The MacNeil/Lehrer NewsHour

Intro

ROBERT MacNEIL: Good evening. In the news tonight, a former CIA man has defected to Moscow, while two Soviet circus performers asked for asylum in the U.S. Federal regulators ordered phone companies to lower profit margins on long distance calls. The FCC slightly eased rules requiring cable companies to carry local stations. We'll have the details of these stations in our news summary coming up. Judy Woodruff is in Washington tonight. Judy?

JUDY WOODRUFF: After the news summary, we have five main focuses on the News Hour tonight. First, an analysis of the story of the American spy who defected to the Soviets. A documentar report on the little missile that's caused a big controversy. Then a report on Japanese investment in the United States. Next, an explanation of today's FCC ruling on cable television. And finally, the story of a plane that was part car.News Summary

MacNEIL: A former CIA agent wanted for spying for the Soviets has defected to Moscow. The Tass Soviet news agency said today that Edward Lee Howard, 34, had been granted asylum in the Soviet Union. Edwards vanished from his home in Santa Fe, New Mexico, last September, days before the FBI charged him with espionage. Published reports have said that he sold information to the Soviets which wiped out the CIA's Moscow operations and led the Soviets to execute one CIA contact. Senator Patrick Leahy, vice chairman of the Intelligence Committee, said he assumed Howard's defection did serious damage.

Sen. PATRICK LEADY (D) Vermont: Whenever the KGB has had someone defect to the United States, it has caused a great deal of damage to the Soviet Union. I think it's only logical to assume when we have a CIA agent defect to the Soviet Union, it causes us damage. I think, though, that when somebody takes the step of defecting, it's a safe bet that part of the agreement with the Soviets is that he will tell them everything. And believe me, the Soviets will be relentless enough that they will get every bit of information out of him that he has.

WOODRUFF: An airman who was convicted of attempted spying today received a 25 year prison term. A military judge in California also ordered a dishonorable discharge for airman Bruce Ott. He was arrested last January when he gave documents about a U.S. spy plane to FBI agents who were posing as Soviet officials. The military prosecutor said that Ott wanted to earn up to $160,000 for his work as a spy.

MacNEIL: Coincidentally, two of the Soviet Union's top circus performers defected today to the United States and were granted asylum. High wire artists Bertalina Kazakova and her husband Nikolai Nikolski ran away from the Moscow State Circus in Buenos Aires and were helped by the U.S. embassy to fly to Miami. They told a new conference their motives were not material. They wanted freedom.

Translator: Right now they're very tired, they said, but they're happy to be here.

PERRY RIVKIND, Immigration Service: Well, her statement was that, when I met her, that she's in the land of freedom now, and they can do what they want and say what they want and fully understood the democracy we live in, as opposed to theirs. They want to work in the circus in the United States and asked if we could help. And I called Senator Hawkins' office, and they're going to assist in probably introducing them to possibly the -- maybe the circus in Sarasota.

MacNEIL: Before they left Argentina, the couple was interviewed by Soviet officials who attempted to dissuade them. The Immigration Service said they were admitted to the U.S. because they had a well-founded fear of persecution if they returned home.

WOODRUFF: Senate tax negotiators continued to wrestle today with a compromise tax reform plan that comes closer to meeting what their House counterparts want. A new draft proposal drawn up by Senate Finance Committee Chairman Robert Packwood goes a long way toward meeting the House position on Individual Retirement Accounts, or IRAs, by permitting people earning under $50,000 a year to keep their IRAs tax deductible. The latest Senate plan would also increase the corporate tax bite by some $118 billion. But some senators insisted they wouldn't go much higher. The House plan calls for $142 billion corporate hike.

The Congressional Budget Office gave the same gloomy report about federal finances today that came from the White House yesterday. That is, that this year's deficit will be the worst ever. The CBO projected the government's red ink will total $224 billion, and it predicted that even if Congress cuts everything it promises in this year's budget resolution, it will exceed its Gramm-Rudman target by almost $20 billion.

MacNEIL: The Federal Communications Commission handed down rulings which tighten the screws on phone companies, but loosened them slightly on cable operators. In one ruling, the FCC said AT&T and local phone companies had to reduce the profit margins on long distance calls by about three quarters of one percent. The agency said it should save $1.2 billion in long distance telephone charges in1987 and '88. In the other ruling, the old provision that all cable companies had to carry all local TV stations was changed. For the next five years, big cable TV companies must carry most local stations, including at least one public television station.

WOODRUFF: South Africa's government loosened one part and tightened another of its state of emergency today. Curfews and other restrictions on dozens of black townships in the industrial eastern cape region were lifted, but neighboring black governments said that South Africa was tightening the new controls on goods being transshipped to and from their countries, drastically delaying rail, air and truck traffic.

Meanwhile, in Copenhagen, the U.S. ambassador to Denmark, Terence Todman, down-played media reports that he might be named the next ambassador to South Africa. Todman, who is black, said he didn't believe that any ambassador would be chosen until the U.S. produces what he called a more credible program of opposition to apartheid.

MacNEIL: Steven Wayne Benson, the heir to a tobacco fortune, was convicted today of killing other members of his family to gain control of the $10 million family fortune. The 35 year old set pipe bombs that killed his mother and adopted brother and severely burned his sister a year ago outside their home in Naples, Florida. A Fort Meyers jury found him guilty on nine counts of murder, felony and arson. He'll face death in the electric chair or 25 years in jail. His lawyer said Benson was innocent, and he would appeal.

