The NewsHour with Jim Lehrer

JIM LEHRER: Good evening, I'm Jim Lehrer. On the NewsHour tonight, Ray Suarez explores what a new inflation number did to the stock market today; Kwame Holman and Margaret Warner look at the protests against the World Bank and the IMF; Jeffrey Kaye reports on the troubles of NASA; and Mark Shields and Paul Gigot offer their weekly political analysis. It all follows our summary of the news this Friday.

NEWS SUMMARY

JIM LEHRER: This was a terrible day on Wall Street. Both the Dow Jones Industrial Average and the NASDAQ Index lost the most points ever in one day. The Dow fell 617, or about 5.5%, to close at 10,305. The NASDAQ Index dropped 355, or about 9.5%, to finish at 3,321. Inflation news sparked the sell- off. The Labor Department said consumer prices rose 0.4% last month, not counting food and fuel. That's the most in five years. We'll have more on all of this right after the News Summary. On the Elian Gonzalez story today, in Atlanta, the Justice Department asked a federal appeals court to order the boy returned to his father. And it offered to keep the pair in the U.S. until all legal issues are resolved. In Washington, the boy's Miami relatives went to a federal district court. They asked it to block his return to Cuba on human rights grounds. They said he'd be persecuted there. Overseas today, the lower house of Russia's parliament, the state Duma approved the START II treaty. We have a report from Louise Bates of Associated Press Television News.

LOUISE BATES: President Vladimir Putin has been actively pushing for ratification of the treaty. He took the unusual step of attending the debate to urge ratification. Putin said the treaty would allow Russia more money to develop new weapons, and build a stronger army to deal with local conflicts. But he warned Moscow would pull out of arms agreements if the United States breached the 1972 antiballistic missile treaty. The U.S. wants to amend the antiballistic missile treaty so it can build a missile-defense system to protect against attacks from rogue nations. When George Bush and Boris Yeltsin signed the START II Treaty in January 1993, both leaders hailed the agreement as a huge step forward for mankind. But then the process faltered, and finally came to a grinding halt. The reason: A hostile majority in the Duma, which bitterly resented shows of military might by the West, in particular the bombardments, first of Iraq in December 1998, and then of Yugoslavia in March last year. But now things have changed with the election of Putin in March, and a pro-Kremlin majority in the Duma last December.

JIM LEHRER: Secretary of State Albright praised the vote during a visit to Ukraine. She said it was "a big step" toward improving global security. More than 100,000 protesters rallied in Belgrade, Yugoslavia today. They called President Milosevic a dictator, and demanded democratic elections to replace him. It was one of the biggest rallies ever against the Yugoslav leader. His government has been cracking Down on independent media and opposition leaders. Back in this country today, the American Federation of Teachers advocated national tests for new teachers. The group is the nation's second largest teachers union. It said new hires should demonstrate college-level skills in several subjects. 44 states already have tests, but they require only high school-level knowledge. The proposal drew support from President Clinton. He spoke to an education writers meeting in Atlanta.

PRESIDENT CLINTON: We're going to have a couple of million teachers retiring in the next few years. We already have the largest student population and the most diverse one in our history. We're going to have to work very, very hard to get more qualified teachers in the classrooms. There are already too many teachers teaching classes for which they're not fully qualified.

JIM LEHRER: The union also recommended new standards for education majors, including higher grade- point averages and more time as student-teachers. And that's it for the News Summary tonight. Now it's on to inflation hits the markets; the protesters; the troubles of NASA; and Shields and Gigot.

FOCUS - INFLATION FEARS

JIM LEHRER: Inflation fears and financial markets, and to Ray Suarez.

RAY SUAREZ: For some explanation of what happened today on the exchanges and in the wider economy, we're joined by Gail Fosler, senior vice president and chief economist at the Conference Board, a global business research organization that tracks economic indicators; and Richard Berner, chief United States economist at Morgan Stanley Dean Witter.

RAY SUAREZ: Well, Mr. Berner, the Dow closed at 10305. What happened?

RICHARD BERNER., Morgan Stanley Dean Witter: Ray, what happened was that investors were surprised by the inflation report that came out this morning. And I think most people had been conditioned by what we'd seen in the past to expect continued very good news on inflation apart from food and energy. And I think the inflation report did two things: It raised questions about whether or not we would see inflation rise in the future, and also very importantly, about whether the fed would step up the pace of monetary tightening in which it has been engaged for the last nine months or so.

RAY SUAREZ: In your view, what is the connection between those two events: The announcement of the higher core rate of inflation, and that big sell-off? What does it mean to an investor to find out that inflation has been a little higher? Why should that make him or her sell?

RICHARD BERNER: I think that inflation staying low has been one of the hallmarks, the very good hallmarks of the expansion, thanks to the stewardship of Alan Greenspan and his colleagues at the Federal Reserve. And also very importantly, in the past couple or three years, because of the disinflationary or lower inflation impact of the global financial crisis that we went through in 1997 and 1998. Now the world economy is picking up steam. We think it's growing very strongly. Inflation cyclically is rising back up again. That tends to mean that interest rates will rise. And rising interest rates and rising inflation are typically not good news for stock prices.

RAY SUAREZ: Gail Fosler, is that the way you see it?

GAIL FOSLER, The Conference Board: Well, I think there is also a very important element of risk here. There have been some underlying tones in the wage numbers and the most recent inflation numbers that kind of make investors a little bit unsettled. But really this market has been hugely volatile, and I think that it is a sense that the economy is maybe growing too fast. And maybe these very substantial increases in stock prices can't be sustained in the year 2000, and people want to capture gains, cut their losses and get out of the market.

