updated 6/3/2004 10:34:41 AM ET 2004-06-03T14:34:41

Guests: Dana Priest, Thomas Friedman

CHRIS MATTHEWS, HOST:  Tonight a HARDBALL/”Washington Post” special report, “Iraq: 28 Days to the Transfer of Power.” 

From the “Washington Post,” Dana Priest and Robin Wright and from NBC News White House correspondent David Gregory and Richard Engel from Baghdad. 

Let‘s play HARDBALL.

Good evening.  I‘m Chris Matthews. 

Yesterday, June 1, will go down into the history books as the day a new interim government was formed in Iraq.  But more is sure to be written within just 28 days before the United States relinquishes authority. 

Big questions and bigger challenges remain.  Can these new leaders stabilize their country?  Who will have control over the military after June 30?  And what effect will the war in Iraq have on this year‘s presidential election?

To try to answer these questions tonight, we‘ve chosen some of the best journalists covering the story for this HARDBALL/”Washington Post” special report, “Iraq: 28 Days to the Transfer of Power.” 

From the “Washington Post,” Dana Priest and Robin Wright.  From NBC News, David Gregory for the White House.  And we begin tonight with this report on Iraq‘s new government from NBC‘s Richard Engel in Baghdad. 

Richard, I have to ask you this.  Is this new government going to be accepted by the Iraqi people themselves?

RICHARD ENGEL, NBC NEWS CORRESPONDENT:  It depends on what they can actually do.  So far, the reaction has been very quiet. 

There were a few posters today in support of Iyad Allawi, who has been named prime minister, who will assume those duties effectively on June 30. 

But people in Iraq basically want a government that can bring security, that can bring stability, that can create jobs.  There‘s more than 50 percent unemployment in this country.  There‘s a rampant kidnapping problem.  There‘s—the infrastructure barely works.  The water‘s not clean anymore.  There‘s electricity on two hours on, four hours off. 

So if they can solve a lot of those kind of problems, they‘ll be accepted.  And also, if they can create a process that leads to elections, which is really their main goal, in January 2005.  Then I think they will be judged a success, Chris. 

MATTHEWS:  Let me ask you this.  The interim government, was it chosen largely by members of the existing, the new previous governing council, which was largely picked by the United States, and therefore, is it not a product of the United States‘ political ambitions in Iraq?

ENGEL:  It appears to be a new group of people, new faces of the new government.  There are only—the top members were from the governing council, including both Iyad Allawi and the president, Ghazi Mashal Ajil al-Yawer.  They both came from the governing council itself. 

So that is to—of concern to a lot of Iraqis ,who didn‘t have much faith at all in the U.S.-selected governing council, which up until yesterday was running the show here on a very political level.  Obviously, the American and the coalition are in charge of most of the operations. 

But people in Iraq were very skeptical of the governing council.  But these—this new government appears to be mostly new faces.  But there is this concern since the governing council, these—the top levels of the interim government did come from the governing council.  There‘s concern that it‘s still going to be very much like the old government. 

But we‘ll see, I think, is the best answer I can give you. 

MATTHEWS:  Thank you.  Let me go to Dana Priest. 

The CIA, let‘s talk about its role in the formation of this new government.  Mr. Allawi, the new prime minister, has had CIA—a CIA connection in the past.  What is it?

DANA PRIEST, “WASHINGTON POST”:  Well, with the help and money of the CIA, he tried to overthrow government of Saddam Hussein in the mid-‘90s.  That didn‘t happen.  A lot of people got killed.  He‘s been on the CIA payroll, as has his organization, the Iraqi National Accord. 

He‘s a foil to Ahmed Chalabi, who the CIA distanced themselves from in the last few years.  So whether he can get over his label as the CIA‘s man in Baghdad is one of the big questions. 

MATTHEWS:  Robin, let me ask you about that.  We have a government over there which is being basically financed by the United States taxpayer. 

Even though we‘re running a deficit in this country of half a trillion dollars a year, we are borrowing money in this country to finance that government over there, in if he can, at the margin.  And therefore, we‘re basically the Uncle Sam of Iraq. 

Why should anybody trust a CIA contact, agent of the past, who‘s now on a CIA payroll.  I‘m sorry, was on the CIA payroll.  And now his entire government is on the U.S. payroll. 

Why did the people of Iraq—should they believe that that‘s an independent government?

