn down, and when they turn down, you don't want to own one, but, yeah, I think it's basically a cyclical environment. I also think there's an awful lot of bank debt available, that the mergers and acquisitions market is all working in the same direction, so it's no surprise.

MR. MAC NEIL: Well, Richard MacDonald, Thomas Rosenstiel, thank you both.

MS. WARNER: Coming up next, the welfare reform debate and the overclass. FOCUS - WELFARE REFORM

MS. WARNER: Next, the states, welfare reform, and presidential politics. The forum today was the National Governors Association meeting in Burlington, Vermont. And one of the chief subjects was how to overhaul the nation's welfare system. As often these days, in the background lurked presidential politics. In the morning, the governors heard Senate Majority Leader and Republican President Candidate Robert Dole present his ideas for welfare reform. This afternoon, President Clinton offered some new welfare changes of his own. Here are excerpts from both speeches.

SEN. ROBERT DOLE, Majority Leader: Our welfare system doesn't work, and the American people know it. It doesn't work because it's not based on the classic proven American formula for escaping poverty: A job, a strong family, a good education, saving money to buy a home. Instead, our welfare system undermines almost every value and virtue that leads to self-reliance and success. It discourages work. It penalizes marriage and traps people in government-owned housing. The fact is that there are more people living in poverty today than before the great society was started. There can be no escaping the conclusion that the current system has failed, it's failed, doesn't work, and will keep failing until we change it. And change does not mean just tinkering at the edges. Our proposal will combine AFDC, child care programs under AFDC, and job training programs under AFDC into one block grant. It will permit the states to offer a food stamp block grant, giving you even greater discretion. The governor makes that determination under our language, not the legislature, but the governor decides if you want the cash. And as a result of the work in the Senate Labor Committee, we also consolidate and put into another single program 88--and I've got the list of the 88 different programs, job training and related educational programs, including the job Training Partnership Act and the Carl Perkins Vocational Training and Education program, all into one block grant. Here is a list of 88 programs. I'll bet nobody here can cite 'em off. That's how many federal programs, one after another, after another, we think ought to be block-granted to give the states discretion. Our second principle is that real welfare reform must include a real, a real work requirement, which in no uncertain terms requires able-bodied welfare recipients to find a job, not stay at home, and not stay in a training program forever, but to go to work in a job, hopefully in a real job in the private sector. When it comes to escaping poverty, we know that the old American work ethic was true because work works. But no longer will we burden you with the rules and requirements that accompany the old jobs program. We have heard your message from Democratic and Republican governors alike. We will repeal the jobs program and let you design real work programs. You might choose to cash out a percentage of your food stamp benefits and supplement someone's wages. Under our proposal, you'd be able to do that without a waiver from Washington. You'd make the decision. You don't wait months and months and months for somebody else to do that. Then our final principle is that no, no program with an unlimited budget will ever be made to work effectively and efficiently, therefore, we must put a cap on welfare spending. And we do that in our proposal.

PRESIDENT CLINTON: I come to you with essentially two messages: One I hope we will all do with Congress and one what--that we can do without regard to Congress. First, we do need to pass a welfare reform bill that demands work and responsibilities and gives you the tools you need to succeed; tough child support enforcement, time limits and work requirements, child care requiring young mothers to live at home and stay in school, and greater state flexibility. My second message to you is we don't have to wait for Congress to go a long way toward ending welfare as we know it. We can build on what we've already done. Already, you are and we are collecting child support at record levels. Earlier this year, I signed an executive order to crack down on federal employee delinquency in child support, and it is beginning to be felt. Already, in the last two and a half years, our administration has approved waivers for 29 states to reform welfare your way. So I say to you today, if you pass laws like these or come up with plans like these that require people on welfare to work, that cut off benefits after a time certain for those who won't work, that make teen mothers stay at home and stay in school, that make parents pay child support or go to work to earn the money to do it, or that use welfare benefits as a wage supplement for private employers who give jobs to people on welfare, if you do that, you sign them, you send them to me, and we will approve them within 30 days. Then we will have real welfare reform, even as Congress considers it. [applause] To further support your actions, I'm directing the Office of Management & Budget to approve a change in federal regulations so that states can impose tougher sanctions on people who refuse to work. Right now, when a state reduces someone's welfare check for failing to hold up their end of the bargain, the person's food stamp benefit goes up. So it turns out not to be much of a sanction. We're going to change that. If your welfare check goes down for refusal to work, your food stamp payment won't go up anymore. Congress still does need to pass national legislation. Why? Because I don't think you ought to have to file for permission every time you do something that we already know is work and that other states are doing, because we do need national child support standards, time limits, work requirements, and protections for children, and we do need more national support for child care. I hope these efforts that I'm announcing today will spur the Congress to act. But we don't have to wait for them, and we shouldn't.