RAY SUAREZ: Well, one day doesn't happen in isolation. The markets, both exchanges have been down pretty steadily in recent weeks.

GAIL FOSLER: Right.

RAY SUAREZ: Is it in that atmosphere that something like the core inflation number has a particularly big punch? If this had been a less volatile market leading up to today, might today's numbers be shrugged off or had less effect?

GAIL FOSLER: Well, I think that today's number confirmed our worst fears. The economy has been growing very fast. And, as Dick mentioned, we've had very little in terms of real inflation confirmation. Now we've got this inflation confirmation. I think the thing that's significant about today is that the Dow and the NASDAQ fell together. We've had a little changing places between the two indexes over the course of the beginning of the year. This is a little bit of a revisitation of where we were earlier in the year. But now we have both indexes going down at the same time.

RAY SUAREZ: Richard Berner, a lot can hide inside the big numbers. Did everything go down at once or were there certain sectors that got hit pretty hard?

RICHARD BERNER: Ray, I assume you're talking about the stock market.

RAY SUAREZ: Uh-huh.

RICHARD BERNER: And the answer is the selling was pretty broadly based. But as indicated by what happened with the NASDAQ, obviously the declines were most severe there. As Gail mentioned, we've had selling in the NASDAQ for about three weeks now. Investors have perceived that that part of the market is probably more richly valued than other parts. Indeed, the dichotomy between the evaluations in the NASDAQ and the so-called old economy stocks, has really been one of the key themes in the marketplace over the past year or so.

RAY SUAREZ: Does an event like this set off a chain of other effects in consumers spending, how people feel about their own prospects near-term, middle-term? Could we see the ripples going out from today for weeks to come?

RICHARD BERNER: Well, excuse me. That's always a potential. We have to remember that we've seen stock prices rising for the past five years. In the past two years alone, we've had an increase in wealth that really is almost unparalleled -- something like $8 trillion on a base of about $35 trillion. Those very large increases in wealth will take some time to reverse. And their effect on people's feelings about the economy really are still working their way through into the economy itself.

GAIL FOSLER: Well, you may wonder that you have two economists that actually agree with one another, but I have to agree with what Dick has said. And I'm not sure that really the wealth effects are as important as Chairman Greenspan has made them out to be. The underlying economy is just very, very strong. We got an employment report, we're very close to having a 4% unemployment rate. We got a little bit of a tick-up of wage gains but real wage gains are just the best they've been in a very long time. We have got a lot that's carrying the consumer sector. People have booked a lot of wealth gain. I don't think this... I think this kind of adjustment might be considered to be almost healthy because the market is reacting to the fundamentals that it sees. And people worry about a bubble economy. A bubble economy is really when the market moves contrary to what you would think would be underlying fundamentals. So there is an element of health in what seems to be a very bleak story.

RAY SUAREZ: Well, you talk about the employment numbers and the strength of wage gains. Does this inflation number have some threat in it for the half of the working work force that doesn't own stock, that doesn't check to see how things went in the middle of the day and look for the close?

GAIL FOSLER: Well, yeah, I think it does -- because when you look at the composition of that inflation number, part of it is in the housing sector. And we've actually been puzzled that we haven't seen more inflation in the indexes in the housing sector because certainly most people have seen house prices go up in their local marketplace. Medical care costs -- we've had almost a decade when health care costs have been -- the rate of inflation in health care has been going down. Now it's going up again. That affects a lot of people adversely, and then of course education costs and other services. So there's not good news in these numbers for disposable income for the average person.

RAY SUAREZ: If we see in another month, in another two months, that this was a blip, Richard Berner, that today's numbers were an aberration and really the core rate is more like it was for the past several months, very low and very steady, how do we see that work its way into the marketplace as well? Will we see some kind of correction upward?

RICHARD BERNER: Well, if indeed this did turn out to be a blip, then obviously you would see markets heave a huge sigh of relief. And then they would probably rally as you suggest. That's really one of the key questions here, whether this does mark the beginning of a gradual up trend in inflation. And I think the answer, my own answer to that would be yes. We've seen a lot of signs, as Gail mentioned, that the economy is extremely strong. And we've seen a lot of signs of advanced warning that inflation was likely to pick up. What this number does, however, is it creates a lot of uncertainty, not only about the question you raised, is this a blip, but could there be more to come? And history shows when we've seen an up tick in inflation like this one as broadly based and in the backdrop that we're now looking at, a very hot economy, one in which a lot of the forces that were holding inflation back, have now dissipated or might even have reversed, typically we start to see an up creep in inflation. And that would be what my expectation would be.

RAY SUAREZ: Richard Berner, Gail Fosler, thank you both.

GAIL FOSLER: Thank you.

FOCUS - GLOBAL VIEWS

JIM LEHRER: Now, part two of our look at the meetings of, and the protests over, the World Bank and the International Monetary Fund. Last night, we talked with the leaders of those two organizations. Tonight: the protest movement. Kwame Holman begins.

KWAME HOLMAN: Today, and for most of this week, the sidewalks and streets around the headquarters of the World Bank and the International Monetary Fund in Washington have been cordoned off, ringed by steel barricades and District of Columbia police. The tight security is designed to separate participants in the upcoming spring meeting of the bank and fund from thousands of protesters determined to disrupt it.

PROTESTER: We want economic justice. We want social justice.