WOODRUFF: That wraps up our news summary for the day. Still ahead on the News Hour, a discussion of the American spy who defected to the Soviets. A documentary look at the missile called Midgetman. A report on a new kind of investment in the U.S. Today's FCC ruling on cable TV. And the story of the airplane Henry Ford would have loved. Turncoat's Tale

MacNEIL: First tonight, we assess the damage caused by the defection of CIA agent Edward Howard to the Soviet Union. We begin with a background report on him by Larry Barker of station KOAT, Albuquerque, New Mexico.

LARRY BARKER [voice-over]: Howard worked for the CIA for two years from 1981 to 1983. He had been described as a small-time agent who was being trained to go to Moscow as a CIA case officer under State Department cover. However, his use of drugs and a failed lie detector test caused the CIA to cancel Howard's Moscow assignment.

WILLIAM COLBY, former CIA director: We moved him out of the sensitive assignment to Moscow. We were in the process of leading him off to something else, and he knew that he didn't have much of a career, and so he left.

BARKER [voice-over]: A year later, while working for the New Mexico legislature, Howard is accused of going to Austria, where he received as much as $6,000 from the KGB for classified information. Howard's espionage activities were exposed by Soviet KGB defector Vitaly Yurchenko last year. Howard used his passport to leave the country, rather than face arrest here in New Mexico.

[on camera] He left his job, his family, his parents, his home.

Mr. COLBY: He's going to be a very unhappy fellow. It couldn't happen to a nicer guy.

MacNEIL: According to the Los Angeles Times, Howard's revelations devastated the agency's remaining spy operations in Moscow. For more on this case, we turn to George Carver, a former deputy to two CIA directors, and Senator Patrick Leahy, Democrat from Vermont, vice chairman of the Senate Intelligence Committee.

Senator, you said, and we quoted you earlier in the program, you thought the defection had caused serious damage. What do you understand by serious damage?

Sen. LEAHY: Well, the White House has said that it caused us damage, and we have to assume it did. I'm not at liberty, nor would I be at liberty, to go into the specific damage assessment. If anything, that would be more helpful to the Soviets than it would be to anybody here. But I think one thing you should look at, if the KGB had somebody defect to the United States in a similar position, it's safe to assume that does a lot of damage to the Soviet Union. This is just a turnaround of that same thing. It damages us just the way a KGB -- a serious KGB defection to the United States would damage the Soviet Union.It hurts, and it hurts bad.

MacNEIL: George Carver, what do you believe the damage caused by Howard was -- is?

GEORGE CARVER, former CIA official: Well, I have personal opinions. If I knew in detail, as with the senator, I wouldn't be talking on public television. But I think that it was quite severe, because you had an officer who was trained to go to an assignment in the Soviet Union and could apprise the Soviets, hence, of how such officers are trained, what techniques they learn, what they specialize in, the way we go about our activities in the Soviet Union, and apparently Howard also compromised certain ongoing activities and personnel and caused at least one to lose his life. And I feel that that's pretty despicable and also very serious.

MacNEIL: How would -- how would we know that a Soviet agent or a Soviet contact had been caused to lose his life through this?

Mr. CARVER: Well, we would know, presumably, who our contacts and friends were. And if one of them were arrested and then his family heard that he was no longer among the living, we would know that he'd lost his life.

Sen. LEAHY: You understand in this, and I --

MacNEIL: Yes, Senator?

Sen. LEAHY: I think Mr. Carver spelled out carefully that he can speak from his past experience and speak in a general, hypothetical fashion. I want to emphasize that in no way can I or do I imagine anybody in our committee would ever confirm or elaborate the specifics of what this man might have done. But I also agree very much with what Mr. Carver says -- it's a totally despicable act, and it is in a series of similar acts in the past couple of years. I think what it speaks to is that we have got to vastly improve our ability to screen these people, to monitor them, especially before they're given access to ongoing intelligence operations.

MacNEIL: Yeah, I want to follow up on that point, but I want to ask Mr. Carver one more question. How could a man -- a young agent still in training -- have had access to that kind of information? How would he know if he had not yet been posted to Moscow or anything or if he weren't actually in service in operations. How would he know of a contact or a friend of the CIA in the Soviet Union?

Mr. CARVER: Robin, let me re-stress that I'm speculating.

MacNEIL: I understand that.

Mr. CARVER: And I wouldn't be talking if I knew in detail, so I'm -- but I'm not under the same constraints that the senator is.

MacNEIL: I understand.

Mr. CARVER: I'm afraid bureaucracy and bureaucratic imperatives probably came into play. And with the wisdom of 20-20 hindsight, of course he shouldn't have been apprised of detailed information before he was actually on the plane.But I'm afraid there was a rush to get him out, a rush to get himinstructed, and he was told things that should have come later in the training period early, in the interest of bureaucratic efficiency. I'm afraid that bureaucratic efficiency frequently, in its canons, takes precedence over sound judgement and operational necessity. "I've got to get this Titanic through and win the blue ribbon; never mind the iceberg reports." "We've got to get the Challenger off the ground. We can't wait any longer. We've got the press on our backs. So never mind the O rings; let's go." This is an unfortunate trait of life, and it bites you in the tender portion of your anatomy -- I won't say on public television precisely where -- almost every time.

MacNEIL: Senator, the Los Angeles Times reported last month that the President's Foreign Intelligence Review Board had issued a very critical report on this Howard case and had recommended extensive changes in recruitment, in screening -- the things you were mentioning. Can you tell us what they are and whether they've been implemented?