ROBIN WRIGHT, “WASHINGTON POST”:  Well, that‘s a big question.  And the issue here really is perception versus reality.  Many of the people in this new government are actually very well qualified for the jobs that they‘re going to do. 

MATTHEWS:  But they‘re drawing a paycheck from the United States now. 

WRIGHT:  And that‘s the way many in Iraq will perceive it.  Now, if this government is able...

MATTHEWS:  It‘s not perception.  It‘s reality.  They‘re getting paid by us. 

WRIGHT:  They‘re getting...

MATTHEWS:  Do they take orders from us?

WRIGHT:  There will be a different kind of relationship between the new government and John Negroponte, who will be the ambassador in Iraq after July 1, and the current relationship, which is a total dependency. 

At the end of the day, the United States today has final say on everything.  After July 1, it will be a very different kind of relationship.  And that will extend, as well, to the issue of foreign forces led by the United States, who will remain after the occupation ends. 

MATTHEWS:  Let me to go David Gregory at the White House. 

Why was the president—I mean, the term is an unusual term for a grown man, but giddy was the description of the president.  He was so excited and happy about the formation of this new interim government.  Why is he so happy right now?  The president of the United States?

DAVID GREGORY, NBC NEWS CORRESPONDENT:  Chris, I described it as more relief than giddiness. 

I think this president is finally getting some good news out of Iraq.  He‘s got a reason to be hopeful.  And that‘s what you saw yesterday as he embraced this new government, even though it didn‘t achieve everything—the administration didn‘t achieve everything that it wanted to out of the selection process. 

But I think on your last question about who‘s calling the shots here, there‘s been a significant shift at the White House.  They are taking a much more pragmatic look at Iraq.  They want out.  They don‘t want to manage this and own this problem on their own anymore. 

The president is going to Europe.  He wants a significant buy-in from European countries to say, we didn‘t agree with you on the war but we‘re willing to own Iraq‘s future in some measure. 

At the same time, he wants to move away from the idea that Americans are still going to be calling the shots to empowering this group of Iraqis to handle their own affairs, even, I thought significantly, saying yesterday that on military matters, there could be scenarios where there‘s such close collaboration that an Iraqi government might say, “Look, sit this one out, United States.  We don‘t need you to come on this particular mission with us.”  Or maybe we need to confer and collaborate on another type of mission. 

So the administration is in a tough spot right now.  On the one hand, trying to encourage as much independence as possible for this interim government so that it can stand on its own two feet, be seen as legitimate, while still protecting its interests. 

Financial interests.  We‘ve got $20 billion in reconstruction money and obviously the most important thing, security.  We can‘t have Iraq go down the tubes here just as we‘re handing it over. 

MATTHEWS:  You know, in Vietnam, the test of whether the South Vietnamese government was legitimate in the end was quite simple.  Could it survive the onslaught from the Viet Cong and the North Vietnamese?  In the end, the world said they weren‘t legitimate because they lost. 

Is what David is talking about right there, a fair acid test for the new government over there?  Do they have the stuff to face down what are called the insurgents?  You could call them resistance.  You could call them the opposition. 

Do they have the stuff to face them in the field and kill them?

WRIGHT:  And knowing that they are Iraqis as well.  And that‘s going to be a tremendously important issue.  Particularly in the months after the U.S. ...

MATTHEWS:  Are they going to ask us to do the killing?

WRIGHT:  Well, this is where they‘re working on a different kind of relationship.  And that‘s reflected in the U.N. resolution that was also introduced yesterday.  It was the second half of the new package. 

And this stipulates not only will Iraqis have a big say in what U.S.  forces do, but it also stipulates that the United States will withdraw by the end of this full transition.  In other words, after a constitution and after a government is put in ...

MATTHEWS:  Is there a realization enough to steal the hearts and the bodies, the guts, the physical courage of people in Iraq to say, “Look.  We know the United States is leaving sooner or later.  We‘re going to have face down our opponents physically.  Because they‘re coming at us with guns and RPG‘s and everything else.  We‘re going to have beat them in the field”? 

This is going to end up being, in effect, a civil war between the people we put in power and the people who get elected against those who don‘t get elected, who are going to try to overthrow them.  Do they know this war is coming?

WRIGHT:  Be careful when you say this war is coming. 

MATTHEWS:  Because if we leave, there will be a war.

WRIGHT:  I think there are those—Well, there are those who will be intent.  The insurgents and some of the extremist groups will be intent on trying to make it appear or trying to spark a civil war. 