KWAME HOLMAN: Hundreds already have participated in demonstrations this week; a warm up rally Tuesday on Capitol Hill raised concerns about the mountain of debt owed to the two international banking organizations by some of the world's poorest nations. Marchers held up crosses, each representing a country in debt and the amount it owed. The demonstrators want those debts forgiven. Debt forgiveness, workers' rights, the environment, and trade are among the dozens of issues activists are raising this week, and the demonstrations are expected to intensify as finance ministers from around the world arrive for meetings Sunday and Monday. Callisto Madavo is vice president for Africa with the World Bank.

CALLISTO MADAVO: The meetings are discussing three or four issues that are absolutely critical to our mission of reducing poverty in the developing countries: the issue of debt relief, the issue of trade and access for exports from developing countries, and the issue HIV/AIDS.

KWAME HOLMAN: This year's spring meeting has become a target for many of the same protestors who disrupted the meeting of the World Trade Organization in Seattle in November. Police there fired tear gas canisters and rubber bullets to disperse the protesters. In the end, hundreds were arrested, and there was an estimated $10 million in damage and lost revenue. Erik Brownstein participated in the Seattle protest. He's now in Washington, assisting many of some 400 groups planning action this week. Brownstein hopes demonstrators can do to the World Bank and IMF what they did to the WTO.

ERIK BROWNSTEIN: Before Seattle no one ever heard of the WTO. After Seattle, everyone knows about the WTO and it basically calls forth a bad word. They know it's

caused riots, they know that it's associated with environmental destruction. So they get

this sense that the WTO is something that is not good, it's powerful, its creeping into their lives. It's undermining democracy. We're hoping that that same message gets out to the world about the World Bank and the IMF.

KWAME HOLMAN: This donated warehouse not far from those downtown headquarters is serving as base camp for the activists. Signs, bumper stickers, and position papers are unpacked and distributed, and there's almost a carnival atmosphere as giant puppets are molded and painted for the protest parade.

RUBY: We picked the colors of red, yellow and green to represent the

positives images to represent the people as opposed to the corporations and the profit

that are sapping the resources of the people.

KWAME HOLMAN: Washington, D.C. police are experienced in dealing with sizable demonstrations. Nonetheless, they studied tapes of how Seattle police reacted to protesters, and say they're prepared to do better. Hundreds have been deployed at the World Bank and IMF headquarters, at dozens of intersections, and on bridges leading into the city. The atmosphere and anticipation already have had an effect on World Bank President James Wolfensohn.

JAMES WOLFENSOHN: It would be impossible not to be affected when you operate in an institution where you think that what you're doing is dealing justice and dealing with poverty.

KWAME HOLMAN: Erik Brownstein sees the work of the World Bank and IMF much differently.

ERIK BROWNSTEIN: They're incredibly powerful. They prescribe policies, economic policies that have detrimental effects, that have been proven by the UN reports, by independent reports, by commonsense people in the streets of these cities and countries all over the world. So people are coming here because they're fundamentally dissatisfied with the role that these institutions are playing in our world, and we're here to say enough.

KWAME HOLMAN: Protesters plan to form human chains to prevent delegates from attending Sunday's opening session. On Wednesday night, police arrested several people and confiscated 300 plastic and metal tubes that might have been used to strengthen the chains.

SPOKESMAN: What the individual does is put the chain bracelet around the hand like this, attach a karabiner to it, and then reach inside the instrument and attach the karabiner to a bolt that's placed in here. Then the other person would also do like and they would start linking arms in a fashion like that.

KWAME HOLMAN: Demonstrations are also expected at sites away from the bank and fund headquarters. This one outside a downtown Starbucks yesterday actually was in celebration of the coffee chain's agreement to give Latin American farmers a greater share of the profits. Dozens of police responded quickly and kept demonstrators in check.

SPOKESMAN: I believe that the police here in D.C. have good intentions, that they don't want to hurt people. I believe that people are going to engage in nonviolent civil disobedience.

KWAME HOLMAN: There was an example of that this morning. Two men were arrested while protesting the treatment of farm animals in developing countries. They contend the World Bank promotes intensive farming that to leads to mistreatment of animals. They dumped a load of mulch and manure on Pennsylvania Avenue and were led away quietly by police. But Erik Brownstein acknowledges some protestors may resort to violence.

ERIK BROWNSTEIN: How the police choose to react will really dictate the level of violence in the streets. Will they go after them in particular -- or will they respond to the thousands of people who are sitting peacefully, who are refusing to move, who are blocking intersections, and so on?

KWAME HOLMAN: An event last night symbolized the generational breadth of the protesters. As blue-collar workers rallied, a parade of young World Bank protesters jumped in and joined the ranks. The age and cultural differences were obvious, but they shared a mission. Robin Rich of Gary, Indiana, a steelworker for 22 years, said the groups first joined forces in Seattle during the WTO protests in Seattle.

ROBIN RICH: We had no idea there would be thousands of young people that there willing to really stand out there and put their bodies on the line to stop the way that things are being run by corporations, because we don't like the way they're ruining our world.

KWAME HOLMAN: Tonight, as police prepare for protests over the next three days, they won't predict how many will do so peacefully and how many will try to carry out the vow to shut down the meetings. Police do say they're prepared to make many arrests.

JIM LEHRER: Margaret Warner has more.

MARGARET WARNER: Joining me now are two activists who are playing leading roles in planning this weekend's protest. Vandana Shiva is director of the Research Foundation for Science, Technology, and Natural Resource Policy in New Delhi, India; and Juliette Beck is economic rights coordinator for Global Exchange, an international human rights organization based in San Francisco. Welcome both of you. We just heard one of the protestors say that all you're all gathered here because you're fundamentally dissatisfied with the way the IMF and the World Bank do business. What is wrong with the way they do business?

