The MacNeil/Lehrer NewsHour

MS. HUNTER-GAULT: Good evening. I'm Charlayne Hunter-Gault in New York.

MR. LEHRER: And I'm Jim Lehrer in Washington. After our summary of the news this Wednesday, Paul Solman and others explain the Fed decision to raise interest rates again. We have a Newsmaker interview with State Department human rights official John Shattuck, and a conversation with artist Jacob Lawrence. NEWS SUMMARY

MR. LEHRER: The Federal Reserve Board raised short-term interest rates today by 1/2 point. It was the seventh increase in the past year and was intended to slow the economy and ease the threat of inflation. Major banks responded immediately by raising their prime lending rates 1/2 point to 9 percent. That will increase the cost of borrowing for business and consumer loans. The Fed action received mixed reviews on Capitol Hill.

REP. DAVID BONIOR, Minority Whip: Every time you raise interest rates, working middle class families get hurt. Six times in the past two years, interest rates have gone up. Those increases alone have added $24,000 to the price of a 30 year, $50,000 mortgage.

REP. NEWT GINGRICH, Speaker of the House: The Federal Reserve Board is supposed to be charged with keeping stable honesty money, and that's its obligation, is to minimize inflation. And I think that, you know, as an independent board, and precisely so, it can follow the markets and try to have an impact. We don't want to go back to having the kind of inflation we had in the late '70s and the runaway interest rates that that led to.

MR. LEHRER: We'll have much more on the interest rate story right after this News Summary. In other economic news today, the Commerce Department reported the index of leading indicators rose .1 of a percent in December. The index is used to predict economic activity six to nine months ahead. Ford Motor Company announced record earnings last year of $5.3 billion. The other big three automakers, GM and Chrysler, had previously announced their own record earnings for the year. Charlayne.

MS. HUNTER-GAULT: The House of Representatives today passed the bill which does away with many unfunded mandates. Those are requirements which the federal government imposes on the states without allocating the money to implement them. The House vote was 360 to 74. Here's a sample of the debate which preceded this afternoon's vote.

REP. TOM DAVIS, [R] Virginia: If we believe in a program in this Congress, we should believe in it enough to fund it, not pound our chest and pass the bill and then go ahead and pass the buck on to state and local governments and their taxpayers.

REP. ELIOT ENGEL, [D] New York: What really frightens me, my colleagues, is that under the guise of unfunded mandates and under the guise of a balanced budget, and under all the guise of all these things we are rushing toward, we are going to give our children dirtier environment, dirtier air, dirtier water, all the kinds of things that the federal government has done for so many years, the federal government -- won't be able to be done.

MS. HUNTER-GAULT: The measure now heads to a conference committee to work out differences with the version already passed by the Senate.

MR. LEHRER: First Lady Hillary Clinton said today women's health will be a priority in the budget her husband will send to Congress next week. She spoke at a Washington conference on women's health issues.

HILLARY RODHAM CLINTON: I hope that out of this conference all of you who care so deeply about health and particularly women's health will pay close attention to the decisions that are going to be made on Capitol Hill in the next weeks and months, and that we will be attentive to what works, what can be made better so that it works better, what we no longer need if we have a better way of meeting the same needs, and that we will all recognize that we share the same goal, to improve the health and quality of life of Americans.

MR. LEHRER: Education Secretary Richard Riley said today the U.S. education system was improving. He said in his annual State of American address, "We are moving from being a nation at risk to a nation with a hopeful future." He said, student performance in reading, science, and math has risen, and the dropout rate has declined in the last decade, but he said, overall achievement was still too low.

MS. HUNTER-GAULT: The State Department today issued its annual report on human rights around the world. The Russian military came under sharp criticism for its crackdown in Chechnya, as did President Yeltsin. China was cited for failing to clean up widespread abuses, despite winning trade breaks from the U.S.. We'll have more on this story later in the program. Meanwhile, the U.S. began forcibly returning Cuban refugees to Guantanamo Naval Base in Cuba today. Five hundred of the eight thousand, five hundred refugees being temporarily held in Panama were transported this afternoon.

MR. LEHRER: More than 1/4 of a million people have been evacuated from towns in the Eastern part of the Netherlands. Flooding river waters were expected to peak there today. We have more in this report from Jonathan Munro of Independent Television News.

JONATHAN MUNRO, ITN: Into the last few minutes of daylight this evening, volunteers and emergency services tried to shore up the latest crisis point, a weak dike protecting the already deserted village of Ochten. All day the pressure has been building. At times, it has looked to be an unbearable load. The water, whipped up by high winds, has gained ground. The weaknesses of the dikes are being tested to the full, basic structures, nothing more solid than compressed earth. They are supposed to be an outer barrier for water, but many are now saturated like a sponge, and no amount of reinforcing can stop the seepage. With fears of a total collapse, the evacuation, like the water, is still in full flow. The town of Tiel must, say the authorities, be empty by 8 in the morning. Thousands have already joined the exodus, among them the patients of Tiel Hospital, who have been moved 50 miles North. This operation brought home to many the enormity of the crisis now facing the Netherlands, a third of the country threatened by dikes bursting. Even after the waters reached their peak, the time of maximum danger may still lie ahead, as existing floodwaters continue to erode the dikes and make their collapse even more likely. Tonight a fleet of RAF Chinook helicopters has arrived at Laubruch on the Dutch-German border. At first light, they will spearhead an airborne evacuation of villages under threat, lifting people out in case their defenses cave in.

MR. LEHRER: The leaders of Israel, Jordan, Egypt, and the PLO announced they will hold a summit meeting in Cairo tomorrow. It's aimed at reviving the Middle East peace process.