The real question, and the stakes—the future of Iraq will depend to a large degree on whether the United States trainers, not the troops there but the Army trainers, who go in, led by General Petraeus, will be able to create an Iraqi force that can create its own stability. 

Remember, before we went in—wait a minute. 

MATTHEWS:  It‘s not a question of training.  It‘s a question of whether you want to fight and die for your country. 

And then in Vietnam, brief shining light.  I happened to see on it TV the other night.  They had the bright shining light.  The notion that there was a South Vietnamese Army willing to fight the Reds to the death was a delusion, because in the end they didn‘t fight. 

WRIGHT:  Remember that on the eve of the war with the United States, Iraq still had among the 22 Arab nations, by far, the best-trained, best armed, and best able, most capable military force in the region. 

MATTHEWS:  Right.

WRIGHT:  And so the real trick is recreating the Army that unfortunately, Jerry Bremer, the U.S. administrator in Iraq, disbanded. 

GREGORY:  But Chris—But Chris, the other thing to remember here is that what‘s important for this interim government is to take the target off of their back by getting the U.S. to lower its profile there. 

MATTHEWS:  I see.

GREGORY:  Because that is really what‘s driving a lot of the insurgency, at least based on what we know right now. 

MATTHEWS:  Let me go back—before we go to break, let me go right back to Richard Engel, who‘s in Baghdad. 

Richard, I want to ask you this.  Do you sense that the spine of the Iraqi government people, the people who support our effort there, who wanted democracy, a stable government, is that stiffening or not?

ENGEL:  I think it would be wrong to suggest that these people lack the will to go after the militant groups. 

These people are certainly targets themselves.  At least four of them have recently received death threats.  So they are—and the electoral commission that is being set up, that has already been set up, the names of the people are being kept secret for fear of assassination attempt. 

So they very much see that they are the enemy, that there is an enemy against them that they have to fight. 

But I think what will happen is—a very concrete example, what happened in Fallujah when the U.S. Marines last month launched a major offensive. 

Everyone, a lot of people, a lot of politicians in Iraq were very much opposed to that operation.  Iyad Allawi, the new prime minister designate, threatened to resign from the governing council at the time over that operation. 

So if we—will they go after the militants?  Certainly.  These militants want to kill them.  And they‘re disrupting this country, and the country can‘t function normally. 

But will they support politically sensitive large-scale operations like the one in Fallujah?  I think that will be the real challenge, Chris. 

MATTHEWS:  All right.  The point of decision in the country of Iraq right now.  Will they adapt and accept this new country?  Accept it as a legitimate interim government on the way to their own democratically elected government next year? 

Will they be willing to fight for it?  Will the leaders that have been picked stand up and take the heat and risk their lives to build a new Iraq?  We‘re talking about that tonight. 

Up next, the role of one time Pentagon favorite Ahmed Chalabi, the man now in the shadows.  We‘re coming back with David Gregory, Richard Engel, Dana Priest and Robin Wright when HARDBALL‘s special report with the “Washington Post” on the countdown to the transfer of power in Iraq continues.

You‘re watching HARDBALL on MSNBC.

(COMMERCIAL BREAK) 

MATTHEWS:  Coming up, our special report on the transfer of power in Iraq continues when HARDBALL returns.

(COMMERCIAL BREAK)

MATTHEWS:  We‘re back with the “Washington Post‘s” Dana Priest and Robin Wright, Richard Engel and David Gregory of NBC. 

You know, there‘s a home front fight here, which I‘m trying to figure out.  It‘s over who do we bed?  It‘s like going to a horse race, the Belmont or something, which horse do you bet on?

Let me go first of all to David Gregory at the White House. 

You know, you and I have talked a lot about this during the different shows we‘ve done together to try to figure out the politics of the White House and the Defense Department, the vice president‘s office.

So much money was bet on Ahmed Chalabi as perhaps the new prime minister, the new leader of Iraq.  What happened?

GREGORY:  Well, he apparently led United States, or some in this administration, the hard-liners in this administration, down the wrong path.  Because he sold those who were bent on toppling Saddam on a couple of ideas. 

One that he was bent on striking the United States with weapons of mass destruction, that he apparently did not have.  And second, that any liberation force led by the United States would find Iraqis greeting them with open arms.  Those scenarios did not play out. 

Now there are more serious questions about whether Chalabi passed sensitive information about U.S. intelligence capabilities to the Iranians.  An investigation going on to that. 

