The NewsHour with Jim Lehrer

JIM LEHRER: Good evening. I'm Jim Lehrer. On the NewsHour tonight Paul Solman looks at the big airline alliances; Margaret Warner runs a discussion about the new prime minister of Russia; Elizabeth Brackett tells the story of Dan Rostenkowski's return from prison; and Mark Shields & Paul Gigot analyze the week in politics. It all follows our summary of the news this Friday. NEWS SUMMARY

JIM LEHRER: There was news today on two major airline alliances. United and Delta Airlines failed to reach agreement today on such an arrangement after American Airlines and USAirways announced late yesterday they had. The companies will combine frequent flier miles and work jointly to market flights, among other things. A similar accord was reached in January between Northwest and Continental Airlines. President Clinton said he was not sure what the consumer impact of these arrangements would be.

PRESIDENT CLINTON: If it's being done to compete globally and there's still adequate amount of competition so that consumers are protected in terms of price and quality but American business becomes more globally competitive, then it's a good thing. If it is a function of there being an awful lot of money around in the economy today and it's just one of those period verse of mergers which may or may not have a good effect on consumers and may or may not lend stability to our economy, then it's much more questionable.

JIM LEHRER: We'll have more on this story right after the News Summary. The President spoke while presiding over an Oval Office ceremony for Mack McLarty, his Latin American envoy and childhood friend. Mr. Clinton announced McLarty's resignation to return to family business interests in Arkansas. McLarty was the president's first chief of staff. The third time was a charm today for Sergei Kiriyenko. Russia's parliament confirmed him as prime minister. It had twice rejected the 35- year-old ex-banker, criticizing his lack of government experience. President Yeltsin had threatened to dissolve the legislature and hold early elections if it turned down Kiriyenko again. We'll have more on this story later in the program. There was a group execution in Rwanda today. Twenty-two men and women convicted for acts of genocide in 1994 were executed by firing squads. We have more in this report from Sirah Shah of Independent Television News.

SIRAH SHAH: The crowds of over 30,000 people turned out to watch some of the alleged perpetrators of atrocities like these receive the harshest penalty. The world has protested, but Rwandans have been transfixed by trials of the first prisoners accused of helping to carry out the genocide. But today, perhaps sensitive to international condemnation, the government barred all pictures of the executions, carried out in sites like this around the country. Witnesses say police tied the convicts to poles, hooded them, and placed targets on their chests. All this took place in front of crowds of jeering spectators. A hundred and thirty thousand prisoners are being kept in appalling conditions in Rwandan jails. Many of the mainly Hutu prisoners complain there have been huge delays in cases coming to trial, and in the meantime, prison conditions raise severe humanitarian concerns. The alleged ringleaders are being dealt with separately at an international war crimes tribunal in Arusha, Tanzania, and, ironically, won't face the death penalty.

JIM LEHRER: Japan's cabinet adopted a $127 billion economic recovery plan today. It includes tax cuts in public works projects aimed at stimulating the Japanese yen and stock markets. U.S. Treasury Secretary Robert Rubin welcomed the action but said Japan should also strengthen its financial system and open and deregulate its economy. Fraud and error in Medicare cost $20 billion last year, according to a U.S. Government audit released today. It was conducted by the inspector general of the Health & Human Services Department. A random sample of 8,000 claims for instance, turned up 1900 that did not comply with laws and regulations. The report said 11 cents was squandered for ever $1 spent on the health care program for the elderly. And that's it for the News Summary tonight. Now it's on to the big airline alliances, a new premier of Russia, the return of Rostenkowski, and Shields & Gigot. FOCUS - AIRLINE ALLIANCES

JIM LEHRER: Business Correspondent Paul Solman of WGBH Boston has the airlines story.

PAUL SOLMAN: For some key players in the airline industry the friendly skies may be getting even friendlier. Last night Dallas-based American Airlines, the nation's number 2 carrier, announced it plans to form a marketing alliance with number 6, U.S. Airways from Arlington, Virginia. Meanwhile, the nation's number 1 airline, United, whose home is Chicago, has been in talks with number 3, Delta, headquartered in Atlanta. Those talks for the moment, as you've heard, have hit a snag. These moves may have been prompted by yet another alliance announced earlier this year between Minnesota's Northwest Airlines and Houston-based Continental. If and when these alliances are finalized, partners could combine frequent flier programs and sell each other's tickets. Now, to help us explain what's going on we're joined by Julius Maldutis, who analyzes the airline business for Salomon Smith Barney; and David Field, who reports on it for USA Today's Money Section. And, gentlemen, welcome to you both.Now, Mr. Maldutis, what's the advantage of these alliances to these airlines?

JULIUS MALDUTIS, Salomon Smith Barney: Well, first of all, the reason for these alliances is that it's very difficult to get traffic growth domestically when airlines have built such concentrated hubs, so one way to get growth is through marketing alliances. What these alliances, in effect, do is provide very convenient travel for the passenger. In effect, they are diverting passengers off their competitors. So with the Continental/Northwest alliance being proposed earlier this year, this posed a significant threat to all of the members. And, consequently, that's why we have the other alliances being proposed.

PAUL SOLMAN: And, Mr. Field, how does this work? I mean, if I'm an airline traveler, as I frequently am, what do I get from this? I mean, what happens to me as passenger?

DAVID FIELD, USA Today: Well, first of all, we're talking about--if you're talking about Northwest and Continental, it works in a way that you probably already experienced. If you've taken a commuter flight on a small plane to a big airport, it says on the side Northwest and it says in real tiny print, operated by someone else. It has the same flight numbers of the Northwest flight, the same ticket, and you get all your miles. All you do is change planes at the big airport.

PAUL SOLMAN: You mean, that's United Express. That's lots of different feeder airlines, right?

DAVID FIELD: And if the Northwest-Continental proposal goes through, you'll have that on a much larger scale. You'll have a ticket that says Continental, Flight 2727, and you'll get on a plane and bingo, it's a Continental Airlines plane with a crew from the other airline, but you'll get your miles. And you'll be able to use your miles on another airline.