VANDANA SHIVA: I used to be a physics professor. Twenty years ago I gave up a career in academics to start an independent research institute to help the groups in India fighting against World Bank projects because that is the main reason for the creation of poverty through the destruction of the only resources that people have, which is the natural resources: Their land, their forests, their coasts, their fisheries. And every time the World Bank lends, it's lending for destruction, it's lending for transfer of the assets of the poor. I started working on World Bank projects not because I chose to change the World Bank but because I wanted to support our people. Your clip does planting on a large scale. Shrimp industry devastating our coastline, all with World Bank funding, chemical agriculture spread across the length and breadth of India creating more deserts. Dams, increasingly super thermal power plants displacing millions -- the forced conversion of our common resources like water into the private property of corporations, or seeds, which farmers have given to the world now being displaced by corporate entry forced on India in 1988 with a World Bank seed loan -- the conditionalities of the World Bank are basically conditionalities that make the poor poorer and the constant hype that the World Bank serves the poor is not at all true. If I spent the last two decades of my life supporting local movements, doing ecological research, rather than doing physics research, it is because of the devastation the World Bank is causing.

MARGARET WARNER: Do you agree they're that destructive?

JULIETTE BECK: The track record is clear: the World Bank and the International Monetary Fund the last 50 years have not helped to develop poor countries. They claim to be eliminating poverty, but the gap between the rich and the poor has increased both within countries and between countries all over the world. It's a track record of human misery and tragedy.

MARGARET WARNER: Well, as Jim just mentioned, we had James Wolfensohn and Stanley Fischer, the president of the World Bank and the managing director of the IMF, on last night and Stanley Fischer said the IMF actually, he insisted, had a good record of stabilizing economies that were in trouble, for instance in Latin America, and in Asia. Do you disagree with that or do you not like the way they did it?

JULIETTE BECK: Well, when the International Monetary Fund goes into a country and provides a loan or an economic bailout package, they do so with strings attached -- the austerity measures the International Monetary Fund imposes on countries have a disproportionate impact on the poor. Farmers, for example, lose their subsidies. Resources are shifted from providing for social services meeting basic human needs into debt service. The track record of these austerity measures have been such that people are getting poor. It's not helped to alleviate poverty.

VANDANA SHIVA: And as far as the poor are concerned, these are destabilization measures. Of course, the global financial system is stabilized by continuing to extract the last drop from the poor. But when the poor are eating 12% less, as they are India in the last decade because of structural adjustment programs of the World Bank and IMF, there is not much stability in those households.

MARGARET WARNER: Let me bring up really the main point that both Mr. Wolfensohn and Mr. Fischer made, which is that globalization, they both said, is here to stay. It's inevitable. And Mr. Wolfensohn said, for instance, look, the World Bank, we're on the same side. We're trying to alleviate the poverty, some of it caused by the dislocation of globalization. But do you two agree that globalization is inevitable, or do you think it's something that can be curbed or stopped?

VANDANA SHIVA: Well, if it was inevitable, the World Bank and IMF wouldn't have to apply such coercive pressure through structural adjustment, which causes globalization. Globalization is not happening. It's being made to happen through IMF and World Bank conditionalities and the coercive rules of the World Trade Organization. If it was that natural, they wouldn't have to bully the third world so hard, and they wouldn't have... they wouldn't be forced make the third world pay so much.

MARGARET WARNER: So do you think that, for instance, the third world or the developing economies can stay closed and can just ignore the global economic order that seems to be being built, at least among the developed countries? Let me just get Ms. Beck on that first.

JULIETTE BECK: We are internationalists to the very core. We support an open economy and we support fair trade. Trade actually lifts living standards. A good example is fair trade certified coffee. You mentioned Starbucks. Well, they've just agreed to buy fair trade coffee that's certified, such that farmers producing that coffee are paid living wage, in fact, it will triple their income. It will ensure that the coffee is grown under environmentally sustainable conditions. This is the type of trade that we can support. And it's had to occur through an independent agency, a non-governmental organization, not through the World Bank. The World Bank is not promoting fair trade. They're promoting corporate managed trade.

MARGARET WARNER: What is the alternative to the World Bank and IMF's role? For example, Ms. Shiva, a spokesman for the World Bank said now fully 25% of its projects are spent on health and education and social programs. Who would spend that money without the World Bank or IMF?

VANDANA SHIVA: Well, first the finances that the World Bank is giving for health or education or even water is basically to privatize these sectors and, in fact, take universal rights to water and health and education away from the poor. The privatization is a deprivation. Who would give that money? The countries, if they could stop paying in India the $9 billion we are paying annually for debt servicing, that would go to run our schools. If today our schools don't have enough money, it's because we are paying to make the buildings bigger, the salaries higher, the returns on investments fatter for these two agencies.

MARGARET WARNER: So, in other words, you believe that if, for instance, the debt were eliminated and there is a big movement for debt relief -- we did a piece on that earlier this week -- and then the international community just stayed away, that India would be essentially able to bring itself out of poverty?

VANDANA SHIVA: I don't think the issue is isolation versus being gobbled up by irresponsible agencies who are primarily global money lenders. The issue is to have international systems of back-up who are responsive, who give on the terms that are necessary. Every time India has needed a tiny loan for a necessary thing, I remember the example in 1984, India needing a drinking water loan and the World Bank said no. We will give you a loan to convert all of your agriculture in Maharash into sugarcane cultivation destroying your water. But each of those oversteppings, each of those bullying stances is what we want to get rid of. We need an international backup system, an international system that is not driven by the investors, but driven by the people of the world and their needs.

MARGARET WARNER: What is your answer? What do you think is the alternative to the IMF and the World Bank?