And you‘ve got this administration completely distancing themselves from Ahmed Chalabi.  You had the president in the Rose Garden yesterday saying, well, any meetings he had with him were very brief.  And that nobody came into the Oval Office at decision time to say, “Chalabi said do this or don‘t do that.” 

So this is somebody who is front and center.  As—The administration hitched its wagon to—who has now made them look bad and everybody wants to get out of the way. 

MATTHEWS:  Well, he‘s not exactly George Washington. 

Let me go to Dana Priest right now.

Your paper is reporting today that this guy Chalabi is involved in not only signaling, or signaling the Iranians on general sort of intel but he‘s told them that we had broken their code. 

And then there‘s a word going back, and some of the press (ph) to the people in the Defense Department, Doug Feith, particularly that he may have been giving the information to Chalabi.  Chalabi may have given it to the Iranian government over there, which that doesn‘t necessarily have our interests at heart, to put it lightly. 

Tell me how that‘s going.  Because this guy was the main hope of what we call the neo conservatives, the hawks in this administration. 

PRIEST:  Well, when I came into the newsroom this morning, I thought this has to be a set-up.  First you have Allawi, his rival, elected in Iraq as the new prime minister. 

But as you look further into it, there is a serious counter intelligence investigation going on. 

MATTHEWS:  By the FBI. 

PRIEST:  By the FBI.  If Chalabi did this, this threatens the U.S.  interests in a very deep way, because those channels of communication are the most sensitive. 

So you have to say, he must have not thought he would be getting—he would get caught in order to do this. 

MATTHEWS:  Why is it important to the United States to have the Iraqi

·         the Iranian—of course, some of the real hawks in this administration say we‘re going to go to Iraq, then go to Iran, knock that government off. 

Why is it important that we‘ve lost the secret we had, that we had a secret decoding?  We had decrypted the Iranian secret service code.  Why is it important that that information got to Iran, to Tehran, to the leaders of that government?

PRIEST:  Well, two things.  One is that we want to know what the government of Iran is saying among themselves about weapons of mass destruction, about aiding other terrorists groups throughout the world. 

MATTHEWS:  And they are, notoriously, the sponsors of Hezbollah in Israel... 

PRIEST:  Absolutely.  And much more so than the Iraqi government was. 

MATTHEWS:  Right.

PRIEST:  Secondly, there are exiles in the Iranian community throughout Europe and other places, who we can eavesdrop on the Iranian government, alert them to assassination attempts.  And all of that may go away. 

So this is really a deep betrayal of American secrets. 

MATTHEWS:  This is really—This is cloak and dagger stuff, Robin Wright. 

We have a part of our administration which is enamored of this guy, Chalabi.  Chalabi is going down. 

But even now, Richard Perle, one of the smartest people to sit on the show, and a real dangerous charmer sometimes because you tend to like the guy.  He apparently is now saying that if we had put Chalabi in power the day we arrived after winning the war in Iraq on the ground, we wouldn‘t have all this problem with our occupation.  We would have had an interim government taking place, right off the bat, a provisional government, as he called it. 

Is he right?

WRIGHT:  I‘ve known Chalabi for 20 years, and I think Richard Perle was terribly naive.  The fact is, this was a man who was convicted on 22 counts on fraud and embezzlement. 

MATTHEWS:  In Jordan.

WRIGHT:  In Jordan.  Sentenced to 22...

MATTHEWS:  By the way, nobody has ever said he was innocent. 

WRIGHT:  Twenty-two years in prison and ordered to pay $100 million fine.  This man is not welcome in virtually any other part of the Arab world. 

MATTHEWS:  When he arrived in Iraq, there wasn‘t a lot of notion that he was there.  There was no reaction. 

WRIGHT:  Well, yes, there was.  And this was the interesting thing.  He portrayed himself as the Spartacus.  And when he arrived in the south, in the Shiite heartland, rather than being cheered, he was jeered. 

MATTHEWS:  That‘s what I meant.

WRIGHT:  And the Americans—the Americans actually had to protect him.

MATTHEWS:  I meant to say there was no call for popular celebration that he had arrived. 

WRIGHT:  No.  And he is not...

ENGEL:  Absolutely. 

MATTHEWS:  Go ahead.

ENGEL:  Chris—I remember.  I was here.  I was here in Iraq when he

·         when he first arrived. 