MS. HUNTER-GAULT: Theater legend George Abbott died last night of a stroke at age 107. The Pulitzer Prize winner wrote, produced, directed, or acted in more than 120 plays during his 81-year career. At 96, he became the oldest director to win a Tony for the revival of "On Your Toes." Abbott's most recent project was last year's Broadway remake of his 1950s hit, "Damn Yankees." That's it for the News Summary. Just ahead, raising interest, bearing witness, and canvassing black history. FOCUS - UPS & DOWNS

MS. HUNTER-GAULT: The interest rate hike is our top story tonight. Why did the Fed do it, and what impact will it have? This afternoon, Business Correspondent Paul Solman conducted our discussion. First, we have some background.

MR. SOLMAN: If at first you don't succeed, try, try, try, try, try, try, and try again. That, at least, seems to be the Federal Reserve Bank's philosophy as it raised rates today for the seventh time in twelve months. This raises is all part of the Fed's ongoing effort to curb inflation. The fears of inflation continue because the economy continues to do well. Here are just a few signs of our economic vigor. For 1994, personal income was up 6 percent, retail sales up 7 percent, housing starts up 13 percent, and the economy overall grew at a rate of 4 percent, which most economists consider too robust and, thus, too inflationary. Now, it may seem counterintuitive, but what scares many economists the most is when unemployment falls too low. And, indeed, it is now down to 5.4 percent, the lowest level in five years. Just last year, it was 6.5 percent. For traditional economists, low unemployment, caused by an expanding economy, is the hallmark of impending inflation.

MARTIN FELDSTEIN, Economist: What virtually all economics now understand and believe is that if you keep the unemployment rate too low, the inflation rate will not just be high but it'll keep rising. It'll keep jumping to higher and higher and higher levels. So the only way that you canstabilize the inflation rate is to have an unemployment rate that is high enough.

MR. SOLMAN: The theory is that with unemployment too low, employers are forced to pay higher wages to attract workers. This is translated into higher prices, since labor makes up about 70 percent of business costs. And as the prices of goods go up, workers need more money to stay even and so on and so on. The way the Fed forestalls an inflationary spiral is to raise rates early enough to cool an expansion down by making the cost of borrowing higher. That way, to mix our economic metaphors, inflation is supposedly nipped in the bud. Bit increasingly, there are those who question the Fed's zeal. Despite being several years into the current expansion, they say there's little, if any, inflation to be found. The official Consumer Price Index rose only 2.7 percent for all of last year, and the Labor Department said yesterday that salaries and wages went up only 3 percent last year, the smallest increase since records started being kept back in 1981. All of this was ammunition for those who argue that the economy is now basically different, that it, in fact, permits both growth and low inflation to occur simultaneously, allowing us to use yet another well-worn metaphor, that people can have their cake and eat it too. Now, businessmen typically worry most about inflation, but Jerry Jasinowski at the National Association of Manufacturers was more worried about choking off the expansion when he appeared on the NewsHour back in November.

JERRY JASINOWSKI, National Association of Manufacturers: [1994] We think that there's a whole new economy out there, that global competition, increases in productivity, a lot of competition in the wage market has really given us the capacity to produce more with less inflation. So we think we've got a new economy, and there's no real signs of inflation yet.

MR. SOLMAN: And so the argument: Jasinowski and others argue that the Fed is using old tactics to fight a formerly ferocious enemy, inflation, that is substantially weakened and nowhere in sight. Alan Greenspan and the Fed, however, continue to subscribe to the notion that a robust economy and low unemployment can't help but lead to inflation, that it's only a matter of time, and, hence, today's interest rate hike.

MR. SOLMAN: Four experts now pick up the argument and help us analyze today's rate hike. Neal Soss was a special assistant to former Federal Reserve Chairman Paul Volcker, he now runs his own investment fund; Dana Mead is chairman and CEO of Tenneco, Incorporated, a major industrial and manufacturing company based in Houston, but he's in our Washington studio today; Susan Lee is an economist who's been with us before, an author as well; and Ron Blackwell has also been with us, an economist with the Amalgamated Clothing & Textile Workers Union. The traditional argument, as we've seen, kind of counterintuitive, hard to understand, so simply, Neal Soss, what is wrong with a growing economy?

NEAL SOSS, Former Federal Reserve Economist: Nothing, and the Federal Reserve doesn't think there's anything wrong with it either. The Federal Reserve took this action because in their judgment this is the best way to preserve prosperity, not to imperil it. Their view is perhaps like the host of a party who says, well, we want to have a good party but we don't want to have some much excess that at the end the police come and raid the place.

MR. SOLMAN: Yet another metaphor.

MR. SOSS: Indeed.

MR. SOLMAN: Boy, between us, we'll --

MR. SOSS: Central banking leads to that apparently.

MR. SOLMAN: Central banking and metaphors. Ron Blackwell, he's the traditional, you're the liberal unionist here. What's wrong with that reasoning?

RON BLACKWELL, Labor Union Economist: Well, Neal's image of the punch bowl at the party, some people taking the punch bowl away before the party gets going, and what the Fed's really doing here is taking away the punch bowl on a rumor that there may be somebody in the room who's thirsty. There is absolutely no sign of inflation anywhere on the horizon, and we haven't seen prices this stable in 30 years. Consumer prices, as you show, are at their -- I mean, the increases in wages and benefits, as well, I might add -- are at their lowest level since the series has been kept. Labor contracts n the fourth year of this recovery are coming in at a lower rate than their first year awards, than they were in the past. There's no excuse on the wages and the price front for slowing down this economy, and I might point out that what's new about this current situation is we're about to take away the punch bowl before any of the benefits of this recovery accede to working people and their families. Wages are following, and family incomes are following for most American families.