MS. WARNER: We're joined now from Burlington, Vermont, by two governors who've been active on the welfare reform issue. Howard Dean, Democrat of Vermont, is the outgoing chairman of the National Governors Association. The man taking his place is also with us. He is Tommy Thompson, the Republican governor of Wisconsin. Welcome, gentlemen. Gov. Dean, let me start with you. What is the major difference that you see between the President's approach and Sen. Dole's?

GOV. HOWARD DEAN, [D] Vermont: [Burlington] Well, I actually think they're somewhat synchronous. The President is essentially taking the position that a state that has done something on welfare reform is going to receive the waiver for it, is now going to be a model for every other state in the country, so that, for example, he used us an example, we have time-limited benefits, and we require minors to live with either parents or in another supervised setting. If another state, for example, Delaware perhaps, might not have such a thing, they could now apply for that, and within 30 days, it would be granted. My impression of this speech was that the President made some major ground but this is really not a substitute for welfare reform in the Congress but it's something that helped welfare reform along rapidly while the Congress continues to work on it.

MS. WARNER: But he did say he would like even the legislative package to follow his model.

GOV. DEAN: Yes, he did. And I thought Sen. Dole's speech was very constructive as well. There are obviously some differences of opinion, perhaps on maintenance of effort or child care funding, but I thought it was a good day for welfare reform. I thought Sen. Dole gave a very constructive speech, and I thought the President- -I was electrified by what the President was suggesting, because I think it's overdue and an excellent idea.

MS. WARNER: Gov. Thompson, do you see these two approaches as insane?

GOV. TOMMY THOMPSON, [R] Wisconsin: [Burlington] All I can tell you is it was a good day for governors and for states' rights today. We have been working on welfare reform for a long time in Wisconsin, and a lot of people across this country have been doing some nifty things, innovative things that have taken people off of welfare. Today was a home run as far as I can see from both perspectives, from Sen. Dole's perspective have--have statutory laws that we could really do what is necessary to fashion our own welfare reform programs in our states, and President Clinton, of course, allowing easier access to waivers, and time-sensitive, 30 days, having 'em decided upon. But the truth of the matter is, is that the President realizes that when he met with some governors, Howard Dean and myself in Washington, D.C., in January, that he doesn't think we need the waiver provisions either, but until the law is passed and changed, he has given usa great deal of hope and opportunity to really get some good waivers, constructive waivers, through HSS and be able to set up our own programs, so it was really a home run day for governors.

MS. WARNER: But, Gov. Thompson, Sen. Dole said that essentially what the President is proposing here is the continuation of this waiver process, amounts to you governors having to play, you know, "Mother May I," every time you want to do something. Isn't that a major difference between the two approaches--

GOV. THOMPSON: Sure.

MS. WARNER: --the degree to which the federal government would retain--

GOV. THOMPSON: Oh, sure.

MS. WARNER: --oversight?

GOV. THOMPSON: Oh, sure, but the President was also very straightforward and said--he still says and believes strongly that we need some bipartisan bill through Congress, and I, I believe that, and I agree with him, and the President also said back in January that the waivers is not a good substitute for constructive legislation through Congress. So the President has recognized that, but until the legislation is passed, this is a giant step forward for us as governors to be able to go to Washington and be able to get our waivers through.