JULIETTE BECK: Other agencies like the UNDP that could possibly be a better job of development of poverty alleviation -- the World Bank and the International Monetary Fund have succeeded in developing the interests of multinational corporations. In fact, 51 of the largest... 100 of the largest economies in the world are corporations. It's clear that these institutions are about promoting corporate welfare and not about eliminating poverty.

MARGARET WARNER: So as far as you're concerned would you like to eliminate two these two institutions?

VANDANA SHIVA: We'd like to... I would like to eliminate excesses that they have engaged in, dominating the decision-making of third world countries. They need to relate to countries as sovereign powers, they need to relate to people as sovereign people. I think it's that overstepping. The slogan we have for the World Trade Organization is sink or shrink. I think that's the same slogan for the World Bank and IMF. They should shrink.

MARGARET WARNER: We're going to have to sink or shrink. Thank you both very much.

JIM LEHRER: Still to come on the NewsHour tonight, what now for NASA, and Shields and Gigot.

FOCUS - WHAT WENT WRONG?

JIM LEHRER: NASA in the hot seat: Jeffrey Kaye of KCET-Los Angeles reports.

SPOKESPERSON: Three, two, one. We have ignition. We have liftoff of the Delta II rocket, carrying the Mars Polar Lander...

JEFFREY KAYE: In January 1999, a NASA rocket lifted off, carrying a spacecraft and science payload that were supposed to land on Mars. Instead the mission resulted in congressional hearings, investigations into the management of NASA, and unprecedented scrutiny of NASA's philosophy of "faster, better, cheaper," meaning more missions, at lower costs. The criticism mounted late last year, when, to the dismay of anxious officials, engineers, and scientists, radio signals from the Mars Polar Lander never came from the Martian surface. Project manager Richard Cook announced that the mission had ended in failure.

RICHARD COOKE, Mars Project Manager, JPL: The Mars Polar Lander flight team played its last ace this evening.

JEFFREY KAYE: The Lander's failure came two and a half months after the loss of another mars mission, a spacecraft that was supposed to orbit the red planet. The failed missions together cost $285 million. A comprehensive report, commissioned by NASA, criticized the management, testing, and funding of the Mars projects. A. Thomas Young, a retired aerospace and NASA executive, chaired the team that wrote the report.

A. THOMAS YOUNG, Chairman, Mars Program Review Board: Our conclusion was that the total program, meaning the Orbiter and the Lander, was under funded by at least 30%.

JEFFREY KAYE: And had they had that funding, what would they have been able to do better?

A. THOMAS YOUNG: Well, they would have done several things better. One of the things they would have done better was they would have staffed the program better. And then there's some testing that could have been done, would have strengthened the program.

JEFFREY KAYE: The emphasis on reduced costs for the mars missions compromised sound engineering, admits Edward Weiler, who heads NASA's space science division.

EDWARD WEILER, Assoc. Administrator, NASA: We pushed too hard on cost. And because we pushed too hard on cost, we forgot the "better" part of "faster, better, cheaper." Apparently decisions were being made back in the mid... Late 1990's that were not necessarily the best engineering decisions, and were made because people were trying to emphasize keeping within the cost cap.

JEFFREY KAYE: NASA set the cost limits for the failed Mars projects in 1994. The following year, Lockheed-Martin, near Denver, Colorado, won the contract to develop and build both the Orbiter and the Lander. The company submitted a low bid that NASA administrator Daniel Goldin now criticizes.

DANIEL GOLDIN, Administrator, NASA: I think in this circumstance that the Lockheed-Martin team was overly aggressive, because their focus was on the winning. The Lockheed-Martin Company did not pay attention, and I know it sounds like a paradox, but it was more important to them to win for today, and they didn't think of the long-term future or the reputation of their company.

JEFFREY KAYE: The Jet Propulsion Laboratory in Southern California was responsible for managing the Mars missions, as well as other programs for NASA. JPL's John McNamee oversaw the failed mars projects, and warned NASA they were under- funded.

JOHN McNAMEE, Mars '98 Project Manager, JPL: I thought perhaps we needed about... I think $19 million was identified as additional money required to do the project in a fairly traditional faster, better, cheaper way. Otherwise we would have to cut the, you know, workforce to the bone, and perhaps take a little bit more risk. And that presentation was made to headquarters in September of 1994.

JEFFREY KAYE: NASA rejected McNamee's request. But nonetheless, McNamee proceeded, believing the missions would succeed. At Lockheed-Martin, the under- funding and short staffing took their toll. Personnel working on the two spacecraft put in 70- and 80- hour weeks. Edward Euler ran the missions. Steve Jolly was an engineer on the Orbiter, and Lad Curtis, an engineer on the Lander.

EDWARD EULER, Project Manager, Lockheed Martin: We ran out of time and... and we were... We were pretty strung out with the people. Steve, would you like to comment on that?

STEVE JOLLY, Engineer, Lockheed Martin: Yeah, I would agree with... with that point of view. The problem is... In the short vehicle development, everything's happening concurrently, and there's a lot of things that... That come up at the end that begin to swamp you, and that's what began to happen to us, as it began to get more and more difficult as we approached launch, doing two vehicles, where we would have normally done, maybe, one with the same crew.

JEFFREY KAYE: JPL was also spread thin. NASA had multiplied its workload. Instead of managing four to five missions a year, JPL was supervising ten to 15. Lab Director Edward Stone says the funding was inadequate to properly staff the Mars projects.

ED STONE, Director, JPL: We were just too fragile, in a sense of not enough people working on the project, and so the problem is, that people make mistakes. It's the reason you have a backspace on your computer terminals, when you make a mistake. People make mistakes, and what we need are the checks and balances.