PAUL SOLMAN: So, what's the good for the airlines? Why is that good for them?

DAVID FIELD: They're good for the airline industry. You keep your customers, as Dr. Maldutis said. You keep the people that you don't want going to a competitor, who may fly somewhere where you don't fly. What's important to understand about the U.S. Airways and American proposal is it does not involve this sharing of flight listings. It's called code sharing. It's involves--

PAUL SOLMAN: Code sharing.

DAVID FIELD: Code sharing--where the computer code for each flight is shared between the two carriers.

PAUL SOLMAN: So you are just on one code for the whole flight.

DAVID FIELD: And if you're not a frequent flier, you can find it deceptive. You can go out to the airport thinking you're going to get on your favorite airline, it's somebody else's airline, and somebody else's crew. With American and USAir it's not going to be like that. It's still going to be two separate airlines competing as much as they do now, but you'll be able to use your frequent flier miles on either. In effect, you'll have a joint bank account for your frequent flier miles.

PAUL SOLMAN: But you agree with Dr. Maldutis, that we're not going to get any more, that they're taking business away from each other, or trying to, not that we'll have more flights now?

DAVID FIELD: Oh, no, he's absolutely right. You may see more flights on very popular business routes, but they'd simply be increased frequencies, and those are for the people who can afford to pay the astronomical fares that business travelers now have to pay.

PAUL SOLMAN: All right, Dr. Maldutis, I guess it is, what's the difference between an alliance and a merger?

JULIUS MALDUTIS: Well, a merger you combine not only your frequent flier programs, you do code sharing, you integrate your labor groups, your work rules, and you combine your systems, and we have seen that over the last decade there have been 22 mergers, and they have all been abysmal failures, and airlines have learned from this by doing a marketing or code sharing or a frequent flier program. You get 60 to 70 percent of the revenue benefits and none of the headaches, so that's why these alliances have proved so popular. Let me just give you one statistic. United Airlines, which is part of the Star alliance with Lufthansa, Verig, SAS, AirCanada, Thai, and others, received an incremental $180 million in pre-tax profits in 1997. And that's how powerful and beneficial these alliances are for the bottom line of these companies.

PAUL SOLMAN: So, Mr. Field, is that true, have they been failures, by and large, and, if so, will the alliance, do you think, or does the industry think will the alliance model work?

JULIUS MALDUTIS: If you're a passenger, you probably believe that mergers have been failures. If you were a passenger on USAir, after they bought Piedmont, in 1987, and were stranded when crews didn't show up and flights didn't get routed, you believe that they were a failure. Alliances are different. They are virtual mergers, if you allow the phrase. They have none of the problems of union integration, and all of the convenience of simply being at the same airport at the same time.

PAUL SOLMAN: So were they a failure from the point of view of the companies, as well? I mean, mergers just didn't work because they were too hard to affect, is that what you're saying, Mr. Field?

DAVID FIELD: USAir is still in debt because of the mergers it went through in the 1980's.

PAUL SOLMAN: Dr. Maldutis, pluses and minuses for consumers. I hate to be so self- referential--but I mean, that's what most of us care about.

JULIUS MALDUTIS: Well, what we have seen is the last two years full fares are up about 8 percent. Discount fares are down about 6 percent. So we continue to see price competition in the airline industry. I think it would be an erroneous conclusion to say that these alliances are going to result in across-the-board higher fares. For business travelers in business markets, yes, you're going to see continued higher fares. But at the same time, I think the carriers will compete and you will have special discount fares, special sales. The airlines are making enormous use of the Internet to dispose of their extra seats. So I think it's an extraordinary period and a very dynamic period.

PAUL SOLMAN: But haven't prices gone up on average 9 percent this past year and 17 percent, as I was reading today when I was preparing for this, in terms of business fares? And I mean, 40 percent I read in Fortune Magazine in business fares of the last two years.

JULIUS MALDUTIS: I think that's true because the airlines for the first time have learned how to price their product. They know that the business traveler has very little alternatives, whereas, the discretionary traveler does have different alternatives and a different price sensitivity. The airline managements have become extremely adroit and smart in pricing their product. And that's part of the deregulation process.

PAUL SOLMAN: Well, but I thought deregulation was going to drive prices down. Mr. Field, what do you think is going to happen to prices here? Are they going to continue to rise? What's--

DAVID FIELD: It depends on what kind of player you are. If you're a business player, your prices will continue to rise. If you're a leisure traveler, there's still going to be a lot of deals, and it's really important for us to remember that there's still a big chunk of the domestic market that's not going to be covered by any of these alliances. We're still going to have Southwest Airlines, the most popular airline and the most profitable airline in the nation, exercising the kind of price discipline and fair discipline that probably can keep the rest of the industry honest.

PAUL SOLMAN: Well, they're not competing in all these routes. I mean, Southwest is only in certain places.

DAVID FIELD: Southwest is a much bigger airline than one realizes. It's almost the size of the original USAir. It's about the size of TWA. And there are a lot of business fliers who are willing to put up with the lack of food, the peanuts, the frequent stops, to get Southwest fares.

PAUL SOLMAN: But the question is: Are they going to be able to get those fares now if these big airlines are combining and possibly pushing out smaller airlines, which has been an interesting--

DAVID FIELD: I don't think these big airlines will push smaller airlines out; they'll simply increase their luck on their home traffic, their home bread and butter, and, as Dr. Maldutis points out, airlines have become so sophisticated in pricing that we probably will see a fair number more sales from leisure travelers on fairly short notice, fairly focused sales, regional sales, buy-right-now sales. When they find out that the back of the plane is not full, they're going to let us know.

PAUL SOLMAN: Dr. Maldutis, does the government have to approve this? I'm not clear on the status of these three so-called alliances: one made, one just announced, and one about to be announced, apparently, the United.