MS. WARNER: Well, Gov. Dean, do you and your fellow Democratic governors, are you looking forward to the day when welfare reform might pass that would include just these large block grants which would essentially--that's the Republican proposal--give you governors tremendous flexibility, much more than the President's approach does?

GOV. DEAN: Well, I think governors are very interested in having flexibility. I think some of the things that Democrats are nervous about or some Democrats are nervous about on the block grant side is that that breaks the partnership between the federal government and the state government and the fear on some Democrats' part is that should there be a recession and case load go up dramatically, that the federal government's share would not go up and, therefore, a local taxpayer's share would go up. I think we can negotiate those differences. We've had some very frank discussions here between Republican and Democratic governors, and I don't believe that some Democratic governors and Republican governors are very far apart. Others are a little further apart. There's obviously disagreement in the Congress inside the Republican Party. Well, there's disagreement here in Burlington between Democrats and between Republicans, and I think we can resolve these over time, but I--I thought that the President's proposal essentially says to the Congress, while you're trying to get this stuff resolved, I'm going to go ahead to the limits of my executive power and make it easier for states, and I thought that was very constructive.

MS. WARNER: Well, I want to get to the differences among Republicans in a minute, but what would you say is the greatest point of difference between Democratic governors and Republican governors on how this legislation should be crafted at this stage?

GOV. DEAN: I frankly--I truly don't believe the differences on welfare reform are that different, are that big. I think the biggest issue is that will there be a significant maintenance of effort, will there be adequate--

MS. WARNER: Would you explain that term "maintenance of effort."

GOV. DEAN: Will the states be required to continue to put in money, or will they be able to essentially reduce their allocation to welfare to zero and just use the federal money?

MS. WARNER: Which the Republican legislative proposals would let them do, correct?

GOV. DEAN: Which at least the House would--you know, I'm not-- Sen. Dole's bill is--at least to my knowledge--also allowed the states not to do that. And I think there is a difference of opinion on that. Child care funding, which Sen. Dole did not directly address, there's probably a difference in opinion on that. But I don't think these differences of opinion are gigantic. I actually think--and there will be those who disagree with me--that President Clinton's position today actually makes it easier for Sen. Dole to bring the bill along because while he's laboring to try to get consensus in the Senate, which is obviously difficult, President Clinton has now made it easier to do some of the things that everybody agrees has to be done, which is time-limited benefits, work requirement, forcing people to pay child support, so I think whether the two intended to work together or not, they, in fact, are going to do so. In fact, they've both said that they wanted to do so.

MS. WARNER: Gov. Thompson, let me ask you about this so-called maintenance of effort issue. The President has said elsewhere that he thought this could trigger what he calls a race to the bottom among states, that is, that states would just stop putting any of their own money into welfare and if benefits went way down, poor people wanted to move, well, fine. Do you think that's a danger, and how can that be prevented?

GOV. THOMPSON: I don't think that is a danger, but I know there are some Democrats that are very concerned about that, so yesterday during the governors-only session, we discussed that, and we decided that maybe we should change the vernacular, maybe it shouldn't be called maintenance of efforts but some sort of contribution from the states. And I would be very comfortable with some sort of contribution required by the states but give us the flexibility of what that contribution should be, and I think we are very close to reaching agreement. After our governors-only session, a couple of us governors sat down together, and we were--we were moving in the right direction, and I think given some extra time, we could come up with a bipartisan package on this issue, on the block grant issue, on the formula issues, and be able to come out of Congress with a bill that hopefully most Democrats and Republicans alike could say this is the right thing, it's going to be good for changing welfare, it's good for getting people off of welfare, get 'em into the work market, the job market, also being able to really get tough on those individuals that bring children into this world, and then walk away from their responsibility and don't pay child support.

MS. WARNER: And are you saying you think you could get this bipartisan agreement among you and your fellow governors before the end of this meeting?

GOV. THOMPSON: No. I--I wish I could say that we could. We tried but it was not--I don't think it was in the cards to get it done this weekend, but we're going to continue to work on it, and I'm- -I'm cautiously optimistic that we're going to be able to get something done during the month of August, before, before the September session, and I think we can come very close to reaching an agreement on a bipartisan basis.