JEFFREY KAYE: The mistakes proved to be fatal. The Mars climate orbiter probably burned up in the Martian atmosphere because technicians at Lockheed-Martin and at JPL used different units of measurement for navigation. Lockheed-Martin transmitted English units to JPL engineers, who thought they were getting metric units. The Mars Polar Lander failed most likely, according to engineers, because the engines that were supposed to slow it during landing shut off prematurely, causing it to crash. Reports after both incidents reached similar conclusions: Lockheed-Martin's staffing and testing was inadequate; JPL did not adequately monitor the company. For example, investigators found only after the Lander's launch that the its descent engines were subject to freezing. Reviewers also criticized the project's managers for not installing communications devices to monitor the Lander's touchdown.

A. THOMAS YOUNG; Not having the telemetry or the communications, during entry, really prevents you from knowing the health of the vehicle as it went through. And this is, in our view, a major, you know, a major problem not having the telemetry, because it precludes you being able to analyze the Mars Polar Lander data, and based on what you learned from it, being able to reflect that knowledge into future missions.

JEFFREY KAYE: Following the release of the young report, NASA administrator Goldin addressed what turned into a pep rally at JPL.

DANIEL GOLDIN: I pushed too hard... And in so doing, stretched the system too thin. It wasn't intentional, it wasn't malicious. I believed in the vision, but it may have made some failure inevitable. I salute the team's conviction and courage. And make no mistake, they need not apologize to anyone. Theydid not fail alone. As the head of NASA, I accept the responsibility.

JEFFREY KAYE: But while Goldin acknowledged management weaknesses at NASA, in a "NewsHour" interview this week, the NASA administrator suggested a major cause of the failures rests with the contractor, Lockheed-Martin.

SPOKESMAN: The NASA administrator stepped up and told the world, "I accept full responsibility for what happened." There is a very, very deafening silence, from the senior executives at the Lockheed- Martin company, accepting the fact that they did not provide the guidance and the review of that proposal. I believe that the Lockheed- Martin management at the senior levels did not take ownership of this program.

JEFFREY KAYE: As a result of the failures, Lockheed-Martin will not make a profit on the Mars projects. But company officials resent any implication that they took undue or unknown risks.

EDWARD EULER, Project Manager, Lockheed Martin: There was nothing ever hidden, or anything that anybody ever came out with that wasn't known from the beginning of the program on.

JEFFREY KAYE: When you say, "wasn't known," wasn't known to whom?

EDWARD EULER: To the review boards, and the appropriate people, that sort of, were trying to give us an independent review.

JEFFREY KAYE: But, JPL....

EDWARD EULER: Definitely J.P.L.

JEFFREY KAYE: As you were moving along, J.P.L. Was aware of it?

EDWARD EULER: That's right. And as... And ... they conveyed that information to headquarters.

JEFFREY KAYE: Engineers say they truly believed the missions would succeed.

LAD CURTIS, Engineer, Lockheed Martin: When you hear the launch conversation-- if you listened in to any of the launches-- the launch director polls all the subsystems experts: "Are you go for launch?" It's very personal. And it makes you sweat when you get asked that question. And our folks all said, "yes, we believe this is ready for launch. It's going to succeed."

JEFFREY KAYE: The Mars failures, together with other problems at NASA, have caused concern in congress. Senator Bill Frist, the Tennessee Republican who chairs the subcommittee on science, technology, and space, feels there are fundamental problems with NASA's approach.

SEN. BILL FRIST, (R) Tennessee: Faster, better, cheaper, the way it is being implemented today, to my mind is not satisfactorily working. I believe it's unacceptable to the American people. I say that in part as a legislator, but also as an American, where I believe NASA is... is losing the faith, losing the faith, losing the confidence of the American people.

JEFFREY KAYE: Frist is considering proposals to better monitor NASA. For their part, NASA officials have already announced they will scale back plans, in particular, the launch originally scheduled for next year of another Mars Lander built by Lockheed-Martin, will be postponed indefinitely.

EDWARD WEILER: Do I want to launch that? Do I want...do I want to waste that Delta Launch vehicle? Do I want to waste those science instruments and half of the avionics or whatever we'll be able to use? And to me it was - I hate to admit it-- but it was a no- brainer. I didn't see any justification to go ahead with that mission.

JEFFREY KAYE: Lockheed engineers disagree with NASA. They say the delay is unnecessary.

EDWARD EULER: I personally think that we had the confidence that that Lander would have worked properly. I know I certainly feel that way because it is the design that myself and...and our team did, and we... We still have a very strong feeling that it was a good design, and one that would work properly, if we could have got these little bugs out.

JEFFREY KAYE: Since the failures, NASA officials in Washington have assumed more control over its contractors and managers. And they say they will improve communications and training. Space officials are also quick to contrast NASA's failures with successes, such as the 1997 "Pathfinder" Lander and its robotic Rover. The cost of the Pathfinder about equaled the total for both the failed Mars Orbiter and Mars Lander. JPL's John McNamee says the public needs to appreciate the risks inherent in successful space exploration.

JOHN McNAMEE: The complexity of these missions is unbelievable. It's not surprising, uh, that we have a failure every now and then. It's surprising that they work at all in my mind. It's just so complex, so many interactions, so much that has to go right, and you're allowed one mistake, and that can end the mission.

JEFFREY KAYE: To minimize the risk of failure of future Mars Landers, NASA plans to launch satellites around the planet. Scheduled to launch next year is another Lockheed Martin project, the Mars 2001 Orbiter, which intended to map the planet's surface and provide a communications link for future missions.