JULIUS MALDUTIS: Very good question. There is no legislation on the books that requires government approval. As a practical matter, because these alliances are going to raise a lot of flags in Washington, already there have been tremors about the predatory practices and too much concentration in the industry.

PAUL SOLMAN: Predatory practices means what?

JULIUS MALDUTIS: Predatory practices means that the larger carriers have prevented the smaller carriers of getting access and in terms of gates or landing slots. I think that the Department of Transportation and the administration should be complimented, that they have become sensitive to the issue, they are providing these resources for the smaller carriers. So I think somewhat it's a red herring. They will be able to compete with the bigger carriers. Nevertheless, because this is a political issue I think there will be hearings in Congress. I believe someone already today announced they will hold hearings and perhaps the Justice Department and the Department of Transportation will look at the issue. It's not going to be decided immediately. I think it's going to take several months and perhaps by the end of the summer, early fall, we'll hear the verdict on these alliances.

PAUL SOLMAN: What about the verdict, Mr. Field, on deregulation? It's a last question, but there were 43 airlines, I read today, in 1978, when deregulation was affected. Fifteen of them remain, and certainly there's a sense in the Justice Department and the American public that we're getting more and more consolidation, concentration in the industry.

DAVID FIELD: We're getting more and more consolidation in every industry. All that deregulation did was allow the inevitable consolidation of this industry to take place. No, I think deregulation has worked. More people fly now than have ever flown before. More people can afford to fly. There are more flights and there's more service.

PAUL SOLMAN: And your verdict, Dr. Maldutis, on deregulation, it's worked, it hasn't worked?

JULIUS MALDUTIS: Absolutely. It has been exciting. I compliment everybody who has been involved in it. One very final simple statistic: Airline fares today, adjusted for inflation, are 27 percent below than those fares in 1978, when President Carter signed the law.

PAUL SOLMAN: Okay, well, gentlemen, thank you both very much.

JIM LEHRER: Still to come on the NewsHour tonight, a new Russian prime minister, the return of Rostenkowski, and Shields & Gigot. FOCUS - WINNING TEAM

JIM LEHRER: The Russia story now and to Margaret Warner.

MARGARET WARNER: Russian President Boris Yeltsin took his country and the world by surprise last month when he abruptly dismissed his entire cabinet, including Prime Minister Viktor Chernomyrdin. Yeltsin blamed his former cabinet ministers for not carrying out his economic reforms. At first, Yeltsin said he would take the job of acting prime minister himself. But when aides told him that was unconstitutional, Yeltsin tapped Sergei Kiriyenko for the post. The 35-year- old Kiriyenko is a former oil and banking executive with scant government experience. He was energy minister but had served only 11 months in government. The Russian ambassador to the United States, among others, moved quickly to reassure foreign governments and investors about Yeltsin's intentions.

YULI VORONTSOV, Russian Ambassador to the U.S.: It is not a change of a flight plan. It is a change of the crew in the cockpit. And the huge plane called Russia is continuing the flight, staying the course, and gaining the altitude. The decision of the president was governed by the desire to enhance the economic reforms in Russia.

MARGARET WARNER: But Yeltsin faced more immediate problems at home. His move set up a potential showdown with the Russian parliament or duma, which, by law, must approve the president's choice of prime minister. Many members of the duma were furious at what they regarded as Yeltsin's high-handed move. That was particularly true of the Communists, the largest party in the duma. Critics, like Communist Party Leader Gennady Zyuganov, attacked Yeltsin for naming such an inexperienced person to be the government's number 2 man, and, if anything should happen to Yeltsin, his immediate successor.

GENNADY ZYUGANOV, Communist Party Leader, Russia: [speaking through interpreter] If he pursued a responsible policy, he would have summoned an authoritative team, but, instead, he called this young man who is doomed to fail.

MARGARET WARNER: Kiriyenko also faced opposition from business moguls, like newspaper tycoon Boris Berezovsky, who have profited handsomely in recent years as Russia's economy has opened up. Berezovsky's newspapers unleashed a media campaign against Kiriyenko. On April 10th, the Duma voted by secret ballot. Kiriyenko lost 186 to 143. After the balloting, Kiriyenko tried to shore up his candidacy by addressing the Duma. He also let Russian television film him sparring with his son, an effort to put a human face on a political unknown. A second balloting, taking a week later, was by open recorded vote. Kiriyenko lost by an even larger margin, 271 to 115. As the third and by law final vote approached, Yeltsin warned Duma members that if they rejected his choice, he had the option of dissolving the Duma and ordering new elections. Today's vote was by secret ballot, and Kiriyenko won handsomely--251 to 25. The new prime minister urged cooperation in the months ahead.

SERGEI KIRIYENKO, Russian Prime Minister: [speaking through interpreter]It's a time for us to leave political tensions and emotions behind. From today, we should build a construction relationship and work together.

MARGARET WARNER: In Washington, President Clinton reacted favorably to the news.

PRESIDENT CLINTON: We have a high opinion of him based on our experiences with him, and the commission set-up we had with the vice president and the Russian prime minister, I look forward to continuing that, it's helped us to resolve an enormous number of issues. So this is, I think, a good news day for Russia and for the United States.

MARGARET WARNER: We get two views now. Stephen Cohen is professor of politics and Russian studies at Princeton University and has written widely about Russia. Michael McFaul is assistant professor of political science at Stanford University and a senior associate at the Carnegie Endowment for International Peace. He was in Russia on March 23rd when President Yeltsin dissolved his cabinet and set these events in motion. Welcome, gentlemen.Michael McFaul, after you two unsuccessful tries, Boris Yeltsin today finally gets his man confirmed. Explain today's outcome.