MR. SOLMAN: Just to clarify, the punch bowl metaphor is that the economy might be getting drunk, and that's why you take away --

MR. BLACKWELL: And that's the inflation.

MR. SOLMAN: Okay. Susan Lee, you've been pitted against Ron Blackwell right here before several times in the past. How do you explain the trade-off between inflation and growth and unemployment, and which side are you on?

SUSAN LEE, Economist: Well, I think there is very little trade- off between growth and unemployment or employment. I think you can have a good growing economy. I think one wants a good growing economy. I, myself, would like to see real growth at 6 percent year after year after year. And you can have stable prices. The problem is the Fed has taken upon itself to do two things, which is to micromanage economic growth or no growth.

MR. SOLMAN: And that's by slowly --

MS. LEE: Doing a little here, a little there, a little here, a little there.

MR. SOLMAN: Right.

MS. LEE: And --

MR. SOLMAN: You don't want that.

MS. LEE: I don't think it's the job of the Fed. The job of the Fed is to give the economy stable prices. It can be stable prices. The Fed can say 2 percent inflation year after year, or zero percent, but the Fed should say one or the other. The Fed is trying to do two things at once, and I think that's where the confusion is. People say, well, does the Fed not want a growing economy, why is the Fed doing this? If you look at what the Fed should be targeting, stable prices, then it makes a lot more sense.

MR. SOLMAN: But this is going to be tough for people to follow, because you're coming from an entirely different theoretical position on this particular issue, right, I mean, it's fair to say. I want to --

MS. LEE: Correct, theoretical.

MR. SOLMAN: Correct, possibly, but very different in any case, and it would confuse our audience, I think, if we pursue it too much further. The point is: What do you think? Should the Fed not have raise rates?

MS. LEE: The Fed should have raised rates today, but what the FEd should have really done if the Fed had asked me last year is they should have decisively raised rates when the first signs of inflation began to appear -- Ron and I have had this argument for the past year -- in the commodity indices, because once it gets to the Consumer Price Index, it is too late.

MR. SOLMAN: Wait, stop for just a second. Commodity indexes mean -- indices mean that raw material --

MS. LEE: Raw material.

MR. SOLMAN: They're going up in price.

MS. LEE: They've been going up all year, and that's where inflation starts, and it spreads to intermediate prices and then to consumer prices. Once it gets to consumer prices, it is too late.

MR. SOLMAN: Okay. Well, let's get to Dana Mead sitting in Washington but based in Houston. Do you see this raw -- these commodity prices -- you, after all, deal in a whole bunch of businesses where you deal with raw material prices -- does that then make you think that the Fed should have raised the rates?

DANA MEAD, Chairman & CEO, Tenneco: Well, first, of course, I don't -- I don't agree that the Fed should have raised the rates at this time. To come back to the labor issue just a second, and I'll come back to the commodities, the key issue on labor rates is that productivity is outstripping the increase in the labor costs.

MR. SOLMAN: That is each person is getting more out of what he or she is doing?

MR. MEAD: Absolutely. American manufacturing, as you know, now leads the world in productivity increases, and that basically is keeping the lid on any inflationary pressure from a wage spiral aspect, so that's a very key point on the wage issue. On the commodities, it's interesting, it's true that some basic industrial commodities are moving up, but it also underestimates and really reflects a misunderstanding of what American industry has been able to do to keep its prices down by either substitution of particular commodities, by using less of them, by improving processes to maintain less cost going into the product.

MR. SOLMAN: Okay, good.

MR. MEAD: Caustic soda, which is used in the paper-making process, has increased by 450 percent. It's an important basic product going into the product. As we look at it, we decided to substitute much lower cost -- in fact, dramatically lower cost -- caustic -- or soda ash, and, therefore, kept the lid on the basic cost going into the end product. This is happening in a variety of areas, in aluminum, in steel, and in other areas.

MR. SOLMAN: All right, so now -- Susan Lee, we're now into the nitty gritty of this argument, the specifics of whether or not you see inflation out there on the horizon, so Dana Mead says he doesn't see it, and he's, he's in the business.

MS. LEE: Wait a minute. He did see it. He saw it caustic whose- it, and that's why he --

MR. SOLMAN: Caustic soda, I believe.

MS. LEE: -- and that's why he switched to soda what's-it, and he saw it, and he avoided it. At some point, all resources in this economy are scarce resources, that soda what's-it will become scarce, and he'll be forced to go back to caustic whose-it.

MR. SOLMAN: Well, Ron Blackwell, we'll let you come in here. That one, I think, can be argued on theoretical and other grounds and so forth, and you can believe either side of it. Are you basing your skepticism about the appearance of inflation on the numbers we saw and you alluded to solely, that is, this very modest rise in the Consumer Price Index, and also the very modest rise in wages and benefits?

MR. BLACKWELL: See, prices are continuously decelerating. That's what we're seeing. And Susan described the -- one objective of the Federal Reserve Board. Actually, the Federal Reserve Board has two objectives. One is employment growth, and the other is price stability. And right now, the Federal Reserve Board, what's really wrong with it, is it's pursuing only one of those, price stability, whether it's doing that well or not. I might also point out that it defines price stability, the Federal Reserve Board is now arbitrarily defining price stability as zero inflation, or continuous progress towards zero inflation, at which I would submit the economy simply won't work. It ought to have stable prices, a constant rate of increase in prices, and it ought to achieve the maximum amount of employment that's possible, and finally, and this is what's missing most in this situation, as Dana Mead just mentioned, productivity has been increasing, and if we were to share the benefits of the productivity equitably between companies and their employers, wages ought to increase at the same rate as productivity, and that would not imply any inflationary impact on - - of wages on prices at all.