Sen. LEAHY: To begin with, I can not and will not refer to anything that the President's board might have done. I'm not allowed to discuss anything that they might do. We have had in our own committee an ongoing survey of what should be done in counterintelligence to recommend a step. We will make a report to the Senate, and we'll have an unclassified version available to the public. I think also, though, that it is safe to say that steps are underway within the administration. I know that Director Casey and Judge Webster take these matters very seriously.

MacNEIL: That's the CIA director and the FBI director.

Sen. LEAHY: That's right. Take it very seriously and want to tighten up procedures. We need a -- we need a government-wide procedure. Now it's sort of a hodgepodge. The military might do it one way, the CIA another, FBI yet another. These have got to change. There's got to be some kind of a uniform fashion. We are also trying to cut down just the access that Soviets have in this country to our people -- the Leahy-Cohen law, for example, would cut down the number of Soviets with diplomatic cover in this country.

MacNEIL: What does the Howard case suggest to you, Senator, about possible weaknesses in CIA hiring, screening and other practices?

Sen. LEAHY: I think that Mr. Carver has said that there's often a time of rushing forward. He used the Challenger or the Titanic and others. He's absolutely right in that, and it happens far too often. I think what, if we learn anything from Howard and Walker and others, is that we're too -- too free to move people into an area where they have access to highly classified or sensitive material without adequately screening them, and then screening them on a constant, ongoing basis. You know, it's easy to look back and say, "My God, there were all kinds of mistakes here. There were things that were warning signals." Well, there were. But nobody followed up on them. Now, the good part about that is that there have been some spies since then who have been caught because of all the publicity given to this case and to the Walker case and others. Because suddenly people find that they are -- you have people acting in a fashion they shouldn't, going after sensitive material they shouldn't have, doing all the classic things that a spy might do. And they've been caught. But in this case, there were a series of mistakes. The only advantage we get out of them, if we're now willing to make sure those mistakes don't happen again, I think that those -- those reforms will happen.

MacNEIL: George Carver, what does it say to you that a man has -- who has had access to secret information, whether he had it too soon or not, is picked up in routine drug testing and polygraph testing and is then fired.

Mr. CARVER: It says, with the wisdom of hindsight, that you didn't make a wise selection in the first place. But the fact --

MacNEIL: What about firing him?

Mr. CARVER: Firing him was not a wise thing to do, Robin, but we live in a democracy. Operationally, the wise thing to do would have been to sequester him or put him off somewhere and check him out thoroughly. But as of that moment, he hadn't contacted the KGB. A counterintelligence officer can not go on the presumption of innocence, but in our democracy, that is what people empowered with legal duress have to do. And therefore, this highlights, among other things, the great difficulty of doing effective counterintelligence in an open, democratic society with values we would not want to surrender.

MacNEIL: Senator, why do you think the Soviets announced it today? It's widely assumed, I believe, in the U.S. government and reported in quoting officials as assuming that he's been there for a long time. Why do you think the Soviets chose today to announce it?

Sen. LEAHY: Oh, they may well have been embarrassed by the defection of the high wire circus performers out of the Moscow Circus -- the ones who sought asylum back within the past couple of days, but announced today. After all, the Moscow Circus is something that everybody over there is aware of. They probably want to balance that. Who knows? They go very carefully looking for the propaganda effect of it. In any event, I'm sure that they see it as something that will damage us. And remember, they have taken some very serious blows, having suffered some major defections in the past two or three years.

MacNEIL: George Carver, do you see anything else in their choice of today -- any other messages they may be sending?

Mr. CARVER: Well, I agree with the senator. I think they wanted to spring it on a reasonably slow news day, and I think also that Whitworth was just convicted, Pelton was just convicted, and they would want to sort of take a little of the edge off of that and remind their people around the world that if you handle yourself professionally, we will look after you. So I think there were a lot of messages they wanted to deliver, and they wanted to wait 'til there wasn't too much competition on the front page, and that's why they picked now. The circus may have prompted them to do it today as opposed to next week, but I think they pretty well decided to do it after they wrung Howard out and satisfied their own paranoid selves that he was for real and not a plant.

MacNEIL: George Carver and Senator Leahy, thank you for joining us.

Sen. LEAHY: Thank you. Battle for Billions

WOODRUFF: Throughout this week, we have been focusing on the defense debate as Congress votes on funding the President's defense program. Tonight we look at strategic forces, especially the question of protecting land based missiles, which many experts consider the lynch pin of the U.S. nuclear arsenal. There is one proposed strategic missile, the Midgetman, which has generated a controversy that brings together the questions of what will work and at what price.

[voice-over] Six years from now, truck cabs like these may be roaming continuously out West over an area a little smaller than the size of South Carolina. If that sounds out of the ordinary, so is the cargo each cab would be pulling -- a highly accurate, intercontinental ballistic missile, or ICBM, ready to be fired at some target in the Soviet Union; a missile so small, compared to others in the U.S. arsenal, it's been dubbed Midgetman. Both it and anothe rmissile -- the MX -- were born out of a desire by several presidents to close a growing gap between U.S. land based nuclear forces and those of the Soviets.

Pres. RONALD REAGAN: The Soviet Union does have a definite margin of superiority. Enough so that there is risk and there is what I have called, as you all know, several times a window of vulnerability.