MICHAEL McFAUL, Stanford University: Well, this was a big game of chicken between the Communist-dominated Duma on the one hand and Boris Yeltsin on the other. Both saw their integrity, their politics at stake. The Communists had to put up some kind of fight in order to show that they did not like this candidate; they thought he was too young; and most importantly they thought he was going to continue the course of liberal reform, which they imposed. But when push came to shove today, on the third vote, and they realized that if they vote against him, they have to face the electorate again, they lose their dachas, they lose the Duma, and they have to go out and campaign again, when push came to shove, they decided it's better to wait till 1999 to have that election, let's keep our place right now.

MARGARET WARNER: Stephen Cohen, your assessment of today and why it happened?

STEPHEN COHEN, Princeton University: Well, I think you have to look at today in the context of the last three weeks since the crisis began, since President Yeltsin fired his former prime minister, Viktor Chernomyrdin. And if you look at the outcome today on the surface, it looks like a victory for President Yeltsin, but I believe these last three weeks have been a kind of crushing defeat for him. The events of the last three weeks has shown that he's utterly, near totally politically isolated in Russia, and secondly, he's now widely perceived in Russia as a capricious political leader and, therefore, somebody who jeopardizes the political stability of Russia. Considering the fact that the country has long been in the throes of profound, traumatic, economic, and social crisis, we now have a situation that can only be called unstable. I mean, nobody can believe that Kiriyenko--Kiriyenko is going to bring stability to the Russian political system.

MARGARET WARNER: So, why did he win today?

STEPHEN COHEN: Well, I think that Michael is right in part. I don't agree entirely. First of all, the Communists seemed to have done something today. We won't know until tomorrow for sure. But most of them just did not cast a ballot because the total number of votes doesn't add up to the total number of deputies. They did not vote because the voting was secret and, therefore, in effect, they cast a negative vote. I think in an odd way--and this may seem ironic--that what happened to the Communist Party--which has been in the kind of "to be or not to be" political situation during these last three weeks--it has emerged in the eyes of the country as a party that actually has some principles. And if you can do that for a Communist Party, you really achieve something in Russia. And that's thanks to President Yeltsin.

MARGARET WARNER: Explain a little more, Michael McFaul, about why the Communists were so unalterably opposed to Kiriyenko.

MICHAEL McFAUL: Mr. Kiriyenko is going to continue a policy of economic reform that they oppose. They think that it's wrong to have liberal economic reforms, market reforms.

MARGARET WARNER: Privatization.

MICHAEL McFAUL: Privatization, liberalization, direct foreign investment. They want to see a stop to that. They're dissatisfied with the last five to six years of reform, and they see him as a continuation of that. Having said that, I have to disagree with my colleague, Stephen Cohen. I don't see this as a crisis whatsoever. A crisis to me in Russia is when people have a political conflict and then they get on the phone and they start calling tank commanders to solve it. They didn't do that this time. What they did is they got out their constitution, and they said, how do we resolve this crisis, how do we resolve this government? Well, here are the rules that we have to follow. And governments rise and fall all over the democratic world. That's democracy. The to and fro that we saw building up to this vote, that's democracy, political compromise, and at the end of the day, if the tanks didn't come out, everybody abided by the rules of the game.

MARGARET WARNER: So, in other words, you think it really says good things about the state of Russian democracy.

MICHAEL McFAUL: I think it says very positive things, that other options, the non-democratic options were not exercised. There were some threats that it might happen. There were some threats that they might try to change the rules of the game.

MARGARET WARNER: That was Yeltsin's threat.

MICHAEL McFAUL: That was Mr. Yeltsin's threat. At the end of the day it didn't happen, and that is a good thing. That means they're playing by the constitution that they set up. After all, what have got--five years now we've been playing by this game. That, to me, is a very good sign.

MARGARET WARNER: Stephen Cohen, what do you think it says about the state of Russian democracy?

STEPHEN COHEN: Well, I think Michael is right about one thing. The last time that the Russian parliament was united against the president was 1993, and the showdown ended in tanks in the street and maybe three, four, five hundred people dead. That didn't happen this time, and that is a triumph for Russia. But, Lord, we don't measure the progress of the democratic system by the absence of tanks in the street. We expect something more In this case the constitution more or less worked but nobody knew exactly what it was. And I think it's a mistake to think that the country is not in crisis. And the issue--Michael's right--that the Communist did not want the economic policies represented by Mr. Kiriyenko and Mr. Yeltsin. But those economic policies have put Russia in the longest, deepest, and most profound economic depression of the 20th century. There is absolutely no evidence, despite spins by the Clinton administration, the World Bank, the IMF, and the Russian government, that the depression is ending. Mr. Kiriyenko, himself, during his first speech to the Duma three weeks ago--two weeks ago--admitted that there's no growth in the country, admitted that 1/3 of the population, a full 1/3 is living in poverty. It is not only the Communists but virtually all the opposition parties, including the Liberal Democratic or Social Democratic Party led by Grigori Lavlinsky, that wants a fundamental change in economic course. They want these monetarist policies ended, and they want, I think, what we Americans would call a new deal, a kind of like Franklin Delano Roosevelt, get out of the depression, economic policy that they see as Russia's only salvation. The crisis is exceedingly deep.

MARGARET WARNER: Is that what it means today to be a Communist in Russia--not that you'd want to go back to the good old days--but it's sort of an FDR, New Deal kind of thing?

MICHAEL McFAUL: Well, the Communist Party is very divided in Russia today. There are some that want to go back to a New Deal kind of thing. But the rank and file in the Communist Party, no, they're not quite ready for that yet. They want to go back to the Old Order--

MARGARET WARNER: The real Old Order.

MICHAEL McFAUL: The real Old Order in terms of Soviet Communism, and part of Mr. Zyuganov's dilemma over this period of votes was really trying to reconcile those two sides of the party. I think Mr. Zyuganov, himself, has gravitated towards the more social democratic way. But the rank and file, especially in the regions, are much more militant than he is.

MARGARET WARNER: Stephen Cohen, explain then if the Communists were against this and against economic liberalization, yet also some of the business tycoons who profited from economic reform, they were also against Kiriyenko's appointment. Explain that.