MR. SOLMAN: Okay. We're going to get to a few more of these. Neal Soss, please -- just one second, Dana Mead. Neal Soss and then you.

MR. SOSS: I don't think that critique of the Federal Reserve is fair at all. The fact of the matter is that we've just come off the best year for job growth in a very long time. The unemployment rate is at multiyear lows. The Federal Reserve has nothing to be ashamed of in the record of job growth recently, and frankly, the Fed has nothing to be ashamed of in keeping inflation down, as you've been mentioning. And so it seems to me the issue here is: How do you preserve this wonderful environment where people can get jobs and still, we can maintain a low inflation? With the Fed's judgment about that, as reflected again today, is that a little bit of preventive medicine, a stitch in time, so to speak, saves nine.

MR. SOLMAN: Okay, wait, just one second. Dana Mead, please, and then Ron.

MR. MEAD: Let me just respond quickly to that point.

MR. SOLMAN: Yeah, please.

MR. MEAD: And we've heard it alluded to already. I think one of the really serious problems is not that we disagree with the Fed's objectives in this case, but we think that the Fed is not in the danger zone that it frequently talks about of spiraling inflation. We think the danger zone that they're entering is a danger zone of choking this recovery off before the good corporate profits enable us to reinvest and to create higher paying, manufacturing jobs in this economy. And I think that's the point that my college from the union is making, and also, I might add, to enable us to take advantage of the competitive edge that we now hold internationally, and so that we not only can grow domestically, but we can take advantage of the growth in the international markets by virtue of our increased productivity to create even more high-paying stable jobs in this economy.

MR. SOLMAN: Ron Blackwell, you were going to say something, and then I wanted to take us through some of these common reasons given for why the world has changed.

MR. BLACKWELL: I just wanted to respond to his question about how good things are that Neal was posing, because in terms of employment growth, it's been not bad, especially recently. In fact, it's kind of surprisingly strong, but what's not there is income growth and wage growth. And you might notice that since this department reported for the last year for which data is available, 1993, the second full year of the recovery, family incomes, median family incomes, were still falling for the first time that I know of in a business cycle recovery in the post war period, and a million families were added to poverty. Until we can find some way to get enough pressure in the situation so that wages benefit along withthe growth in productivity, the idea that we're aspiring for high-paying jobs is simply mythical.

MR. SOLMAN: And, Dana Mead, I see you nodding. He's the unionist. You're the businessman, but you agree with that.

MR. MEAD: Yes, yes, I agree. I said I think we need time in this recovery to reinvest to create the kinds of jobs that he's talking about.

MR. SOSS: Well, business investment has been very strong in this recovery, in fact.

MR. MEAD: Well, if you'll notice, a degree of uncertainty has crept into the model. The inventories are growing, which will certainly slow us up in reinvestment.

MR. SOLMAN: Inventories meaning you have stuff that you haven't sold yet, it's sitting there, and it's building up.

MR. MEAD: Absolutely. The December inventory reports show something like $50 billion in non-farm business inventory growth. The home builders are already saying that they're projecting 8 1/2 to 9 percent decline next year, new cars, new car sales are predicted to be off. In fact, there's dow time taking place. The Fed alluded in its announcement today that they took into consideration some minor indications that this economy is slowing down. I'd submit that it is slowing down, that the earlier rate hikes have bitten, and they're taking effect, and that piling on another rate hike at this time pushes us into a real danger zone of, of putting an end to this recovery, or at least creating so much uncertainty that business investment, expansion, and other areas that we would like to see in this phase of a recovery are going to be slowed.

MR. SOLMAN: Okay. And so there we have the fundamental argument, the argument we've been having, and can continue having with regard to specifics and so forth, but let's ask this question I think everybody might be interested in. Whatever side of the argument you're on here, we're all pretty much agreeing, I take it, that when interest rates rise, certain predictable things happen. Susan Lee, can you just brief us, remind us what they are?

MS. LEE: If they -- all right -- well, of course, it's a matter of degree. If interest rates go up a little bit, then everybody's a little bit more uncomfortable, which is to say mortgage rates go up, the rates on --

MR. SOLMAN: That's because the basic interest rate goes up, and so now the money you have to pay to borrow from the bank to get your mortgage goes up accordingly.

MS. LEE: Right. And also many people have mortgages that are now keyed to short-term rates, a variable rate mortgage.

MR. SOLMAN: A variable or adjustable rate mortgage.

MS. LEE: That's right.

MR. SOLMAN: I have that, myself.

MS. LEE: Ah ha! Then you are going to find that your mortgage payments go up. You perhaps will also find since it's more expensive for companies, credit companies to get the float from the bank, because interest rates charged for them will go up, they will increase rates on consumer credit on credit cards, for instance.

MR. SOLMAN: Okay. Credit card rates go up.

MS. LEE: If you don't pay right away.

MR. SOLMAN: Okay.

MS. LEE: There are lots of little things having to do with the basic credit arrangements of a society that are affected.

MR. SOLMAN: Dana Mead, just very quickly, do your prices go up? Do you become less likely to invest as a result of this?

MR. MEAD: Well, primarily, we would feel the first effect of this type of an increase on housing and other things on the demand side of our business.

MR. SOLMAN: Because you're in construction.

MR. MEAD: Absolutely. Construction machinery. So that would be the first impact. But eventually it would creep back into the investment channel also.