WOODRUFF [voice-over]: It was President Reagan who made the term famous, but the window of vulnerability has been a concern going back to the early '70s. The worry is that the existing U.S. arsenal of fixed silo based nuclear missiles, the three-warhead Minutemen first deployed in 1962, have become sitting ducks for the newest heavy, highly accurate Soviet missiles. Pentagon officials have persuaded every president from Richard Nixon on that the U.S. needed a heavier, more accurate missile of its own. As a result, President Nixon recommended the ten-warhead MX be deployed. But no one could agree on how to base the MX, and editorial cartoonists had a field day with the more than 30 different basing modes proposed through three administrations. All aimed to keep it concealed from the Russians and within environmental and political guidelines of acceptability. None received Congressional approval. With nowhere else to turn, President Reagan set up a blue ribbon commission to find a way out of the stalemate. It was headed by President Ford's national security advisor, retired air force general Brent Scowcroft. The day he announced his formal recommendations in April, 1983, there were high hopes that a consensus would form around the commission's blueprint.

BRENT SCOWCROFT, former national security adviser: Allowing us to put the divisiveness of the past, both in arms control and in our strategic forces, behind us and allow us to move forward with a more common perspective in our efforts to preserve both peace and liberty.

WOODRUFF [voice-over]: The Scowcroft recommendations: to go ahead with a limited number of MX missiles -- 100 -- based in the existing Minuteman fixed silos, and to develop a new, small, mobile, single warhead missile less inviting as a target than the ten-warhead MX and less threatening as a weapon. It was called Midgetman.

JOHN DEUTCH, Massachusetts Institute of Technology: Any system which puts fewer warheads on missiles or makes them mobile, because it makes it more difficult to target, improves stability.

WOODRUFF [voice-over]: Nuclear weapons specialist John Deutch was a member of the Scowcroft panel.

Mr. DEUTCH: I was under the impression that finally the nation had dealt with this problem of ICBM modernization and that the proposals made by the Scowcroft commission would be approved by the President and the Congress and would be implemented.

WOODRUFF [voice-over]: Three years later, however, Deutch says none of that has happened.

Mr. DEUTCH: First, the Soviets and the United States have not made progress on arms control negotiations to limit strategic nuclear weapons. Secondly, Congress has not approved the 100 MXs recommended by the Scowcroft commission but only 50. And third, we now are in a situation where the administration apparently is withdrawing its support for the small ICBM system proposed by the Scowcroft commission as the central part of modernization of our ICBM force for the coming decades.

WOODRUFF [voice-over]: The fact that Congress didn't come through with the full number of MXs and the President's pursuit of a strategic defense program intended to protect the U.S. from Soviet missiles before they strike has led to disagreement within the Reagan administration about the wisdom of Midgetman. One result: in Geneva, U.S. arms control negotiators are seeking to ban mobile missiles, even while the air force seeks funding for Midgetman from Congress. The Democratic chairman of the House Armed Services Committee says that on this issue it's been almost impossible to count on the administration.

Rep. LES ASPIN (D) Wisconsin: Since the Scowcroft package has come up, we have had two secretaries of state, we've had three heads of the National Security Council. We've had three secretaries of the air force and two deputy defense secretaries of research and engineering. So you get different people in who say, "Well, I didn't sign up to this package. I, you know, I didn't -- I was never asked about Scowcroft. You know, that was before I got here. Maybe I like it, and maybe I don't. So, you know, I'll change it."

WOODRUFF [voice-over]: Despite all these problems, John Deutch says there's still every good reason to go ahead with Midgetman.

Mr. DEUTCH: My view is that our posture should give the Soviets the right, correct incentive to move towards a more stable world. But, of course, we can not assure that they will be willing, and I would not at all predict with certainty that they would be willing to enter into an arms control agreement. But we can put ourselves in a posture which leads to greater stability and gives them an incentive to move in that direction too.

WOODRUFF [voice-over]: But at least one expert on the Soviet military says there is no evidence the Soviets pay much attention to U.S. decisions about individual weapons systems. MIT Professor Stephen Meyer:

STEPHEN MEYER, Massachusetts Institute of Technology: You look across the board, the Soviets do not mimic American strategic behavior at all. And so the notion that somehow by shifting to mobile, single warhead ICBMs, they would do the same thing just to emulate us -- there was never any evidence for that, and indeed it's never happened. The Soviet program for a mobilized ICBM began way back in the late 1950s, and the SS-25, which is now deployed, was planned long before Midgetman was ever heard of. The fact that it's a single warhead mobile missile may have more to do with the level of Soviet technology than any discussions they may have picked up here in the United States.

WOODRUFF [voice-over]: Even so, Midgetman proponents say whatever the Soviets do, the U.S. needs the Midgetman.

Mr. SCOWCROFT: In fact, we need it more than the Russians do, because our ICBM forces are more vulnerable than theirs now and for some years in the future. And therefore, I think we need the survivability more than the Russians do.

WOODRUFF [voice-over]: Republican Senator Pete Wilson, who is on the Armed Services Committee, agrees with Scowcroft, but says Midgetman's high price tag outweighs any advantage it brings in survivability.

Sen. PETE WILSON (R) California: The problem with this small missile is that with a single warhead on a single launcher, it becomes virtually unaffordable -- $50 billion for what is an addition of 500 to an overall inventory of 12,500 with the addition of these.

WOODRUFF [voice-over]: Midgetman's proponents, however, say much of the complaint about cost is coming from people who would prefer to see the money spent on President Reagan's Strategic Defense Initiative.

Rep. ASPIN: It is not out of proportion to what strategic systems cost. And the people who are making that argument are the same people who want you to spend billions upon billions upon billions for SDI, for all of these other systems. I mean, it is -- $44 billion is a lot of money by anybody's standard, but spread over the lifetime of a weapon system like that, it's not that much in any one year in comparison to what you're spending on defense.

WOODRUFF [voice-over]: Aspin's argument doesn't sway critics like Wilson, who argue that the way to make Midgetman cost effective is simply to put more than one warhead on each missile, thus requiring fewer missiles.