STEPHEN COHEN: I mean, I think it's a side bar, but an important side bar, that the so-called oligarches, that is, the guys who have gotten the big piece of the old Soviet economic pie, they've taken over, privatized, if you will. It's a strange form of privatization. But they've been given literally the wealth created by the Soviet state and the Soviet people over 70 years, they want more. They want bigger pieces of the pie, and they're not sure whom Kiriyenko represents. And if he's an independent political figure, that is good, but bear in mind that the--virtually the entire political spectrum now wants a fundamental change in economic policy in Russia. What the oligarches want, how they feel about Kiriyenko, seems to me not to be the main issue. The main issue here, insofar as Kiriyenko is involved, is his entire political social base comes down to 167, not very well--your own president. He has no base, no allies, no political coalitions available to him. He will do what Yeltsin tells him to do. He will remain prime minister as long as Yeltsin wants him to be prime minister, and if anything happens to Mr. Yeltsin, this man--and it doesn't matter that he's 35 years old--you can be President of the United States at 35--what matters is he has no experience, no political allies, no ties, that if anything happens to Mr. Yeltsin, this man will be for at least 90 days the president of Russia.

MICHAEL McFAUL: And it's precisely because he has no experience that this is such a good move. After all, the problem with a lot of the Soviet government leaders that we've had and now Russian government leaders is that they were trained in the Soviet system. This is a new breath of fresh air. The reason why the bankers are afraid of him is that he has said very clearly I do not want oligarchical capitalism in Russia; I want people's capitalism. I don't like that term. That's his term, not mine, but that's what he said. That's why they're nervous about him. And let's give him a chance to fail before we think he's going to fail. I don't give him much of a chance by the way. I think this thing--you know, I tend to think of Russian reform as a giant aircraft carrier going through the water and the brakes don't work anymore, and you can turn it a little to the left if you really pull, and you can turn it a little bit to the right, but it's moving in a way, and it's going to take a long time before you turn to the right and to market reforms. I don't expect miracles to happen in this year, but I think it's a good sign that there's been change. It gives the opportunity for positive change.

MARGARET WARNER: But, back to what you were saying about Kiriyenko, you mean, he really wants to say we don't want this crony capitalism, insider deals, and all of that, in the privatization, but you don't give him much--

MICHAEL McFAUL: Well, I'm hopeful, but I'm also--I've seen other people that came along who said the same thing. But, that said, he's saying all the right things. He's going to get rid of government bureaucrats. In a speech he said the government has grown by 1.2 million people since 1992. We're supposed to be shrinking this government as it becomes a non-Communist government, and it's gone the other way. He's going to take that on. He wants to take on the oligarchies. He wants to make what he calls liberal capitalism. And I applaud him for that.

MARGARET WARNER: You're smiling, Stephen Cohen.

STEPHEN COHEN: Well, Michael is a romantic. I mean, it would be nice--I mean, it's nice to hear it, and it's nice to know that people still believe in fairytales, but you've got to look at the reality of Russia. Today's New York Times reported that in a small city outside St. Petersburg there are no cats any longer because the people have eaten them because they have nothing else to eat. Outside these glittery capitals of Moscow and St. Petersburg this is the reality in Russia today. And to imagine that Mr. Kiriyenko--because he has no times to some oligarches--is going to change this without fundamentally changing economic policy--is just wrongheaded. And, by the way, this crony capitalism that Mr. McFaul doesn't like and, rightly so, was created by Mr. Yeltsin. And Mr. Kiriyenko was created by Mr. Yeltsin. My guess is until Mr. Yeltsin goes, there will be no profound change of policy in Russia, and, therefore, we are dealing in Mr. Kiriyenko with Mr. Yeltsin, nothing new.

MARGARET WARNER: And, Michael McFaul, does this outcome, does it leave Boris Yeltsin stronger as a result, or as Stephen Cohen's saying, isolated and obviously weaker?

MICHAEL McFAUL: No. The big winner in this is Boris Yeltsin. Three weeks ago, right before this crisis, everybody said that Yeltsin was not a political player in Russia. Viktor Chernomyrdin, the prime minister at the time, was the new guy. Boris Berezovsky, this banker who people claim controls Russia, he was the guy. Boris Yeltsin sent a wake-up call to the Duma, to the government, and to the rest of the world that he's still in charge, he's still calling the shots, and you know, I think he was the overriding--overarching winner in this, without question.

MARGARET WARNER: Quick rhetoric, Steve Cohen?

STEPHEN COHEN: Until now Yeltsin has had one thing going for him, despite his unpopularity and the failure of his policy. He has been seen in the country as the guarantor of stability. Nobody after these three weeks can consider him a guarantor of stability. He created the new political instability. It was his caprice that eliminated the old government and nominated a 35 year old person with no experience for the prime ministership of Russia. That is how Yeltsin is now perceived in Russia, as a factor of instability, and that is a wounding blow in Russia. He has lost big.

MARGARET WARNER: All right, gentlemen. We have to leave it there. Thank you both very much. FOCUS - BACK IN ACTION

JIM LEHRER: Dan Rostenkowski, the former congressional power who chaired the House Ways & Means Committee, is out of prison and back out in public. Elizabeth Brackett of WTTW- Chicago reports.

ELIZABETH BRACKETT: It has been eight months since Dan Rostenkowski walked out of a Wisconsin federal prison, six months since he left a halfway house in Chicago. The former chairman of the House Ways & Means Committee is ready to step back into the public eye. The reception was warm, the banquet hall packed with the city's movers and shakers. The $35 a plate invitation referred to Rostenkowski as "Mr. Chairman." Rostenkowski made no reference to his conviction for misusing federal funds, only a brief reference to his 15 months of prison time.

DAN ROSTENKOWSKI, Former House Ways & Means Chairman: I graduated from Oxford, and I really had a Rhodes Scholarship. The past three years have been a constantly challenging time for me. Change never comes easily, and given the circumstances of my situation, that was particularly true for me. At times things have been downright bleak, and I wouldn't want to wish my experience on my worst enemy. But there were some silver linings. I've had an opportunity to read and reflect in a way that wasn't possible when I was in constant moment. In these remarks today I'd like to share some of my conclusions.