MR. SOLMAN: Okay. Now, what about in your unions, do you see it, Amalgamated Clothing & Textile --

MR. BLACKWELL: There are several different effects that rising interest rates have. What we're basically saying is that the cost of borrowing money increases, and, therefore, it's a cost to the people who are borrowing money, and it's benefit to the people who are lending money, and in that there is an important distributional issue here, because the lower-income people are net borrowers and the people who are the net creditors are very wealthy. So there's a redistributional effect on the poor and the middle class to the rich in this case. You might notice George Miller from California yesterday mentioned in his press conference that the average cost of a homeowner on a mortgage increase is about $145 a month. Now, compare that to the three hundred to four hundred dollars a year that the politicians are fighting over, over tax decreases. In other words, this is a cost that's been placed directly on this, and finally, I'll mention, apart from slowing the economy, you've got to bring in this question of Mexico.

MR. SOLMAN: Mexico.

MR. BLACKWELL: We just had this enormous -- we're being asked to bail out Mexico --

MR. SOLMAN: Right.

MR. BLACKWELL: -- at the rate of $20 billion a year in order to keep money flowing into Mexico. In the meantime, we're raising interest rates, which has the effect of taking money out of Mexico.

MR. SOLMAN: Because people --

MR. BLACKWELL: So what is the policy of the U.S. government?

MR. SOLMAN: -- because investors -- wait -- because investors take their money and say, we'll go to where we get the highest interest rates, if they're higher in the U.S., then we'll do it there. Just very quickly, because I want to get one last question in.

MR. SOSS: Well, the Federal Reserve certainly would have been remiss if they had focused solely on conditions overseas in making a policy judgment about the well-being of American workers and families.

MR. SOLMAN: I think that's fair enough. We've probably -- Ron Blackwell probably agrees with that. Okay, finally, last question here, which is that this is rate hike number seven in a year, as we've seen, at least the fourth or fifth time that I, myself, have done a story on the rate hikes, and so I ask the question for the benefit of our audience and myself: Am I going to -- and are we going to have to keep doing this? I mean, is this going to go on indefinitely, Susan Lee?

MS. LEE: I bet you one more for sure, for sure.

MR. SOLMAN: One more rate hike.

MS. LEE: We meet again when Duncan comes to burning wood one more time on this issue.

MR. SOLMAN: This is -- I think you got MacBeth wrong here, but the -- Ron Blackwell.

MR. BLACKWELL: I believe the Fed will continue this dance until they finally strangle this recovery.

MR. SOLMAN: Dana Mead.

MR. MEAD: To return to that smorgasbord you had earlier and lexicon of Madison Avenue, you know, where's the beef, someone's taken the sandwich away. Where's the inflation? And I think there's a good chance that if the harbingers that we've seen of slowing continue, that the Fed will probably not move again for sometime to come, and to let this play out. At least, maybe that's wishful thinking, but I think there's a good chance of that.

MR. SOLMAN: And very briefly, last word goes to you, Neal Soss.

MR. SOSS: Well, a regimen of preventive medicine means that the Federal Reserve probably will be doing this more, and that's a good thing, because it reflects the vigor that the economy will be showing.

MR. SOLMAN: Well, we're out of time and metaphors. Thank you very much, all of you.

MS. HUNTER-GAULT: Still to come, a human rights report and artist Jacob Lawrence. FOCUS - WRONGS ON RIGHTS

MR. LEHRER: Now, the State Department's annual review of human rights abuses around the world. It was released today by the official who prepared it, Assistant Secretary of State for Human Rights John Shattuck. He's with us now for a Newsmaker interview. Mr. Secretary, welcome.

JOHN SHATTUCK, Assistant Secretary of State: Thank you very much. Glad to be here.

MR. LEHRER: In your report, you said 1994 was a year of crisis and progress in human rights. Where were the worst crises?

SEC. SHATTUCK: Well, I think by far the worst and most tragic crisis was the crisis in Rwanda, where 500,000 individuals were killed in a genocidal slaughter that occurred in a very short period of time in May and June and April of last year, and it is a crisis that the world is still trying to catch up with and address effectively. It's involved -- the U.S. has been involved in leading the way to develop a war crimes tribunal to prosecute people for the responsibility that they had in carrying out those genocidal acts.

MR. LEHRER: And you see that as a human rights problem, not a political problem, not an international affairs problem, but that is narrowly defined by you as a human rights issue?

SEC. SHATTUCK: Well, human rights are interfused, intertwined with many aspects of foreign relations and political activities, but this is clearly and purely a catastrophe of enormous proportions for human rights, and the number of people who were killed and killed by those who were trying to cleanse them ethnically, as the term goes.

MR. LEHRER: When you look at a situation, whether it's in Rwanda, or whether it's in Russia or China, and we'll get to those in a moment, what set of standards do you impose, American standards for human rights, and then you say these people measure up to our standards or they don't, how do you go at that?

SEC. SHATTUCK: Not at all. I think the world over the last 50 years has done a great deal to advance international standards of human rights, and they are contained in the document "The Universal Declaration of Human Rights," which was adopted right after the second war, of course, and it provides for basic freedoms of speech, freedoms of the person, the rights of individuals not to be killed outside of some judicial setting. Obviously, there are differences of opinion on that subject, but the basic framework for international human rights has been set for 50 years, and it's been evolving in its strength, and came, I think, to a head in the 1993 World Conference on Human Rights in Vienna, where the standards were ratified by virtually all nations of the world.

MR. LEHRER: But you're not saying that these countries don't measure up to, to the way we do it in the United States, that there's a standard that's even more general and broader than that?

SEC. SHATTUCK: Yeah. There are clearly many aspects of our civil rights laws and of our basic approaches toward our Constitution and Bill of Rights which go beyond protections that are provided in the Universal Declaration of Human Rights and are more specific. But the, the basic framework of, of freedom, freedom of the person, freedom of speech, freedom from basic assault by government is established by the universal declaration.

MR. LEHRER: All right. Let's go -- you criticized Russia. Why?