MATTHEWS:  What was the reaction to—What was the reaction when he came in? 

ENGEL:  I remember standing in Fargu (ph) Square when the statue was being toppled.  And one of the first things that Iraqis were saying to me is “We don‘t want Ahmed Chalabi.  We don‘t want all of these exiles.  We want an Iraqi group.” 

It was the—probably the first conversation I had since the—after the fall of Saddam Hussein.  I think it actually was the first conversation that I had. 

WRIGHT:  I bet Richard remembers...

ENGEL:  I had it a thousand times since then.  He is not a popular person. 

MATTHEWS:  Richard, how can the American government, the real advocates for the war, the hawks, how could they have gotten wrong so badly, the idea of who—and how popular or unpopular Mr. Chalabi would be if he went to try and take over that country?

ENGEL:  They—I don‘t know.  They certainly didn‘t ask a lot of people in Iraq, certainly. 

If you—if you‘re talking to people, you very rarely meet someone who says, “Yes, I support Ahmed Chalabi.”  You go around.  You see lots of people who support al-Sistani, al-Hakim, Muqtada al-Sadr even.  But you don‘t see someone who‘s got a picture of Ahmed Chalabi in his house. 

MATTHEWS:  You know who has a picture of his...

ENGEL:  And when he came in, and they set up the hunting club and they set up—and they were accused of stealing a lot of money.  It was not a popular person. 

MATTHEWS:  Let me give you the fan club in this country.  Richard Perle, Richard Cheney, Scooter Libby, Douglas Feith, Stephen Hadley, they love the guy.  Unfortunately, they don‘t love him in Iraq.

More on “Iraq: 28 Days to the Transfer of Power” when we return. 

And later, what will happen to the thousands of U.S. troops in Iraq once the Iraqi government takes over?  Dana Priest reports.

And tomorrow on HARDBALL, how this year‘s presidential election is looking a lot like the 1980 race when foreign affairs and the Iranian hostage crisis dominated the news.  That‘s tomorrow, right here on HARDBALL.

(COMMERCIAL BREAK)

MATTHEWS:  We‘re back with Richard Engel, who‘s in Baghdad.  David Gregory is at the White House, and the “Washington Post” reporters Dana Priest and Robin Wright. 

Let me go to David Gregory at the White House.  The president was in very good spirits, as I said, the other day, earlier in the program.  Tell me, how does president see this emergence of the new interim government in Iraq is getting him past the election? 

GREGORY:  Well, I think for one thing, there‘s got to be some stability in Iraq.  The deaths of American troops and other coalition soldiers has to abate.  There has to be some progress toward stability in Iraq, toward the formulation of an interim government.  All of that has to level out. 

At the same time, this has to become more of an international project.  I think the public can‘t look up and see America isolated and alone in Iraq, you know.  Bogged down. 

I think if those two things happen, the president can get back to some of the other campaign themes that he would like the get to: the economy, other subjects, while at the same time, hammering home the fact that this war on terror, even if they‘re successful in Iraq, goes on to other aspects, and that the war is hardly over. 

MATTHEWS:  Thank you, David. 

Will we get support, Robin, from the U.N. on this with this new resolution?  Will they like the looks, the cut of the jib of this new interim government enough to support our efforts over there now?

WRIGHT:  There is a fascinating question.  In fact, the U.N., most of the members of the Security Council, would like to have some kind of resolution.  But they also...

MATTHEWS:  They want to get in? 

WRIGHT:  But—No, no.  They don‘t want to get in.  But they want to make America pay for it.  They want every concession.  They see that the United States is desperate to get a resolution before June 30, and they‘re going to exact their penny. 

MATTHEWS:  They will deal.  The French, too. 

WRIGHT:  Eventually.  But they‘re all working on their own amendments at the moment. 

MATTHEWS:  I think we‘re willing to pay a pretty high price to get the jamboree enlarged. 

Anyway, our HARDBALL/”Washington Post” special report continues in a moment. 

Up next, what happens to the American troop serving in Iraq after June 30?  Who‘s the commander over there.

And don‘t forget, MSNBC‘s coverage of the 60th anniversary of D-Day begins Friday.  And on Sunday at 6 p.m. I‘ll be joined by General Norman “Storming” Schwarzkopf and Senator John McCain.  That‘s Sunday night here on HARDBALL on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS:  This half-hour on HARDBALL, our special report on the transfer of power in Iraq continues.  What happens to the American troops in Iraq after the handover?  Plus, “New York Times” columnist Tom Friedman tells us why he thinks outsourcing is a good thing for American workers. 