MS. WARNER: Gov. Dean, since the President's proposals will go into effect, of course, immediately, let me just ask you both about this. To what degree do you think they will help--move more welfare recipients into work?

GOV. DEAN: I think they're going to help enormously. For example, in our state we changed some of the rules. We have a time-limited benefit, and we also have a work requirement. The work requirement hasn't even kicked in yet. I signed the legislation a year ago, and the first time limit is 15 months. It's going to kick in in November. But already we have 22 percent more people on welfare working, because we've lifted the rules. Now, say there's a state that hasn't done that. They can now, according to the President, go to Washington, copy our legislation, and have that waiver issued to them in 30 days. I heard about a wonderful innovation in Texas that I wish I had thought of; public benefits are partly dependent on it. In order to be eligible, you've got to have proof that your child is immunized at age two. We ought to do that in Vermont. I'm going to go back and as soon as this conference is over look into some other things around the country that maybe other people are doing and see if we can get those copied within that 30-day time limit. So I think the cause has been advanced immeasurably. I do think we need legislation. I agree with both Sen. Dole and the President on that. But I think we've really made a big step forward here.

MS. WARNER: And, Gov. Thompson, how do you assess what impact just the President's changes could have in terms of moving welfare recipients into work?

GOV. THOMPSON: Well, I think it's going to be very helpful because as Howard has pointed out, we're going to be able to submit waivers that other states have tried, and we're going to be able to get an answer back from the Department of Health & Social Services within 30 days. And I think all governors should take advantage of this and apply for as many waivers as they possibly can knowing full well that the President has agreed to give us some sort of an answer back within 30 days. I think that's helpful. And if we can come up with innovative programs that are working in California and adapt that to Wisconsin or to Vermont or to New Mexico, I think we're going to be better off and be able to help move people off of welfare into the job market and be able to give 'em a new opportunity, a new chance to become and be part of the American dream.

MS. WARNER: And then let me ask you about the prospects for Sen. Dole's legislation which he hopes to bring to the Senate floor on Friday. He, of course, has a dispute, as you referred to earlier, within his own party with Sen. Gramm, who wants to make the bill much more restrictive a la the House version. Where are you governors on that? Are you closer to Sen. Gramm's position or Sen. Dole's?

GOV. THOMPSON: I think most governors are closer to Sen. Dole's position because those of us who have been leading this fight for block grants and flexibility don't want to substitute strong Republican restrictions for strong Democratic credentials or restrictions. We think that it should be as flexible as possible, so I think that the vast majority of--I know of Republican governors would support the Dole bill. It's a good bill. It's--in fact, I think it's an excellent bill, and it goes in the right direction, and I'm confident that he's going to be able to eventually get it through Congress hopefully next week.

MS. WARNER: And how about you, Gov. Dean, where are the Democratic governors on this Dole-Gramm difference?

GOV. DEAN: Well, I certainly think that most Democratic governors would favor Sen. Dole's position over Sen. Gramm's, but I think that we would like to see further modification of Sen. Dole's bill principally in the area of maintenance of effort, perhaps on spending for child care and some other areas as well, but I don't think you can get much--many smiles from Democratic governors based on the Gramm approach. We really couldn't live with that at all.

MS. WARNER: And briefly, before we go, let me just ask you both, to what degree do you see presidential politics playing a role in the way welfare reform is being played out now? Gov. Thompson.

GOV. THOMPSON: I don't think that much. I think in order for presidential politics to work very well, you're going to have difference of opinion that one side is for it, and one side is against it. I think this--welfare reform has now been able to bridge those kind of partisan differences and say, sure, we've got partisan differences, there's no question about that, but overall, welfare reform is an issue, that's time has come, and we have to address it, and I think we have to get it behind us, and I'm confident that it's going to be done before the presidential politics really heat up. I'm pretty confident we're going to have a welfare reform bill that most people can say this is a drastic- -dramatic improvement and we'll be able to get it done before the presidential politics really heat up next year.