SEC. SHATTUCK: Well, Russia has a very uneven record on human rights over the last year, but certainly the terrible events that have been unfolding in Chechnya I think demonstrate an excessive use of force within international standards, and the deaths of thousands of Russian -- of Chechen civilians, as well as others in the area, and I think that was a clear example of the kind of human rights abuse that this report covers. There were other aspects of Russia where freedom of speech and freedom of the press are very strong and have continued through this period, and I think we see Russia emerging from the period of totalitarianism, where there was virtually no freedom to a period where this is growing democracy and growing freedom but continuing major human rights abuses.

MR. LEHRER: Chechnya aside, the general situation on human rights in Russia over this past year, has it gotten better? Was it better in 1994 than it was in '93?

SEC. SHATTUCK: Well, the conclusion in the report is that it's uneven. In some areas, it has gotten better. I think the vibrancy of the press and basic freedoms of speech have improved. There's no question about it. I think there are aspects of Russian detentions and prison activities which may have gotten worse, but by and large, I think the situation in Russia is uneven.

MR. LEHRER: China.

SEC. SHATTUCK: China, well China is a, a very challenging country for human rights. Here I think we have seen --

MR. LEHRER: You mean, they have lousy human rights?

SEC. SHATTUCK: Well, it's -- it has a variety of aspects, some of which I think are very poor, and the conclusion of the report is that over the course of 1994, there was no significant improvement in human rights, and, in fact, in some areas it deteriorated severely.

MR. LEHRER: What's the most grievous thing in human rights that happens in China on a regular basis?

SEC. SHATTUCK: Well, I think the, the enormous problems of free speech, freedom of association, freedom of religion, the crackdown on dissent that has been plaguing China over the last year, and the treatment of prisoners, significant amounts of torture that occur in Chinese prisons, these are serious --

MR. LEHRER: That's still happening? There's not any let-up?

SEC. SHATTUCK: That is certainly still happening.

MR. LEHRER: Yeah. You also mentioned Mexico, which coming 24 hours after the President announced a, a major plan to help them economically, give us an overview on Mexico. You criticized them as well.

SEC. SHATTUCK: Well, we did, but I think in Mexico, there has been progress, and, indeed, I think Mexico illustrates the progress of democracy and human rights together, and Mexico had the freest and fairest elections in its history last August. Mexico, I think, after initially taking the insurgency of Chiapas and dealing with it in a very aggressive way, which involved a lot of human rights abuses, then reached back and began to negotiate and deal with that through reconciliation. There's been a cease-fire over the course of the last year. There certainly continue to be problems of the prosecution of human rights abuses in the Mexican justice system, and the problem of impunity, but I think the upward curve of human rights and democracy in Mexico is very solid.

MR. LEHRER: Mr. Shattuck, these are three examples: Russia, China, and Mexico, where the United States has other things going in the diplomatic area, and then here you come along, you and the human rights people come along and, and whack these people on the side of the head. How does this fit into what else is happening in the diplomatic area?

SEC. SHATTUCK: Well, I think it's a very significant element of U.S. foreign policy, as the President and as Sec. Christopher have made very clear, human rights, democracy, the rule of law, and the promotion of justice are very significant elements of all of our bilateral relations. Obviously, they differ in degree and ways in which we pursue those from country to country, but these reports, I think, have an enormous integrity. They've been published now for 19 years. They really were incidentally initiated by Sec. Christopher when he was the Deputy Secretary of State, and along with the Congress, of course, which authorized them. I think they show the long-term solid commitment the United States and many other countries throughout the United Nations system have to human rights.

MR. LEHRER: What is supposed to happen after, for instance, this report today? It's issued, it is publicized, and then what -- in the dream world that you as somebody who's devoted his whole life to this area of human rights, even before you came to the State Department -- what is it that you want to happen as a result of this?

SEC. SHATTUCK: Well, I think these issues and conclusions are taken very much into account in the way in which the United States relates to other countries. I think I'll give you a very concrete example that Sec. Christopher when he first came into office issued instructions to all of our embassies the first time that these had gone out to establish human rights reporting officers and committees in each embassy under the direction of the Deputy Chief of Mission, and that has meant that on the ground, in every country, we have human rights dialogues, we do reporting, and obviously, the results shows up in these reports, and we take into consideration what kinds of visits might be made to those countries, at what level, what kinds of assistance we might provide. Clearly, the support for the democracy is particularly important to President Clinton, and, obviously, the ways in which assistance for the support to democracy is decided comes through this mechanism.

MR. LEHRER: Is there any evidence to show that these reports matter to the countries on which the reports are given?

SEC. SHATTUCK: I think there's enormous evidence. I can tell you that right now and probably for the immediate future I will be quite unpopular in many countries as the person who has been responsible for compiling these reports. But I can also tell you that the country's taken very seriously in that they --

MR. LEHRER: They change anything?

SEC. SHATTUCK: There are -- I think there are major developments that have occurred over the last year, and, indeed, over a longer period of time. If you look at some of the peace processes that are underway in Northern Ireland, the effort that was made by President Clinton leading the way in Haiti to restore the democratically- elected president of Haiti, events that have been going on in Srilanka, a country that very few people pay much attention to, but where Srilanka has now entered into serious negotiations with some of its political opponents over some of these human rights abuses. So that many countries these issues are very clearly addressed.

MR. LEHRER: Those you just mentioned, particularly Haiti and Srilanka, would be on your list of where there's been major progress, isn't that right, in 1994?

SEC. SHATTUCK: Yes.

MR. LEHRER: Are you suggesting that any of that came about as a result of a State Department report on human rights? That's what I'm trying to get at.

SEC. SHATTUCK: I think that this is one of the factors. I think very much so, and I think the leadership of the United States on these issues is well known throughout the world. We're now in a U.N. Human Rights Commission session that's underway in Geneva, where the United States will be pursuing a number of resolutions against major human rights abusers. And these are taken very seriously.