Sen. WILSON: To cut, thereby, not only the number of launchers, but, as a result of that, cut all of the logistical support necessary -- all of the personnel as security. If you can cut the number in half or cut it to one third the number of launchers you have to have, obviously you do good things to your cost.

WOODRUFF [voice-over]: Reagan administration officials refuse to be interviewed on this subject. But in testimony before a House committee in June, Defense Assistant Secretary Richard Perle made the same case as does Wilson for adding more warheads to the Midgetman.

RICHARD PERLE, assistant secretary of defense: I do think wwe have to be conscious of costs, especially in the aftermath of Gramm-Rudman. And it is vastly more expensive arbitrarily to restrict the Midgetman to a single warhead than to permit it to have, say, two warheads. This would, for the same number of warheads, significantly reduce the costs of the program by some tens of billions of dollars, because you --

WOODRUFF [voice-over]: But Midgetman's defenders argue that adding more warheads makes Midgetman too heavy to be mobile, and thus an easier target for the Soviets.

Rep. ASPIN: If it's going to be survivable, it's got to be mobile. And if it's going to be mobile, it's going to be small.I don't say it has to have one warhead, but it can't be a big MX.

WOODRUFF [voice-over]: Aspin says the issue is mobility. More than two warheads makes the missile too heavy to travel on U.S. highways.

Rep. ASPIN: You get the thing that big, and you put it together with a launcher and a carrier, I mean, the thing will just crush the roads, and it will -- you can't move that kind of thing. You can't get it up on a -- it will sink into the desert or sink into the ground where you're trying to move it. It just -- you just can't make it mobile that big.

WOODRUFF [voice-over]: Senator Wilson, however, argues that none of this is proven.

Sen. WILSON: It is like a dispute about how many teeth there are in a horse's mouth. Let's open the mouth and count them. Let's have tests and determine whether or not we can't develop this capability.

WOODRUFF [voice-over]: But General Scowcrift says a lengthy delay for more testing could be dangerous.

Mr. SCOWCROFT: Without an ICBM program, I think we leave the Soviets in a position of significant advantage, which is one of the reasons that we put forward the package of both the MX and small missile.So it seems to me the burden of proof is on the side of those who want to delay. I think delay is tantamount to cancellation, and that's what worries me.

Rep. ASPIN: The MX became a joke, because we kept fooling with the basing modes and fooling with the basing modes. If we do that by putting more warheads on it, getting it bigger, getting it smaller, it's mobile this way, it's mobile that way -- if we end up with no missile because they fool around with it, Ronald Reagan will have been in office eight years, and we will still be facing the vulnerability of a land based missile.

Sen. WILSON: The problem is that there is a real rush to judgement on this. Instead of calling it Midgetman, it should have been called Congressman, because it was designed by Congress -- by Congressional fiat. The air force was told, "You build that thing and build it at 30,000 pounds, not an ounce more." Now, whjy is it that these proponents are committed to this missile anorexia nervosa? They are just hungering for this little missile, and it can't get any bigger. It is because of this theology that it has to stay that small in order to be non-provocative. I don't think that holds water.

Mr. DEUTCH: I think that that position suffers from only one flaw, and the flaw is that what is really at issue are not technical differences here among systems. We really have, I think, a relatively good understanding of the different technical features that bear on the different proposals. What is an issue here is our nation's ability to make a political judgement and stick to it regardless of administration, regardless of what party is in the White House, and say, "Here's how we're going to be modernizing our ICBM force. It's important for us, it's important for nuclear stability, and it's important for the alliance."

WOODRUFF: President Reagan has asked the Pentagon to report back to him in early December on what forms of the Midgetman, in five different sizes and ten different basing modes, make the best, if any, strategic sense.

Still ahead on the News Hour, a report on Japanese investment in the United States, an analysis of today's FCC decision that changes what cable TV stations have to carry, and a look at an airplane that is part automobile. Yen for Dollars

MacNEIL: Yesterday Goldman Sachs, one of Wall Street's largest and most profitable firms, said it was negotiating to sell a stake in its profits to Sumitomo Bank of Japan. In return, Sumitomo, the world's third largest bank, would pay Goldman $500 million. If completed, the deal would give the Japanese bank greater access to U.S. capital markets. It's the latest example of an aggressive new strategy by Japanese firms which are investing billions of dollars in Wall Street. We take a look at the story now in this report from Charlayne Hunter-Gault which we originally broadcast last May.

CHARLAYNE HUNTER-GAULT: As almost everybody knows, items like this Japanese-made Toyota have been a major source of controversy between the United States and Japan. Last year alone, sales of Japanese cars and other Japanese goods resulted in a $50 billion trade deficit between the U.S. and Japan. While the debate over what to do about that grows louder and louder, a quiet revolution is taking place elsewhere.

[voice-over] That revolution is occurring here, at this Japanese life insurance company in Tokyo, and here, at this Japanese securities company's New York office. What you are witnessing is the movement of large amounts of Japanese capital -- capital which comes in from their trade surplus back into the U.S. economy. One of the men moving money between Japan and the U.S. is this man -- Yoshio Terasawa. He is chairman of Nomura Securities International, the New York branch of Japan's and the world's largest brokerage house.

YOSHIO TERASAWA, Nomura Securities: One talks about imbalance between the United States and Japan -- trade imbalance amounting to as big as $50 billion this year, most probably; five-oh. But almost as big as the amount of $50 billion, we are -- the amount that Japanese investors purchased -- bought American treasury bills last year.In other words, we make money in Japan, and with the dollars we made from the trade, we invest in the United States.