But, first, the latest headlines right now. 

(NEWS BREAK)

MATTHEWS:  Welcome back to this HARDBALL/”Washington Post” special report on Iraq, 28 days to the transfer of power.  And that‘s what we‘re talking about, the transfer of power to a new Iraqi government. 

Dana Priest has taken a look at the confidential—a confidential document that shows there‘s still a lot to do before the U.S. does turn over sovereignty to the Iraqis at the end of the month—Dana.

DANA PRIEST, “THE WASHINGTON POST”:  The real question Chris, is this a handoff or a fumble? 

MATTHEWS:  Let‘s see. 

(BEGIN VIDEOTAPE)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES:  On June 30, the Coalition Provisional Authority will cease to exist and will not be replaced.  The occupation will end and Iraqis will govern their own affairs. 

PRIEST (voice-over):  More than a year after the fall of Baghdad, the Iraqi people will get their first shot at self-governance.  But, with just 28 days to go, some starkly fundamental questions remain.  What happens to the more than 130,000 U.S. troops still in the country?  Will they operate independently or must their operations be approved by Iraqi authorities?  Even the two closest allies, the United States and Britain, haven‘t agreed on an answer. 

TONY BLAIR, BRITISH PRIME MINISTER:  So if there is a political decision as to whether you go into a place like Fallujah in a particular way, that has to be done with the consent of the Iraqi government. 

COLIN POWELL, SECRETARY OF STATE:  But if it comes down to the United States armed forces protecting themselves or in some way accomplishing their mission in a way that might not be in total consonance with the Iraqi interim government might want to do at a particular moment in time, U.S.  forces remain under U.S. command and we‘ll do what is necessary to protect themselves. 

PRIEST:  Officials say U.S. troops need a free hand to fight the insurgency.  And as much as everyone would like to rely on Iraqi forces to do that job, they aren‘t anywhere near ready to go it alone. 

RET. GEN. BARRY MCCAFFREY, NBC MILITARY ANALYST:  It is a hollow force, untrained, ill-equipped and has no loyalty to any Iraqi government.  That‘s unlikely to change in the next six months. 

PRIEST:  According to a confidential government document obtained by “The Washington Post,” the vast majority of Iraqi police are untrained. 

Only one-third working today have received any training at all.  And of the 35,000 Iraqi military forces needed, only 2,800 are on duty.  What‘s more, 1,000 members of the new Iraqi army and nearly 3,000 from the police recently were sent back for retraining, killed in the line of duty or removed for actually supporting the insurgency. 

And nation building in Iraq is still rocky at best.  Less than a quarter of the $18.4 billion allocated by Congress for reconstruction programs has been obligated.  At a recent Pentagon briefing, David Nash, the retired admiral who manages how U.S. tax dollars are spent, remained optimistic. 

RET. ADMIRAL DAVID NASH, COALITION PROVISIONAL AUTHORITY:  contractors have showed up with great vim and vigor.  In fact, they‘re at work, so things are going very well. 

PRIEST:  Although the pace is slower than the Bush administration expected, improvements continue.  The number of Iraqis with telephone service is up 33 percent from the prewar level; 2,500 schools have been rehabilitated, and thousands of teacher booted out of their job in the initial postwar de-Baathification process are working again. 

This is Dana Priest of “The Washington Post” for HARDBALL. 

(END VIDEOTAPE)

MATTHEWS:  Dana, it is still a question.  Is this a partisan question, whether the Iraqi government is really calling the shots or not?

PRIEST:  No, it is really not.  The Democrats have predictably criticized it.  But so has the chairman of the Armed Services Committee, John Warner, who said this brings a new meaning to sovereignty, that you would have the U.S. military occupying still a country.  They are not going to do joint operations except in the most benign areas.  They are still going to be under their own command. 

MATTHEWS:  Suppose the old Soviet government had put up a government in like Afghanistan and said, we‘re leaving, we‘re setting up a sovereign government here.  We‘re leaving, of course, 135,000 Red Army troops.  Would we believe it was a sovereign government? 

PRIEST:  Absolutely not. 

(CROSSTALK)

MATTHEWS:  Will the world believe that it is sovereign government as long its entire constabulary basically is backed up by the United States, it‘s gendarme, it‘s military force, is the United States?  Will they trust its independence? 