MR. LEHRER: What do you say to, finally, Mr. Secretary, to anybody from any of these countries who say, hey, Shattuck, this is none of your business? I mean, we'll run our country, and you all run the United States of America, and just leave us alone and shut up about us.

SEC. SHATTUCK: Well, there are two major points here. One is that these are universal standards that have been adopted by the world and are now ingrained in the rule of law throughout the world, and second, the kind of people who will make those comments are often governments who are oppressive and are engaging in human rights abuse. The people in those countries with whom I meet wherever I go who are struggling to improve the human rights situation applaud what the United States is doing, and they are the ultimate beacons of freedom on whose behalf we're --

MR. LEHRER: And you're doing this for them?

SEC. SHATTUCK: We're doing it for them and for American citizens who throughout our country I think have a lot to gain from this kind of advocacy.

MR. LEHRER: John Shattuck, thank you very much.

SEC. SHATTUCK: Thank you. CONVERSATION

MS. HUNTER-GAULT: Finally tonight on this opening day of Black History Month, a conversation with Jacob Lawrence, an artist whose work immortalizes the people who created that history.

MS. HUNTER-GAULT: Jacob Lawrence's canvases are mostly small panels, but they explode with images larger than life, images of everyday life in the black community, expressed in brilliant colors in his distinctive cubist-expressionist style, works like "Pool Parlor," "Bar and Grill," "Funeral Service." In his artistic repertoire of the past 50 years are drawings, prints, book illustrations, and large murals. Jacob Lawrence was born in 1917 in Atlantic City. His mother, a single parent with three other children, tried to support them by doing domestic work but was often on welfare. The family lived in Philadelphia for a few years before finally moving to Harlem, when Lawrence was about 13 years old. It was the 1930s, in the midst of the Great Depression, and the tail end of the dynamic literary and artistic period known as the "Harlem Renaissance." The young Lawrence absorbed the influences of economic hard times and a burgeoning black consciousness. Lawrence was inspired by his first mentor, artist Charles Alston, and the sculptor and painter, Augustus Savage, also Romere Beardon and another budding young artist, Gwendolyn Knight, whom he later married. It was during this time that Lawrence began spending long hours in places like Harlem's Chambourg Library, diligently researching the epic struggles of the heroes and "sheroes" of the black community. The results -- painstakingly depicted in each brush stroke -- earned Lawrence a unique place in black history and the title "history painter." The first of Lawrence's history paintings was done in 1937, a sequence of panels chronicling the late 18th century liberator of Haiti, Toussaint Louverture. In the series, Lawrence was to establish the pattern of not using titles for his work but numbers, accompanied by simple sentences to help tell the dramatic story he was portraying. For example, No. 10 of the series is called the "Cruelty of the Planters Toward the Slaves Drove Slaves to Revolt, 1776." Black American liberators followed next. A Frederick Douglass series of 32 panels followed in 1938, then a Harriet Tubman series of 31 panels in 1939. But the first of Lawrence's series to be featured in a major downtown exhibition was "Migration," 60 panels completed in 1941, when Lawrence was 23 years old. It's a story of the black exodus from the South to the North after World War I, and it too followed the now familiar pattern. The line accompanying this painting was: "They were very poor." Critics have called the migration series Lawrence's greatest achievement, establishing him as the pictorial Griot of his own African American community, "Griot" being the African word for the village storyteller who passes on the history and tradition of his people. Recently, I sat down with Jacob Lawrence amidst the migration series in a gallery of the Museum of Modern Art in New York and asked him to tell us more about how his interest in black history came about.

JACOB LAWRENCE, Artist: I think that my interest in black history, history in general, black history in particular, came from the community out here in the black -- the black teachers, the librarians, the after-school sessions, and they would talk about Harriet Tubman, Frederick Douglass, Booker T. Washington, and it was told with such fervor, such belief, that it touched the youngsters, of which I was one. I can't tell you when this started, and our parents, of course, we grew up knowing about these heroes and heroines, and that's where it started.

MS. HUNTER-GAULT: And yet, none of that history was in the history books.

JACOB LAWRENCE: No.

MS. HUNTER-GAULT: You could find black history.

JACOB LAWRENCE: Almost oral history coming out of the community, from our parents, from the schoolteachers, the librarians, and they passed this one.

MS. HUNTER-GAULT: That was all during the time of the famous Harlem Renaissance, when there were so many black intellectuals and others, writers, painters, artists. What was that like?

JACOB LAWRENCE: Oh, yes. Harlem was a mecca. It was a very vital community, energetic, creative, and this is a paradox, because it was going through the Depression that the rest of the country was experiencing, but despite that, there was a sense of life, a sense of living, and people were poor, but they -- you didn't feel they were poor, if I can explain it that way. There was the street orators.

MS. HUNTER-GAULT: You didn't a painting of the street orators.

JACOB LAWRENCE: That's right.

MS. HUNTER-GAULT: Yes.

JACOB LAWRENCE: And there were -- you'd walk along 7th Avenue, and you'd hear the, the minister try to get people to return to the church, you'd hear the Garvyites telling people to return to Africa. You'd hear the Communists talking about the virtues of Communism.

MS. HUNTER-GAULT: It's interesting today that Haiti is in all of our consciousness because of recent events there, and yet, when you were 20 years old, you did a series of panels about Toussaint Louverture. How did that come about?

JACOB LAWRENCE: We were proud of him. We didn't know him, of course. He was far removed. But in spirit, he was very close, so it was something you can relate to. He was a black man who had defeated the French, who had made Haiti an independent republic.

MS. HUNTER-GAULT: The first black one in the hemisphere.