FOCUS - POLITICAL WRAP

JIM LEHRER: And finally tonight, to Shields and Gigot, syndicated columnist Mark Shields and "Wall Street Journal" columnist Paul Gigot. We're very proud of Paul here at the NewsHour, for his having won the Pulitzer Prize this week for his work at the "Journal." Congratulations from all of us.

PAUL GIGOT: Thank you, Jim.

JIM LEHRER: Does this mean Mark and I have to treat you any differently?

PAUL GIGOT: Well, you're absolved from any of that but this guy has promised to show me... he told me he is going to show me new respect and deference, at least for the first five or ten seconds.

MARK SHIELDS: I'm happy. I'm happy to publicly restate my congratulations to my Friday night partner on the NewsHour, Paul, for winning the 2000 Pulitzer Prize on commentary. Jim, a little noted fact, and that is that I think that by my reckoning, Paul becomes the second son of Green Bay, Wisconsin, to win it, and the other being the legendary sportswriter Red Smith, the father of Terence Smith of the NewsHour. That little town is disproportionately gifted.

PAUL GIGOT: Yes, indeed.

JIM LEHRER: Thanks, Mark. Yes, indeed. Show your stuff now, Mr. Gigot. What do you make of this... The inflation figures and what it did do the market today? Is there political fallout there? Tell us what all this means and what it could mean.

PAUL GIGOT: Well, potentially there is. In 1981, Jim, 16 percent of Americans owned stock of some kind through a retirement fund or mutual fund or something. Now 48 percent of this public has some kind of stock holding; six million Americans hold Microsoft shares directly. That's an awful lot voters. And we really don't know what the impact of a big market correction will be on this new investor class which tends to vote, tends to be active politically, tends to be a lot of young people who floated through the 90's on an up surge of this economy. And a lot of people have never seen a correction before. And it'll be interesting -

JIM LEHRER: They thought it only went one way.

PAUL GIGOT: That's right. And, let's face it. I mean, what is Al Gore's best asset going into this next election? Prosperity, the sense of well being, that the nation is on the right track. If the stock market continues to fall or this correction sticks, and it affects investor confidence, political -- the sense of well-being, it could hurt Al Gore.

JIM LEHRER: Mark?

MARK SHIELDS: A little different take on it, and it is this: Paul is right about the economy and the boom, Jim. Unemployment 7.5% in '92,under 5% for 34 consecutive months, the lowest unemployment ever recorded -- Hispanics and African Americans - highest home ownership -- biggest deficit to the biggest surplus. I mean, do the numbers, five out of six jobs created in the G-7 countries - Italy and Germany and France and Japan and the United States and Great Britain, Canada, in past seven years since Bill Clinton has been president - five out of six have been created in this country.. And yet with that kind of economic news this race is even. This race is even, and I've asked every political - the Democrats ought to be ahead like ten points -

PAUL GIGOT: Right.

MARK SHIELDS: -- with that kind of job news - and the answer I get back - the one that makes the most sense - is people think the economy is so good up until maybe today that nobody is sure - I mean, it's just that good.

JIM LEHRER: -- relax and play around a little bit -

MARK SHIELDS: That's right. And so I don't know where this is going to fall off. I think that's - for the first time people are thinking, gee, maybe this isn't permanent - maybe there is a -

PAUL GIGOT: George W. Bush has been actively selling his tax cut as economic insurance as one of his arguments for it. Look, we don't know how long this is going to last. I think this could help him sell his tax cut precisely on that ground.

MARK SHIELDS: Or is it going to be -- for the first time, is there going to be a susceptibility to saying is this risky. I mean Al Gore... People didn't question whether Al Gore, they don't like Al Gore particularly but they didn't question his competence. They like George Bush more than they like Al Gore but there is a question about whether he fills the chair, whether he is really up to the job. And I think that's the competition you are going to see over the next couple of months if the economy is unsettled.

JIM LEHRER: All right. Let's move to the Elian Gonzalez story. George W. Bush is heightening his criticism of the Clinton administration about this. Is there any mileage here, any political mileage for anybody on any side in this story?

PAUL GIGOT: Well, I think it depends how it turns out. We really don't know yet. If it goes on present trend and somehow he is... Janet Reno succeeds in pulling Elian out and sending him back to Cuba with the father, I think that probably the political advantage is confined to Bush in Florida. That's where the most intensity is. That's where most people are paying attention and that's where the Cuban American population, which went 2-1 for George Bush, the President Bush in 1992 and he won that state, broke even in 1996 for Bill Clinton and Bill Clinton carried that state. I think they would react to that overwhelmingly against the Clinton administration and that would help George W. Bush. The rest of the country is not really showing the same kind of intensity. It's interested but the polls there show that they would be willing to let the boy go back. That's why I think you don't see the Republicans in Congress...

JIM LEHRER: They want it quiet there.

PAUL GIGOT: And real abdication politically, in my view. There is a real opportunity here and they have just not been willing to take advantage of it.

MARK SHIELDS: Jim, I yielded to no one in my criticism of Attorney General Janet Reno in the failure to appoint an independent counsel in the 1996 presidential campaign scandals. But I have to say if there is one grown-up in Washington, it is Janet Reno. she has shown I think remarkable leadership and understanding. She has gone more than the last mile to avoid a Ruby Ridge or a Waco. She went down there yesterday - very politicians do. She flew down there hoping to bring the boy back and risked public rejection.

JIM LEHRER: It wasn't greased ahead of time.