PRIEST:  If the dominant issue continue to be security and the U.S.  drives that car, then, no, you can‘t operate.  You could have parallel tracks, political and reconstruction largely in Iraqi hands, security in U.S. hands and increasingly in Iraqi hands. 

But, as we‘ve seen, the Iraqis don‘t have the capability to do it, even if they have the will to do it. 

MATTHEWS:  Let me to go Richard Engel, who is in Baghdad. 

Richard, is there a sense growing over there of power in the hands, or, rather, moving into the hands of Iraqis and away from American hands? 

ENGEL:  Not really. 

I think the Iraqis realize they‘re not really gaining very much sovereignty at the end of the day.  The control of the country, the effect (AUDIO GAP) is probably not going to be in Iraqi hands.  And, effectively, that is what it is all about right now.  It doesn‘t matter so much who is picking up the garbage or who is organizing the schools.  It is, who is making this country safe for the majority of Iraqis?  And I think they‘ll be happy whoever can do that. 

What the real focus here is on the elections that are coming up in January 2005.  And a lot of the Shiite groups, for example, aren‘t paying any attention to this interim government at all.  The Hawza, which is a network of religious schools, it‘s very powerful, could really care less what this transitionary or interim government does.  They want to focus on the elections.  They‘re already starting to organize so that, when those elections come, they win and that they can sweep themselves into real power, Chris. 

(CROSSTALK)

MATTHEWS:  OK, let...

GREGORY:  Chris, I think there‘s something significant here, too, which is, I think you‘re going to see this administration do everything it can to encourage the independence of this interim government. 

Let‘s not forget that the U.S. exit strategy is predicated on them surviving long enough to hand over power to a duly elected government.  If it fails, we‘re still left holding the bag, securing the country, because the international community is not going to provide troops, not NATO, not the other powers, still us.  So we have a vested interest, the United States, in not appearing too heavy-handed, securing the country, but getting these other Iraqi troops trained and handing this baton off sooner, rather than later. 

MATTHEWS:  So the election in January is real?  That will really take power away from the United States and give it to the Iraqis?

WRIGHT:  Oh, it is seen as very real. 

But I also think that the ability of the Bush administration to win any reelection will depend on its ability to prove that the Iraqi government actually does have some credibility in the run-up to this critical second phase of the transition.  Most Americans think that the—our role really ends on June 30, when that‘s only the first of the three phases that will end at the end of 2005 with the election of a permanent government after the new constitution. 

There are a lot of steps and a lot can happen over the next year and a half. 

MATTHEWS:  Do you think it will seem, a month or so from now, that the Iraqis have an interim governor, that it‘s not just our people calling the shots?

PRIEST:  I think you will be surprised by how nationalistic the Iraqis are, how firm they are in making their own decisions, and often in defiance of the United States.

(CROSSTALK)

MATTHEWS:  They‘re at the forefront of the reelection campaign back here.

ENGEL:  Chris, they‘re also politicians.  They‘re also politicians.  They have to make a stance right now.  They have to do a little bit of grandstanding to prove themselves, so that they are in good positions for the next election. 

(CROSSTALK)

MATTHEWS:  Thank you very much, Richard Engel, Dana Priest, Robin Wright and David Gregory at the White House for NBC.

Up next, “New York Times” columnist Tom Friedman on why sending American jobs overseas can actually benefit American workers.  Well, that‘s going to quite an argument from Tom.

You‘re watching HARDBALL on MSNBC. 

(COMMERCIAL BREAK)

MATTHEWS:  Coming up, more American jobs are being shipped overseas.  “The New York Times”‘ Thomas Friedman is coming here to tell us why he thinks that that‘s a good thing.

(COMMERCIAL BREAK)

MATTHEWS:  Thomas Friedman is a Pulitzer Prize winning columnist for “The New York Times.”  His latest Discovery Channel documentary, “The Other Side of Outsourcing,” airs on that network this Thursday, June 3, at 10:00 Eastern time. 

Tom, one of the issues in this campaign—and I want to get off Iraq for a few minutes—is jobs.  And we bring it up every time on this show with regard to Ohio, Missouri, Kentucky.  The middle part of the country is badly hurt.  Democrats say it is outsourcing.  John Kerry says it is outsourcing.  Is it? 

THOMAS FRIEDMAN, “THE NEW YORK TIMES”:  It‘s not outsourcing. 