MS. WARNER: Gov. Dean.

GOV. DEAN: I actually think presidential politics is playing a role and in a good way. I think the presidential politics that Sen. Gramm versus Dole had a very destructive effect on Sen. Dole's ability to move legislation, but I--I see here both President Clinton and Sen. Dole now looking for the high ground, understanding that the American people want something done about welfare reform and that fighting between the President and the possible candidates or even between Sen. Dole and Sen. Gramm is not something that helps anybody. So what I saw today was two candidates taking the high road, and I think that's a good thing, and I think probably presidential politics has something to do with that decision on both of their parts, and I think the country can only benefit.

MS. WARNER: Well, Gov. Gramm--I mean, excuse me, Gov. Thompson, and Gov. Dean, thank you both very much. FINALLY - THE OVERCLASS

MR. MAC NEIL: Finally tonight, David Gergen continues his series of interviews with authors of books and articles that have become part of the debate over public policy. Tonight, David talks with Michael Lind, a senior editor at the "New Republic" and author of The Next American Nation, the New Nationalism and the Fourth American Revolution, a look at the emergence of what Lind calls "a new American overclass."

DAVID GERGEN: You have a very strong quote early in the book. It says, "The real threat in America is not the balkanization but the Brazilianization; not fragmentation along racial lines but fissioning along class lines." And you say that "Brazilianization is symbolized by the increasing withdrawal of the White American overclass into its own barricaded nation within a nation, a world of private neighborhoods, private schools, private police, private health care, and even private roads, walled off from the spreading squalor beyond. Like a Latin American oligarchy, the rich and well connected members of the overclass can flourish in a decadent America with third world levels of inequality and crime." Is that a fair characterization on my part of what you think about the new elite in this country?

MICHAEL LIND, Author: It is. One of the purposes of The Next American Nation is to draw attention to what I think is the growing consolidation of influence of wealth and power of this white overclass, as I call it in my book. It's the latest in a succession of elites we've had in the United States. We're all familiar with the old Northeastern establishment, i.e., the WASP's, the White Anglo-Saxon Protestants. This was a real oligarchy. It dominated the United States from the Civil War up until about World War II. The white overclass is much more diverse and inclusive than that predecessor elite. It's more meritocratic. It's more open, but it's still almost exclusively white, and it's very stratified. The basis to membership of it is elite credentials, professional and educational credentials from very expensive schools. The expense is part of it. It helps to have parents who can buy you a first-rate education at an expensive university, but the system's also rigged in favor of the members of the overclass. For example, legacy preference, preference for children of alumni at elite universities is the largest affirmative action program in the United States, something that most liberals and most conservatives don't want to talk about, because as members of the overclass, their children benefit from this. The practice of hiring people on Capitol Hill in elite law firms and businesses from unpaid internships which essentially screen out middle class and working class Americans, that's another example of the way the system is rigged in favor of the sons and daughters of the white overclass.

MR. GERGEN: There's much to be said, in my judgment, for the argument that we are separated out by class. I think you put your finger on something very important, and it deserves a lot more attention and which your book brings to it. I wonder if you feel to any degree that your book sometimes overstates the case that you may trip over your own argument. Think about this current leadership of Congress. Bob Dole, graduate of the University of Kansas, came back to the University of Arizona after the war to finish up, hardly prestige universities; Tom Daschle, South Dakota State; New Gingrich, Emory; Dick Armey, the University of North Dakota, finished up at Jamestown in North Dakota; Dick Gephardt, Northwestern. Are those people who've gotten their strictly by their birth, or haven't they achieved their positions of eminence in our politics?

MICHAEL LIND: No. In fact, if you'll look at the politic class not only now but in the 19th century even in the 18th century, it's always tended to be more meritocratic than whatever the socioeconomic elite of the day was, i.e., in the late 19th century, you had immigrants being elected to Congress. You had Western frontier progressives and that sort of thing. My argument about the white overclass is not that the members of the United States political class are all exclusively members of this group, but they are dependent on it, heavily, mainly through the mechanism of campaign finance, so that it doesn't matter whether you were born in a log cabin barefoot and you work your way up to become a leading politician in Congress or the White House, you have to raise money from the donor parties, as I call them, which are very small and disproportionately made up of overclass Americans.