JACOB LAWRENCE: That's right. So this was very romantic. It's a very -- and since I lived history, I liked painting about people, I couldn't do it in one painting, I decided to do 41.

MS. HUNTER-GAULT: What about Harriet Tubman, 32 panels in 1939, and she, like many of the women you painted, known and unknown, had heroic proportion. Explain that.

JACOB LAWRENCE: Well, it was a woman who didn't have, was academically uneducated, academically, I want to stress that, but yet, she had the -- she was a heroine. She was a great person, and when I say great, I don't mean great from just a black point of view, but a great person who contributed so much to America.

MS. HUNTER-GAULT: What in your mind's eye made Harriet Tubman great?

JACOB LAWRENCE: I think several things. I think the people who told the story of Harriet Tubman had such a belief, and above all, I think her vision and humanity and, you know, this is a mystery. What makes a person great, you know? We can't always answer that. It's like an X quality it's so abstract, but I would say above all, it was vision. And her, her -- say think of this vision the North Star -- this is part of that vision -- it was more than a star -- it was a symbol of something.

MS. HUNTER-GAULT: And it was the North Star -- tell us what the North --

JACOB LAWRENCE: Well, the North Star was the star that she followed, that she led her fugitives to freedom, and it started from somewhere in Maryland, moved all the way up into Canada. The great Underground Railroad was a part of that. They slept by day and traveled by night -- and wonderful story. I think that's what made America such a great country, people like that. You know, we've always struggled as a people, I don't mean just blacks, but everybody, beginning with Washington struggled, and we have as an ethnic group, we have contributed to that struggle.

MS. HUNTER-GAULT: All right. Your series about the Great Migration has been called by critics one of your greatest achievements. And yet you grew up in the North. What inspired your interest in the Great Migration?

JACOB LAWRENCE: Because we were part of that, our family was a part of that, and so many people of my age group. We were born in the North, but our roots were Southern because of our parents, the peers of our parents, our customs, mores were all Southern. My first trip into the South was after I completed this series.

MS. HUNTER-GAULT: After.

JACOB LAWRENCE: I'd never been South before.

MS. HUNTER-GAULT: What do you want the audience to experience looking at this series?

JACOB LAWRENCE: The -- I like the experience and beauty of life, the struggle -- our people can overcome certain things that could be very frustrating or very demeaning, and people have the capacity to overcome these obstacles by various means. And this is an example of that. And I'd like for people to say, look, feel, look, this is me, this is mankind or womankind, obviously, and I'm talking about people in general, and I would like it to be a universal statement. That's the way I feel.

MS. HUNTER-GAULT: How available was the art world to blacks during those years?

JACOB LAWRENCE: It had been closed, and this was true for artists in general. The art world was a very elitist world. One did not just go into galleries. You could go into galleries. You could go into museums, but you wouldn't feel that you were welcome. You could go in, because you weren't going to be the patron, you weren't going to buy works of arts.

MS. HUNTER-GAULT: You just went to see.

JACOB LAWRENCE: Yeah. You just went to see.

MS. HUNTER-GAULT: I read once that you used to walk 60 blocks from Harlem to the Metropolitan Museum of Art --

JACOB LAWRENCE: That's right.

MS. HUNTER-GAULT: -- just to see.

JACOB LAWRENCE: That's right. So the, the galleries became more popular after or during the Depression when the administration in order to alleviate the economic trauma opened up all these things.

MS. HUNTER-GAULT: Through the WPA.

JACOB LAWRENCE: Yeah. Through the WPA and Federal Art Project. As a result of that, the ethnics benefited, the women benefited. You had very few women in galleries in the so-called commercial art galleries. And I'm not just talking about black women or white women or -- women in general.

MS. HUNTER-GAULT: In the '60s, you also chronicled the experience of the civil rights movement, and yet, I heard when President Carter invited you to the White House to celebrate your art as contributing to the protest movement, you didn't want to go. You don't see your art as a form of protest, do you, or do you?

JACOB LAWRENCE: No. I would say generally no. I see it as a form of self-expression. When I did this series, I didn't know who would ever see it. I didn't know if it would ever be seen. I just did it. Now, maybe I was protesting within myself -- that's possible.

MS. HUNTER-GAULT: What story or experience would you like next to capture on canvas?

JACOB LAWRENCE: Well, you know, for a number of years I've been working on periodically the theme of the builders. I like tools. It's not a series, because it's not a narrative form. People working with tools and using this as a symbol or a metaphor or building as a symbol of that. So I'd like to continue that. I don't have any special stories now to tell that I'm thinking of.

MS. HUNTER-GAULT: But why is building important?

JACOB LAWRENCE: Well, to me, it's a symbol of progress. It's a symbol of hope; on various levels we look at it. It's a symbol of again our capacity, the human capacity to build, to not tear down. I guess all animals have this, more or less. We are animals. The beaver builds. The cat builds. Every -- it seems like every living thing builds, and I think it's a beautiful symbol.

MS. HUNTER-GAULT: Well, Jacob Lawrence, it's been wonderful. Thank you.

JACOB LAWRENCE: Thank you very much. I appreciate your interest, really. RECAP

MR. LEHRER: Again, the major stories of this Wednesday, the Federal Reserve Board raised short-term interest rates for the seventh time in a year. The 1/2 percent increase caused many large banks to immediately raise their prime interest rates. And the House of Representatives passed the unfunded mandates bill. It would restrict the federal government ordering the states to do things without providing the funds to do them. The Senate passed a similar version last week. Good night, Charlayne.

MS. HUNTER-GAULT: Good night, Jim. That's it for the NewsHour tonight. We'll be back tomorrow night. I'm Charlayne Hunter-Gault. Good night.