HUNTER-GAULT [voice-over]: The Japanese cite three major reasons why they are attracted to U.S. Treasury Bonds: their higher interest rates compared to Japanese bonds; their security; and their liquidity, since the U.S. government security market is the largest capital market anywhere.For the most part, Wall Street welcomes the Japanese financial invasion, viewing it as a beneficial trend. Jeffrey Garten is with the investment firm Shearson-Lehman Brothers and was the former head of their Tokyo office.

JEFFREY GARTEN, Shearson-Lehman: The impact of all of the flows of foreign capital into the U.S. has been to keep interest rates lower than they otherwise would have been. Because in the absence of the foreign capital, there would be tremendous demand on the U.S. money supply, and that would have bid interest rates up. The deficits, of course, require financing. There's a gap there. And Japanese funds have plugged that gap to a great extent, because Japanese consumers have been purchasing American securities, especially treasury bonds.

HUNTER-GAULT [voice-over]: David Batten is with the investment firm of First Boston.

DAVID BATTEN, First Boston: The impact has been so substantial, it's almost impossible to put it in a limited number of words. If you look over the past three years, starting in 1983, basically, the purchases by Japanese institutions of dollar denominated securities have doubled each of those years from approximately 12 billion to 24 billion to almost $50 billion. So it has been an extraordinarily important source of funding for the U.S. marketplace.

HUNTER-GAULT [voice-over]: What has opened these floodgates of Japanese capital is the Japanese government's recent relaxation of curbs on foreign investment. Firms and individuals can now invest up to 25% of their total investments. Experts say that the total amount of capital available for investments in Japan comes to $3 trillion.

Mr. TERASAWA: So if 10% of the $3 trillion should come to this country, that will be already $300 billion, you know?And so we -- we think that there's going to be a lot of money from Japan to Wall Street.

HUNTER-GAULT [voice-over]: But the rapidly declining value of the dollar is causing some Wall Street analysts to wonder if Japanese investors might begin pulling out of the bond market. In the last year, the exchange rate has declined from 260 to less than 170 yen to the dollar. In short, what the Japanese gain in higher interest by holding U.S. securities, they are rapidly losing to the devalued dollar.

Mr. BATTEN: The concern is that the attitude of the Japanese toward the dollar changes dramatically, and they'll want to liquidate their dollar holdings. Well, were that to happen, on a worst case basis, we could have absolute chaos in this market, because we would not have the capacity to absorb all that supply in a short fashion.

HUNTER-GAULT [voice-over]: To date, the worse case scenario remains onlya fear. In the interim, it's not just Wall Street courting Japanese investors. These American businessmen have come to Tokyo to exploit the growing Japanese appetite for American real estate. They are executives with the Equitable Life Assurance Company, meeting today with their counterparts at Nippon Life Insurance to discuss real estate deals they are working on jointly in America.

Japanese businessman: As you know, we, you know, both companies -- I mean, Equitable Insurance and Nippon Life -- jointly, you know, are making investment in --

HUNTER-GAULT [voice-over]: For the Japanese, this is where the biggest real estate action is. It is a city that they feel they understand -- New York. These buildings and construction properties are owned in whole or in part by Japanese investors.

JACK A. SHAFFER, Sonnenblick-Goldman: I don't think anyone in our office has ever sat down to add up the total involvement in gross dollars, but I would say that the -- in New York alone -- they are involved in well over $2 billion worth of real estate projects.

HUNTER-GAULT [voice-over]: Jack Shaffer is a partner with the New York firm of Sonnenblick-Goldman. They advised and helped finance real estate deals for their Japanese clients.

Mr. SHAFFER: Right now, what we're seeing in this country is still a trickle of what we think is going to be a major move of investment capital from Japan to the United States. And so each year we're seeing more and more capital movement from Japan to the United States.

HUNTER-GAULT [voice-over]: But as those floodgates of Japanese capital open, Wall Street is growing increasingly worried about whether or not Japanese investments will be made through American firms. Recently, Japanese firms have been taking a larger and larger role in handling Japanese investments in America. They have also begun underwriting bond and stock issues for the U.S. government and major corporations.

Mr. BATTEN: Two years ago, the bulk of the investment flows would have come in through U.S. institutions -- brokerage houses, investment banks. The major -- four major Japanese brokerage houses have quite substantially increased their resources in New York -- both capital resources and personnel resources. And so today, I think, we've swung from one end of the spectrum back toward a middle ground in which both U.S. and Japanese houses are very much part of the intermediation process.

HUNTER-GAULT [voice-over]: As Japanese firms in New York take on more and more business, they've had to expand their staffs.

Mr. TERASAWA: In '81 we had approximately maybe 75 people here. Today we have approximately 290. And in '81 our net worth was maybe $20 million net worth. And today, $100 million.

HUNTER-GAULT: That's pretty remarkable growth.

Mr. TERASAWA: Yes. Code for Cable

WOODRUFF: Next, an important story on the television industry -- important both to those in the business of television and to large numbers of people who watch it. As we reported earlier, the Federal Communications Commission today approved a compromise plan that will regulate which channels and other services must be carried by local cable television operators. It was the culmination of a hard fought battle between the cable people on the one hand and an array of commercial and noncommercial stations on the other. Here with us to explain the importance of the ruling both for the industry and consumers is Merrill Brown. He is executive editor of Channels magazine, which covers thetelevision industry.

Mr. Brown, first of all, just tell us in very simple terms, what did the FCC say the cable operators now must do?