MR. GERGEN: But my point is, if you're talking about an exclusive elite as perpetuating itself, as you have in your book, isn't it important to also understand that there's more validity that people can get into the overclass pretty rapidly still in this society and, in fact, they can leave the elite pretty rapidly, but talking about the upward mobility--

MICHAEL LIND: The overclass is more meritocratic than any previous national elite--

MR. GERGEN: Right.

MICHAEL LIND: --in American history. It's not meritocratic enough.

MR. GERGEN: But let's go back. I just read off a list of people who went up into our politics, came up--they weren't born to this- -they got there by achievement--with corporations. There was a survey done in the mid 1980's--2700 executives in major corporations--over 40 percent, 45 percent were either high school dropouts or did not go to prestige universities. Does that not suggest that a fair number of people are making it into the top ranks of America by routes other than birth?

MICHAEL LIND: The overclass in the sense that I use it is not exclusively hereditary. It's substantially hereditary. What's more, I think, with my generation, you're seeing an increasing hereditary element to it, i.e., this is rather impressionistic but as far as I can tell, the Depression, World War II period had the greatest upheaval, the greatest reshuffling of elites and of society probably in American history. Things tend to be settling down as they do in a stable society, where the people with a vantage pass it on to their, their children. In the past decade, I've worked for Democrats, I've worked for Republicans at fairly high levels in Washington, and I can say with some confidence that among the twenty somethings and thirty somethings, the overwhelming majority are now second or third generation college educated from professional families. That's not true if you go back to their parents and grandparents. You see much more social mobility in the middle of the 20th century than you do right now.

MR. GERGEN: Well, is that really true, because, you know, C. Wright Mills used to talk about the establishment back in the 50's and 60's, and there was a great deal of talk about an establishment back then that was very solidified, very Ivy League. I had the experience a few years ago at "U.S. News & World Report" when we were trying to do a survey of "the establishment," we wanted to identify what the establishment was, we called an awful lot of people, and they said, you know, there's no such thing as the establishment; we have an awful lot of people in the old terms--we don't have that sort of rigid calcified kind of establishment we did.

MICHAEL LIND: It's not rigid--

MR. GERGEN: People are leaving and coming all the time.

MICHAEL LIND: They don't all belong to the Episcopal Church, as they did in the old days. You know, they don't like to belong to the same country clubs.

MR. GERGEN: But Bill Gates could drop out of college and make it. Rush Limbaugh could drop out of college.

MICHAEL LIND: Bill Gates dropped out of Harvard University, and he came from a very well-to-do background.

MR. GERGEN: But he made it on this--

MICHAEL LIND: That's right. But I've had several Senators who were born to, to inherited fortunes. They grew up with millions of dollars throwing Bill Gates in my face, saying, see, you know. Throughout the 80's, I sat at dinners with very well-to-do conservatives, almost all of them had inherited their wealth, or at least came from professional families, and they were constantly throwing up Bill Gates or Ross Perot as examples. Now, by my definition of the white overclass, Ross Perot is not a member.

MR. GERGEN: He's not?

MICHAEL LIND: No. He has made his own money. He comes from a lower middle class background.

MR. GERGEN: Bill Gates didn't make his own money?

MICHAEL LIND: The white overclass is defined by essentially the status of your parents, not just how much money you make. It's by the social background that you come from.

MR. GERGEN: If you, in effect, present these--this white overclass, as you call it, the elite, as, in effect, intentionally holding down, holding back the rest of society by creating them, as opposed to us, by putting them out there, allowing in goods from overseas, by allowing in lots of immigrants, in effect, by--

MICHAEL LIND: It's not a conspiracy theory that there's some kind of smoke-filled room somewhere, where everyone's thinking up this. The members of a class who share the same interests are going to produce what appear to be a concerted program, simply incidentally, because of their exaggerated power within the society. It's not a conspiracy theory, though.