ELIZABETH BRACKETT: The conclusions did not dwell on the demise of Dan Rostenkowski's career but the demise of party politics.

DAN ROSTENKOWSKI: Those who say that the president's political power has been weakened by scandal have truly short memories. The sad fact is that President Clinton has never had a Democratic base in Congress. A group of people whom one could support the White House on any given issue are not there.

ELIZABETH BRACKETT: Weak parties, says the former powerful House Ways & Means chairman, lead to a lack of legislative will.

DAN ROSTENKOWSKI: I worked 14 years with a Republican president. But they wanted to get something done. What's lost here in the debate that's taking place on Capitol Hill is the appetite on the part of the legislative branch to get something done. And everybody that I worked with--Democrat or Republican--will have to attest that the one goal that Rostenkowski had was getting its share for the citizenry of this state.

ELIZABETH BRACKETT: Which makes his home state the easiest place for Rostenkowski to begin to try to rehabilitate his public image, says political science Professor Paul Green.

PAUL GREEN, Governor's State University: He is very determined to work at his legacy. He doesn't want his legacy and the name Rostenkowski to mean scandal and a prison sentence. I think he wants it to mean that he was probably the most congressman that Illinois has had perhaps in this century.

ELIZABETH BRACKETT: Reporter Bob Crawford points out one step Rostenkowski hasn't taken on his road to redeem himself. He has yet to apologize.

BOB CRAWFORD, WBBM-Radio: Danny finds it hard to apologize. I think it gets stuck in his throat. Unless I miss my guess, his pride still leads him to believe that he was deliberately targeted by federal investigators because he was such an inviting target. After all, he was the chairman of the House Ways & Means Committee.

DAN ROSTENKOWSKI: But you still, Mr. Archer, are not doing anything about the uninsured in the country. Isn't that basically what we're trying to solve--

ELIZABETH BRACKETT: It has been four years since Rostenkowski provided over the House Ways & Means Committee. As chairman, he wielded tremendous power, crafting the tax reform bill in 1986, trying to push through President Clinton's ill-fated health care reform plan, a plan he still thinks should have come to a vote. Perhaps the vote would have been taken had Rostenkowski still been chairman. Instead, he was battling for his political life.

DAN ROSTENKOWSKI: I will fight these false charges and will prevail. I will wash away the mud that has been splattered upon my reputation. Some ask how could you have done these things? The answer is simple: I didn't do them.

ELIZABETH BRACKETT: But the 17-count indictment for misusing federal funds, including converting postage stamps to cash at the congressional post office and employing ghost payrollers was too much even for Chicago voters. Rostenkowski lost his seat in November of 1994.

DAN ROSTENKOWSKI: This, of course, is the first time that I stand and concede the defeat and wish my opponent well.

ELIZABETH BRACKETT: Two years later, Rostenkowski pled guilty to two of the seventeen counts. He does not admit to wrongdoing today. Instead, he says, the government wore him down.

DAN ROSTENKOWSKI: They spent a lot of money, and they made me spent a lot of money. And after four years, you start thinking, how much more can I take, how much more can my family take? You don't know how powerful the government is until you get in trouble with 'em. And then the young, aggressive attorney that wants to crawl up the ladder of success because of the press that he could get, he's not too responsible about the way he treats the secrets of an investigation. The government can spend money ad infinitum, and you're just sitting there, listening to lawyers, you can't keep your mouth shut, don't say anything. In the meantime, the clock is running, and the cash register is ringing, you're going financially belly up.

ELIZABETH BRACKETT: These days Rostenkowski spends his time in the office in the building his grandfather built before the turn of the century, the same office his father used when he was a powerful Chicago alderman with his young son nearby. Rostenkowski has only been to Washington twice since his release from prison, but he says he doesn't miss it as much as he thought he would.

DAN ROSTENKOWSKI: I think I'd miss it more if the Democrats were in charge. But you have to remember that when I lost the election, the Republicans took over, I don't know whether Rostenkowski would like to be considered the former chairman in the minority because all the time that I was there in the 14 years that I served as chairman, I think that the decisions I made were worthwhile.

ELIZABETH BRACKETT: Rostenkowski had planned to get an office in a downtown high rise. But he decided to stay with the building in the old neighborhood instead. He and his family have long lived upstairs, the home and office just a half a block from the expressway built with the help of the federal funds that flowed into the city when Rostenkowski was in Washington. But that was before the 15 months in prison, which Rostenkowski does admit was a life-changing experience.

DAN ROSTENKOWSKI: It certainly gave me a lot of time to read, to think, lose a lot of weight. I don't recommend the cure. But I don't know--I'm retired. I'm dabbling in my business. I'm making speeches. I enjoy lecturing. I think if I bring any value to the educational process of the young and enthusiastic student, it's that I think I'm very practical, and I like certainty.

ELIZABETH BRACKETT: Rostenkowski will turn 70 this year. He continues to be eligible for his $104,000 a year government pension. He says his speaking fee is $15,000, though this one was for free. He has a healthy client list, including the Chicago Board of Trade. He says he doesn't lobby; he just gives advice on legislative strategy.

JIM LEHRER: Rostenkowski has now paid his third visit to Washington since his release. He attended a White House reunion celebration of President Clinton's 1993 budget last night. FOCUS - POLITICAL WRAP

JIM LEHRER: Finally tonight, some Shields & Gigot. Syndicated columnist Mark Shields, Wall Street Journal columnist Paul Gigot.Mark, political war broke out this week between the Republicans and the Democrats over the tobacco bill. Who's winning?