MERRILL BROWN, Channels magazine: Well, nothing simple about this, Judy, unfortunately, but let me try to walk through it. If you are a cable system of 20 or less channels, you are exempt from any requirements except that you cover -- that you send to your customers one public television station. If you are a system of 54 channels or more -- a large cable system, in other words -- you have to carry two public television stations, and you're required to allocate a quarter of your channels to local stations. There is a formula based on ratings which explains which of those channels -- local channels -- the cable systems must carry. After that, things get even more complicated in terms of share and so on and so forth. But the bottom line is, if you're a big cable system, you have to set aside a quarter of your channels for the local stations.

WOODRUFF: So basically, how is that different from what the cable operators are now required to do?

Mr. BROWN: Well, right now the situation is in considerable disarray. A U.S. appeals court last year threw out longstanding rules which said that all cable systems had to carry stations within a radius of 50 miles or so of their home base. So everybody was on. And that created some oddities in the system. For instance, in Washington, where cable companies carry network affiliates that are both in Baltimore and in Washington, because Baltimore and Washington are so close by. For the last year, there have been no rules, essentially, and there's been a lot of change out in the marketplace in what the cable companies have carried. For example, 72 public stations, according to the Association of Public Stations, have been dropped by cable companies in the past year. So things are changing right now. The industry has tried to work out a compromise on all this over the course of --

WOODRUFF: Industry meaning the cable industry or --

Mr. BROWN: The cable industry, the network television affiliate business, the independent station business, the public station business, all have attempted to come up with a deal in the private marketplace. And finally Congress got a little leery of all this and said, "FCC -- Federal Communications Commission -- you had best get involved in this." And earlier this year they did and opened a proceeding. Today's announcement is the culmination of that proceeding.

WOODRUFF: So the impetus for this was -- was that the stations were being asked to do too much? Is that it?

Mr. BROWN: Well, the --

WOODRUFF: The cable stations.

Mr. BROWN: The -- again, the forces at play here are many. The cable industry says it is a publisher, and has First Amendment rights, and the government ought not to mandate it to carry anything, as newspapers are not required to carry anything within their pages.A lot of people disagree with that, because the cable is increasingly the gateway to people's houses. Roughly 80% of the wiring of America is complete now. Close to 50% of the people have access to cable at this point. The world of television delivery is changing very, very rapidly, and there needed to be some fixing of this situation. The cable people have pressed the courts to drop this rule on them. They claim it's onerous.

WOODRUFF: How -- what will -- what will the overall effect of this be on the cable industry?

Mr. BROWN: Well, that's a little hard to call for a lot of reasons, not the least of which is this is going to go back to the courts again. But assuming it stands up, a number of things are going to happen. The broadcasters today are essentially saying hooray, because the basic TV stations in metropolitan areas are still going to be covered under this ratings clause I explained a little bit before. The cable people are somewhat more cautious about it all, because, after all, they've made a First Amendment argument to the courts before, and now they're being told, "Yes, we're still going to have requirements." This thing goes out the window, by the way, Judy, in five years, when it's sunsetted, according to what the commission said today.

WOODRUFF: Now, why did that do that? Why did they make it only a five year requirement?

Mr. BROWN: Well, I think they did that in large measure to appease a court which has said that fundamentally this is unconstitutional. So if we have a transition period while the rest of American is wired and things can play themselves out a little bit, perhaps that suits the court a little bit. But on the cable front, there is one piece of pretty good news in this. And that is that where there are redundant signals -- in other words, cable systems which are carrying more than one network affiliate -- there are opportunities here for basic cable networks that are struggling to get a piece of the advertising pie and get a piece of the audience. There are new opportunities coming out of this, hopefully, for them.

WOODRUFF: All right, just quickly, the effect on the public television stations.

Mr. BROWN: Well, the people at the stations, their spokespeople, say today that this is not particularly good news at all. As I said to you before, there have already been the dropping of a number of public stations. In markets like New York, where there are seven public television stations, inevitably on cable systems in New York, you're going to lose some of those. New York is an odd situation, but many metropolitan areas have two or more public stations now on cables. That is going to change, and the public TV people say today this is going to stymie and hamper the growth of the public TV movement.

WOODRUFF: And finally, the consumers. Is this good or bad for the viewers?

Mr. BROWN: Well, that's -- that's tough to call. I think it cuts both ways. The public TV news is not so good, because people are going to lose some of the multiplicity of choices in public television they have in places like New York. On the other hand, basic networks, I think, in the cable community which have struggled so far are going to have a better position. Minority broadcasters, religious broadcasters, others might get a shot on cable systems that they would not have had previously.

WOODRUFF: Merrill Brown, thank you for being with us.

Mr. BROWN: Thank you. Flying Car

MacNEIL: Finally tonight, we meet some unusual aviators who believe auto engines should propel airplanes. They gather regularly each summer in Wisconsin to show off their planes and memorialize the little-known mechanic and inventor who taught them that car engines could fly. Art Hackett of public station WHA in Madison, Wisconsin, has our report.

ART HACKETT [voice-over]: Tom Wolfe is no dummy. He knew that if you write a book about airplanes -- the kind with lots of pretty pictures -- it winds up on the coffee table. But if you write about the man behind the planes -- Chuck Yeager, John Glenn -- son, we've got a movie deal for you. This is the story of one of those men: Bernard Pietenpol -- sort of a Chuck Yeager in bib overalls; John Glenn as he would have been if he had grown up in Lake Wobegon, Minnesota. The late Bernard Pietenpol, a man who believed cars -- or at least their engines -- could fly.

The engine is from a Model A Ford. The plane is known as the Pietenpol Aircamper.

DICK WIEDEN: Well, this is the fuselage of a Pietenpol Aircamper airplane. It's not quite finished yet.