MR. GERGEN: Let me shift gears briefly, because we only have a small amount of time. You have a number of answers that you want to put forward for this, this new liberal nationalism, as you've said. And I would, I would think many of them are going to start controversy as people know more about them. Clearly, you've said you wanted to redistribute wealth in this country so that people are more equal, in effect. I was also interested that you wanted the government essentially to take over higher learning in the country so that missions would be--in effect, the government would provide vouchers for students. You also want amalgamation of the races genetically, whites, blacks, everyone, a lot of intermarriage--that's the ultimate goal.

MICHAEL LIND: This is not a proposal. It's a prediction. It's not the sort of thing that you have a program.

MR. GERGEN: I think you call it the ideal.

MICHAEL LIND: I think it is the ideal but it's also something that's happening on its own right.

MR. GERGEN: You think that's far more important than economic growth and opening up opportunities for people to learn and to educate themselves, and they can compete for high wages?

MICHAEL LIND: I don't follow your question.

MR. GERGEN: Well, that kind of approach, which is, in effect, saying, let's have the government move in and equalize things by equalizing admissions to all universities around the country, and by equalizing everybody genetically so we're all intermarried with each other and by redistributing wealth, in effect, creating a level--everyone's on the same level--it's a goal you want to move toward.

MICHAEL LIND: I'm in favor of leveling up, not leveling down. But that does mean breaking with some of our current policies. For example, as long as you have several billion destitute people entering the world labor market, including a number of destitute people with very first-rate educations, it's simply a hoax to tell American workers that they have to work harder and be better skilled in order to compete with them. In the 21st century, you will be able to find practically any job that can be expatriated. Now in terms of universities, I do think we have simply taken it for granted really since the beginning of the country that higher education is a luxury good to be purchased by your parents and maybe we'll do something on the side kind of as a consolation prize in the form of state universities or something but otherwise this is a like a car or a house. It's a reflection of your family's income. Is this really a rational way to organize the process of seeking out and identifying talent in your population and then connecting the most talented people, regardless of their family background, with the resources they need to develop to the greatest extent? Everything I propose in my book has as its purpose leveling up, not artificially bringing standards down. In fact, my greatest criticism of multiculturalism and racial preference is precisely that instead of devoting its energies to increasing people's abilities, it simply waters down standards in order to get certain fixed results. I'm not in favor of that.

MR. GERGEN: And you think that then, in effect, the white overclass is using multiculturalism against blacks and against browns and others by buying social peace?

MICHAEL LIND: If that's not the case, explain to me why the Republican Party since the 1970's has been the most enthusiastic supporter of black majority districts.

MR. GERGEN: Well, then explain to me why the Republican Party is now trying to get rid of affirmative action, of racial preferences.

MICHAEL LIND: The Republican Party did not introduce any major legislation to get rid of affirmative action. From the time that it was implemented by President Nixon in the early 1970's, all the way to the present until by this peculiar twist of the California constitution an independent citizens group got a ballot initiative that was going to, to rev this issue up. So now the Republican Party has jumped on this issue as a result of extra political pressure.

MR. GERGEN: But you do agree the Republicans whom you say are benefiting by racial preferences because they're part of this white overclass, you do agree that they are leading the charge to get rid of it?

MICHAEL LIND: Well, they're--certainly. At this point, it makes sense in terms of Republican partisan advantage to, to ride on this movement which is not primarily a movement invented by the Republican Party. It's a genuine citizens movement.

MR. MAC NEIL: Next week, David Gergen will engage another author whose ideas are attracting special attention. RECAP

MS. WARNER: Again, the major stories of this Monday, the Walt Disney Company announced plans to buy Capital Cities/ABC in a deal valued at $19 billion. It's the largest media merger ever. And President Clinton and Senate Majority Leader Dole presented competing welfare reform proposals to the nation's governors. Good night, Robin.

MR. MAC NEIL: Good night, Margaret. That's the NewsHour for tonight, and we'll see you again tomorrow night. I'm Robert MacNeil. Good night.