MARK SHIELDS: Well, I think that the Republicans are in a bind, Jim, because if there's a tough bill that does pass, Bill Clinton will get credit for it. If there's no bill that passes, they're going to get blamed. And the 19 to 1 vote by which it came out of the Senate Republican Committee headed by John McCain is, is enough, quite frankly, to give it a strong bipartisan flavor, and he's now being attacked, and that bill is being attacked by the Speaker of the House, and I think the Speaker for the first time made a political misstep by echoing the essential arguments of the tobacco lobby, namely, Stephen Goldstone of Philip Morris made before the National Press Club, calling it--

JIM LEHRER: RJR.

MARK SHIELDS: RJR, excuse me--calling it a big tax, big liberal, big bureaucracy bill. And I just think that that was a mistake by Newt Gingrich.

JIM LEHRER: Bad mistake?

PAUL GIGOT: Only Newt's first mistake. That's a concession.

JIM LEHRER: The new Newt.

MARK SHIELDS: The new improved Newt.

JIM LEHRER: The new Newt.

PAUL GIGOT: I think the Democrats were all set to morph Newt Gingrich into the Marlboro Man, and they started out with that attack, and they had second thoughts about it later in the week because I don't think it's going to fly. First of all, it's--it's not plausible to say that Newt Gingrich is aping the tobacco companies on this. He wants to give them less liability protection than John McCain's bill gives them. The McCain bill has a cap on liability protection. Newt said we're not going to do that at all. And what he was saying with Joe Camel, it turns out, was really--

JIM LEHRER: Refresh our memory with what he said that caused all the trouble.

PAUL GIGOT: What he said is that youth smoking cannot be mainly attributed to Joe Camel. There are other things. For example, the way Hollywood portrays smoking, now that happened to be the same subject that the First Lady, Hillary Rodham Clinton, used as a column not too long ago last August, and Gingrich was really making a very similar point. There are a lot of Republicans who wish Newt Gingrich were sticking up more with the tobacco companies, but he simply--I don't think it's plausible--and if you look at the polling data on this, a lot of Americans aren't as thrilled with the tobacco bill as a lot of people in Washington have thought. It's 47/46 percent for it, so it's a split in the NBC-Wall Street Journal poll.

JIM LEHRER: Sen. Lott said on this program the other night that nobody cares about this tobacco bill, at least out in Mississippi. Sen. Daschle said the next night, well, in South Dakota, they care about it. Who's right?

MARK SHIELDS: When you're for it, people care about it, and you're against it, nobody cares at all. They argue here on campaign finance all the time--but I think I didn't hear the speaker or any other Republican applaud Mrs. Clinton's column from last August to this April until the bill was pending, and at which point she became a source to be quoted--a primary source--and upset an ibid to be testimonial to--I would say that as long as people do see the tobacco bill as a tax bill, then I think that people who are fighting that legislation have the upper hand. There's no question about it.

JIM LEHRER: Mainly Republicans.

MARK SHIELDS: That's right.

JIM LEHRER: In fact, that is really the Gingrich approach. He said it's a tax that would increase the federal bureaucracy and that sort of thing.

PAUL GIGOT: And a big regulatory thing. In that same Wall Street Journal poll people asked, what do you think it is, is it for kids, teen smoking? 20 percent said that. Is it revenue grab versus spending? 70 percent.

JIM LEHRER: If that stays--

MARK SHIELDS: It's a problem. But Peter Hart, who did the poll, I spoke with him today, he said, if it's seen as an effort, a serious effort to cut down teen smoking, it gains great political momentum and popular support.

JIM LEHRER: Now, the politics of this, both Lott and Daschle denied that there were politics involved in this--let the politics call where they may--are there politics in this for either side?

MARK SHIELDS: I think the politics are on the Democrats' side in this one. I mean, I don't think there's any--there's no--

JIM LEHRER: If the Democrats are successful at painting them--

MARK SHIELDS: That's right.

JIM LEHRER: --in this pro-tobacco company corner.

MARK SHIELDS: Exactly. There's no real--Republicans could stop it on a tax basis and not hurt themselves. If the Republicans are seen as stopping a bill, it's going to cut--cut kids from smoking--limit kids' smoking, then I think it hurts Republicans.

JIM LEHRER: Do you agree with that basically? Mark said that a moment ago, that if this thing goes down the tubes for any reason, it's going to be the Republicans who are going to catch the blame.

PAUL GIGOT: I think it depends on how it goes down, why it is seen as going down. I think most of the potential advantage is for the Democrats in this, but I think it's much less of an advantage than a lot of people thought if you look at the way the public perceives this. They are perceiving it as a big regulatory, big taxing bill right now, and if the Republicans pass something that is aimed precisely at teen smoking, but it's not the McCain bill, it's going to be hard for the president to veto it.

JIM LEHRER: Okay. Campaign finance reform, it's going to get its moment--it's moments, I guess, in the House after all. What happened?

PAUL GIGOT: It has nothing but moments, I mean, it's all moments. What happened is the Democrats did a very skillful job of using something called a discharge petition, which says if you get 218 votes for something, a majority--signatures, rather, on something, you can control the floor. And they were approaching that number, and the Republicans said, wait a minute, we don't want to lose the floor, so they said, we're going to give--have a debate and a vote on this. There's no question that they were outmaneuvered on this, the Republicans were by--

JIM LEHRER: The Republican leadership.

PAUL GIGOT: Leadership was, and now they're going to get a debate that they may regret having to have.