HACKETT [voice-over]: Aircamper.You were expecting a winged Winnebago, but it is your basic airplane -- very basic.

Mr. WIEDEN: Really all it is is a big model airplane is all it is. It's just bigger, larger pieces. Except that you obviously need a big place to work in.

HACKETT [voice-over]: Dick Wieden and Francis Saunders, along with a third man, Ted Davis, all of Broadhead, Wisconsin, are building a Pietenpol. It's being built from scratch out of spruce and mahogany from a set of plans that date back to the 1930s -- plans drawn up from the designs of Bernard Pietenpol.

FRANCIS SAUNDERS: Bernard Pietenpol is a man who wanted to prove that a car could fly, almost. A car engine could be successfully used in an airplane. And he proved it.

Mr. WIEDEN: Well, the guy was -- he was a genius.

Mr. SAUNDERS: Yeah.

Mr. WIEDEN: He has been raised to a kind of a cult figure, like you say, by certain people, but that's not the way he was at all. He was just a very common, soft spoken, honest type person.

HACKETT [voice-over]: He is an unlikely cult figure. He was apparently one of those shy Minnesota people Garrison Keillor talks about. But the people who build planes from his plans felt compelled to journey en masse to visit him at his hanger in the middle of a Minnesota corn field. He's now been dead for three years. His hanger has been moved to the Experimental Aircraft Association Museum in Oshkosh. His followers are still getting together, though, as they have for a decade, each summer in Brodhead. Each fly-in draws people with planes in progress eager to swap ideas.

Man: Nobody builds alike.

FRANK PAVLINGO: Nobody does quite the same thing. That's true.

Man: And it's just a matter of trying to pick whose ideas were the ones that were the most important.

Mr. PAVLINGO: The most important thing is don't deviate from what Mr. Pietenpol told you to do in the first place. Because usually deviations result in something less than --

Man: Frank Pavlingo of Canfield, Ohio, has become Bernard Pietenpol's unofficial historian.

Mr. PAVLINGO: Well, it goes back to when I was a little boy back in the late '30s. I used to watch a Pietenpol fly just a few miles away from our home, and I would say from that time on I had a love affair with the Pietenpol airplane.

HACKETT [voice-over]: So fascinated was Pavlingo that he was one of the first builders to journey to Pietenpol's hometown of Cherry Grove, Minnesota, to meet Pietenpol and learn more about this man who once built a steam powered phonograph.

Mr. PAVLINGO: This pilgrimage, as we say, is really the result of a sincere respect for a man who we feel stood for the highest standards of -- as a man, and we've come to really admire the man.

HACKETT [voice-over]: As we said, it is a basic airplane -- very basic. The muslin fabric on the wing is courtesy of the white goods section of the Montgomery Ward catalogue. The suspension is tied together with bungie cords. That is not a makeshift repair; it's supposed to work that way. Bernard Pietenpol was a man alwayson the lookout for a new way to fly -- new methods most people didn't think of. In 1928, he used Model A engines.By 1960, he spotted another chance to make a car fly.

Man: It's a Corvair engine straight out of the car. We bought the engine from the man that designed the airplane, Bernie Pietenpol. He had it ready to go. It was the last engine he built up. He was eighty years old, I think, at the time. He started experimenting with them in 1960, I think. I think they came out in '59, but in '60 he had one in an airplane already, and he said they were a natural for an airplane.

Mr. PAVLINGO: There are no examples of a failure -- a structural failure -- in these airplanes, despite the fact that Mr. Pietenpol had never had an education beyond the high school education. So he was an intuitive engineer, so to speak.

HACKETT [voice-over]: Even when there's a crash, as there was during last year's fly-in, Pietenpol's followers are quick to point out that the plane involved in the incident, which seriously injured the pilot, was not a totally authentic Pietenpol. Subtle changes had been made in the master's plans. The pilot has long since recovered and is now started on building another Pietenpol, continuing the tradition of building these very basic airplanes.

Man: It's a very impractical airplane. It's slow, it's short range, it's strictly a fun airplane is all it is. Its range is around 200 miles at 65 to 70 miles an hour. And frankly, your butt hurts when you get out of it if you fly that far. But it's just the idea of being able to fly two people with this old car engine, I think, that appeals to a lot of people.

HACKETT [voice-over]: We don't know if Chuck Yeager ever met Bernard Pietenpol. We do know they both wore leather helmets when they flew. As the legend goes, Yeager used a broomstick to pull the door shut when he first flew an airplane through the sound barrier. That's the sort of thing that probably would appeal to a man who would build a steam powered phonograph. And as the legends go, they both have reputations as, although it's not an apt phrase in this case, down to earth kinds of guys.

Mr. PAVLINGO: So there is something compelling that brings them here, and that compelling element is this basic quality that Mr. Pietenpol had -- this quality of sincerity, honesty, integrity.

WOODRUFF: Turning now to a last look at today's news. A House committee investigating former White House official Michael Deaver said that he may have committed perjury when he testified earlier this year. The committee reportedly wants the independent counsel investigating Deaver's lobbying activities to look into the perjury action. A former CIA employee who had evaded capture by federal officials defected to the Soviet Union, and two Soviet circus performers asked the U.S. for asylum. The Federal Communications Commission ordered phone companies to lower their profit margins on long distance calls. And Senate members of the tax reform conference committee are considering a proposal that would keep IRA accounts for those earning less than $50,000 a year. Good night, Robin.

MacNEIL: Good night, Judy. That's our News Hour tonight. We will be back tomorrow night. I'm Robert MacNeil. Good night.