MARK SHIELDS: No. All the people said you can't do that. I mean, she has tried to move this from an atmosphere in Little Havana, which is somewhere a cross between Fort Sumter on the eve of the Civil War and Mardi Gras in the French Quarter just before Lent begins. I mean, it's been that combustible. And I think she has just shown leadership. I don't think anybody else has. I think the Vice President has been hurt by it, quite frankly. He made this initial stand and he has won no converts to his position and received a lot of contempt in the past - I think George W. Bush is making a serious mistake. I think anybody who tries to pull any political leverage - the President, in fact, has been mute on the subject. But I just think she's shown what public service is all about and respects the laws. And I think she is trying to move it, quite frankly, from that flashpoint to a courtroom, a venue where there's going to be a more reasonable and peaceable and peaceful chance for resolution.

PAUL GIGOT: Yeah, but she could have done that earlier by saying let's move it to family court, instead of insisting that it be the INS, the INS -

MARK SHIELDS: It isn't a family court matter, Paul, I mean, it isn't, and every case - every kid that comes to this country is a family court - and that's - you're really talking about new law -

PAUL GIGOT: It is a special case. I mean - and we've treated it that way -

MARK SHIELDS: It's a special election case.

JIM LEHRER: Okay. We mentioned President Clinton. The impeachment story came up again this week because the new independent counsel said he'd restated his - the possibility that he might try to indict the President after he leaves office and then the President said no thank you to a pardon. what do you make of all this, first of all, the fact -

PAUL GIGOT: The independent counsel?

JIM LEHRER: Yeah, the independent counsel -

PAUL GIGOT: Well, I think he's trying to do his duty, Jim. I mean - we had an impeachment process - Democrats in the Senate - stand up and say it's not an impeachable offense. It may be an indictable offense; it may be something he can be indicted for after he leaves office. I mean, Joe Lieberman said that; Barbara Boxer said that - those radical right wing Republicans - Zoe Lofgren in the House, they said that. Okay, so he wasn't impeached or he wasn't convicted after he was impeached and Robert Ray is saying, look, I'm going to continue my responsibility, which is to look into this. Now, he didn't say he was going to indict him. There's a lot of factors that go into that kind of decision but all he said was it's not off the table, and this city reacts as if somehow this is an ongoing vendetta that they said - when the Democrats say this was -- this was something you could see.

JIM LEHRER: What about that, Mark? Everybody has reacted, hey, I thought this was over with, and suddenly this story erupts and did you think it was over with?

MARK SHIELDS: Well, I think along with a few others, we were thrown off guard by his initial finding in the FBI Files case. I mean, I thought if there were a case, probably there had been some malfeasance, nonfeasance when you get a couple thousand FBI Files ending up in the White House, the vast majority of which are accidentally those of leading Republicans, maybe there is something there. He came in and said there was nothing there, was not going to be prosecuted, and then he goes, oh, well, maybe this is over. And I don't think there is any question that this came as a surprise this past week, the announcement. And I think, Jim, a couple of things happened. One, you're reminded that this issue could crop up again in the campaign of 2000. The President said that he got Al Gore off the hook saying he would not seek or accept a pardon. And obviously Mr. Ray faces the ultimate question, I mean, there is no question... a vast majority of people want it behind him but at the same time is the President above the law? Can he in fact win prosecution of a President, namely Bill Clinton, who lied about sex in a D.C. courtroom? I think every responsible prosecutor faces that decision.

JIM LEHRER: What about Paul's point though that the Democrats have a problem with this?

MARK SHIELDS: There is no question. I think that time and again that was the answer. Look, if the law was broken, it's in a court, for a court to decide. I think they're hanging out there with what looked to be a very reasonable rhetorical place to hide or cul-de-sac during the impeachment trial.

JIM LEHRER: What about the pardon, what the President said about the pardon?

PAUL GIGOT: What else are you going to say? I'm not going to say it, he said he doesn't need it. I think that probably holds right through until election day -- if we have President Gore -

JIM LEHRER: You think it's possible?

PAUL GIGOT: Oh, I absolutely think it's possible. I think that between election day if... whether or not Al Gore wins between election day and January 20 of the year 2001, there are going to be a lot of pardons issued or considered by this President. And I think in his case, if this is still hanging out there, that's something that I wouldn't rule out.

JIM LEHRER: Would you rule it out?

MARK SHIELDS: I think it's pretty tough to go back on this after you've made a statement like that. Obviously, I was in Austin, Texas at the L.B.J. Library and Gerald Ford - former President Ford - the pardon - and probably the best known pardon in American -

JIM LEHRER: And cost him re-election.

MARK SHIELDS: And he basically said in the presence of President Jimmy Carter who won the election, that's what cost him the election. So it likelihood it's being done between now and the election but it could be done by a Vice President ...

PAUL GIGOT: The White House sensitivity on this was shown by the fact that the President had Joe Lockhart acting under orders - a spokesman -- rebuke the newspaper editors for daring to ask questions. I mean what else do they do?

JIM LEHRER: Congratulations again. By my calculation, Shields agreed with you about 85% of the time tonight. Tonight. Just tonight. In honor of his new...

MARK SHIELDS: In deferential -

PAUL GIGOT: One exception.

JIM LEHRER: But next week it's back to the old way.

PAUL GIGOT: Gloves are off.

JIM LEHRER: Thank you both very much.

RECAP

JIM LEHRER: And, again, the major stories of this Friday: The Dow Jones Industrial Average lost 617 points, the NASDAQ 355. Both were records. And the Justice Department asked a federal appeals court in Atlanta to order Elian Gonzalez returned to his father. We'll see you on-line and again here Monday evening. Have a nice weekend. I'm Jim Lehrer. Thank you and good night.