MARK SHIELDS: We were also told--Sen. Lott said that about tobacco--we were told on this broadcast and elsewhere that nobody cares about this issue. Well, what this shows--when you get 218 people willing to go on discharge petition is that a lot of people do care about it, and there's enough people, when there's only 11-seat turnaround that would give the Democrats control of the House, if this is just an issue in 10 percent of the districts, and 44 districts in the country, in 1998, it becomes a problem. It becomes a voting problem for Republicans. And I think there's a question here, Jim, of the Republicans not simply losing control of the House, as the speaker was apprehensive about, but losing the majority in the House, and that's a concern in the suburban districts like the Montgomery County District here, represented by Republican Connie Morella--

JIM LEHRER: Montgomery County--

MARK SHIELDS: A district that's overwhelmingly Democratic, it's presidential voting--districts like that. I think there's two other factors that can't be ignored. First of all, ethics in this climate in 1998 with the grand jury sitting, all the rest of it, could be a major issue in the fall of 1998. People don't want to be on the wrong side of that. And secondly is just the tidal wave of money into campaigns has given incumbents a sense that they've lost control of their own destiny. Incumbents were never worried in the past because they always knew they could raise more money than their challengers. Democrats or Republicans, it didn't make any difference. Now, with the influx of all this money and the kind was spent out in California--where both--

JIM LEHRER: Special election a couple of weeks ago.

MARK SHIELDS: A special election. Both candidates just really felt that they had lost control of the dialogue in the terms of the debate of the campaign.

PAUL GIGOT: If they members really think they've lost control, wait till they pass McCain-Feingold and ban soft money. All that money is going to go right in--a lot of it's going to go right into independent expenditures, where the outside groups that will play in the races and set the terms of the debate even more than they have been lately and--

MARK SHIELDS: That money will not be barred, and I mean, it will--

PAUL GIGOT: This is the philosophical difference between Mark and me when he dons his Sir Gallahad--

JIM LEHRER: I've noticed this through the last couple of several years.

PAUL GIGOT: He dons his Sir Gallahad suit and pursues that Holy Grail of campaign finance reform, and he's sincere about it, and he's done it for years, but I'll tell you-- the problem is that as long as this city has so much power, money is going to pursue the city to try to influence it. You can't stop it. You can try to plug it up here and plug it up there, but it's always going to find a way. And that's the fundamental problem with trying to pass something. You can try with all your good intentions in the world, but ultimately it finds a way.

MARK SHIELDS: Jim, when we've had three consecutive presidential elections under the reform laws passed after Watergate, that were totally clean, without soft money, without big money in them, we had Ronald Reagan elected in 1980, we had Jimmy Carter elected in 1976, we had Ronald Reagan re-elected in 1984, it didn't change until '88. To say that we can't change it back I think is an admission of failure, and it's sort of the sense of futility, oh, gosh, we'll just let the money guys run it over. All you have to say is those individuals, labor unions, and corporations that give six and seven figure amounts, you can't do it anymore, folks, you're just the same as Sam and Sally Citizen, you're limited to giving a thousand bucks, and that changes it.

PAUL GIGOT: Go ahead.

JIM LEHRER: A practical matter. If the House does, in fact, pass a campaign finance reform bill as a result of this, what then can the Senate do? Here again Sen. Lott, Sen. Daschle had different views. Sen. Lott said it's not going to may any difference probably; Sen. Daschle said that's wishful thinking on Sen. Lott's part. What do you think?

PAUL GIGOT: There will be more pressure to have a vote, no question about it. I think they will successfully resist that pressure. It--there are two races in 1996 where campaign finance reform was a very big issue. One was in the Senate against Mark's favorite Republican, Mitch McConnell, the arch enemy of campaign finance reform, by Mark's definition. They used it against him in TV ads; he won in a landslide. The Republican patron saint of campaign finance reform, Linda Smith, in Washington State, almost lost her seat, despite being for it. Now, there were other issues at play in those races, but those lessons suggest to an awful lot of Republicans that it's not going to be that big an issue in the end.

JIM LEHRER: Speaking of issues, quickly, finally, the Senate passed an education bill last night. The president says he's going to veto it. What's going on there? Why education? That's suddenly out of nowhere.

MARK SHIELDS: Education--the most important issue Americans say that they want addressed in the country. Democrats have a major edge in people's judgment as to which party is better on the issue. Republicans had to come up with something. 1996, Jim, the only thing they wanted to do was abolish the Department of Education. That was all their presidential candidates--again, their litany--so they've come up with a program; they've come up with some ideas. It boils down to this: The Democrats want to test students but they don't want to test teachers. The Republicans want to test teachers but they don't want to test students, and both cases it shows the ideology and the politics of the two parties and I'm afraid it's going to be an issue, rather than a result.

PAUL GIGOT: I think I'd put it a little differently. If it's a question about the money you spend and the inputs into education, Democrats have had an advantage. But if it's a question about what you get for your money, the outputs, accountability, grades, that sort of thing, that's where Republicans and other schools succeeding with that money, Republicans can get back in the game, and they have been getting back in the game with this bill, which I think does have a positive agenda--that way to talk about education.

JIM LEHRER: And another part of it--in addition to the testing issue was the Republican bill makes it possible for take tax deductions and whatever for private school, tuitions, and things like that, and that--and the Democrats argued that that would destroy the public school system.

MARK SHIELDS: That's right. There's no question there's a deep philosophical difference there. I don't think anybody would say that the American public school system is in healthy tip top condition. There's no question about it. And there are deep divisions within the party. And this is a real issue. I'm not simply saying it's a political issue or a political smoke screen. But I think the Republicans, quite frankly, are scrambling to catch up.

JIM LEHRER: Do you agree with that?

PAUL GIGOT: They are, but they're doing quite well at catching up.

JIM LEHRER: And getting on the playing field on education where they hadn't been.

PAUL GIGOT: Five Democrats voted for this bill, including Robert Byrd of West Virginia, who said, you know, I voted for all these spending bills; we've got to do something differently within the schools.

JIM LEHRER: And we've got to go. Thank you both. RECAP

JIM LEHRER: Again, the major stories of this Friday, American Airlines and USAirways announced a plan to link their routes and frequent flier programs. The talks of a similar alliance between United and Delta broke down. Russia's parliament confirmed President Yeltsin's choice of a new prime minister, and in Rwanda, 22 men and women convicted for acts of genocide in 1994 were executed by firing squads. We'll see you on-line and again here Monday evening. Have a nice weekend. I'm Jim Lehrer. Thank you and good night.