Outsourcing—the number job that have been outsourced from America, Chris, are still relatively few.  We‘re talking about maybe something in excess of a million.  And even that‘s probably high.  It is outsourcing in this sense, Chris.  It is what David Rothfels (ph) calls outsourcing to the past.  It is not outsourcing to India.  It is where technology has overtaken certain industries like those in the Midwest, some of the steel, heavy industries, and the jobs have basically been lost to technology and to the future. 

(CROSSTALK)

MATTHEWS:  Well, how do you explain why I buy an XM Radio from car, which I love it—it‘s all—I shouldn‘t say, but show tunes. 

(CROSSTALK)

(LAUGHTER)

MATTHEWS:  The bottom line is, I go to get that thing installed.  I call up.  They say, please do this online.  You can save $5.  But I‘m unable to try to figure out how to do it online.  I call this number.  You wait for 30 minutes. 

A voice comes on that sounds like it‘s on the other side of the planet, which it is.

FRIEDMAN:  Right. 

MATTHEWS:  He‘s got an Indian accent.  He tries to explain it and I just give up, OK?  The fact is, that‘s outsourcing for a service industry that could be done in North Dakota, South Dakota, where people speak in non-accented English why.  Why don‘t we do those things at home?  And that‘s a case of losing a job that should be in North or South Dakota or Philly—well, maybe not in Philly, but anywhere.  I‘m just kidding.  But it could be in almost anywhere. 

FRIEDMAN:  Yes. 

MATTHEWS:  Why not at home?  Why isn‘t it home?

FRIEDMAN:  Well, personally, I wouldn‘t defend that.  If someone is ready to do that at home and can do it better...

MATTHEWS:  Well, why are we going to Bangalore to get a guy to answer to answer a computer question or an XM Radio question?

(CROSSTALK)

FRIEDMAN:  They‘re doing it to save money. 

What you‘re not seeing, though, is what they‘re doing, what they‘re doing with that saved money.  Where are they investing it?  What jobs are they creating? 

(CROSSTALK)

MATTHEWS:  You‘re making the case that we‘re not losing jobs overseas. 

And I‘m telling you, we are. 

(CROSSTALK)

MATTHEWS:  Elizabeth Edwards, the wife of John Edwards, talked about getting something done that she wanted done with her computer in Georgetown.  And she‘s on the phone with some guy in India.  He says, now, where‘s this Georgetown? 

FRIEDMAN:  Right. 

(CROSSTALK)

MATTHEWS:  Why are we calling people for service jobs? 

FRIEDMAN:  We‘re absolutely losing jobs—yes, we‘re absolutely losing jobs all the time to overseas and to the past, OK?

We‘re also creating jobs as a result of it.  You will see.  You watch our documentary.  You go into these call centers?  What do you see?  You see H.P. Computers.  You see Carrier air conditioning.  You see Microsoft windows on the computers, OK?

Yes, what goes around comes around.  If you don‘t build up a middle

class in India and China to buy all the high-end things that we sell, then

there aren‘t going to be any jobs here.  There‘s a constant

(CROSSTALK)

MATTHEWS:  Well, let me ask you

(CROSSTALK)

FRIEDMAN:  Thirty percent -- 30 percent of Americans work in agriculture in the turn of the century. 

(CROSSTALK)

MATTHEWS:  ... loss to this country is, when we were growing up, when I was growing up in the ‘50s, a guy could be 17 years old, 18 years old, come out of high school, and he could go work at the Bud plant.  And he may have a young girl, his girlfriend, and she may be pregnant or whatever.  You can talk about the old lifestyles, because everybody seemed to get married in those ways in the old days.

FRIEDMAN:  Right. 

MATTHEWS:  And they were living in a house, in a bungalow in their late teen and early 20‘s.  They were providing for their first couple kids.  The kid would end up maybe going to college in the neighborhood all on one salary and a job that paid a real man‘s salary, something like today‘s equivalent of $30 something an hour, right?  Where are those jobs? 

FRIEDMAN:  They‘re gone. 

MATTHEWS:  They‘re gone.

FRIEDMAN:  They‘re gone.  That was good, Chris—those jobs were good in a world of walls.  But the walls have been blown away. 

And we‘re all now competing with one another on a much more level playing field. 

MATTHEWS:  Well, wasn‘t it a better world—wasn‘t it a better world to have the Bud plant job or the riveting job or the semi-skilled or the skilled job you could get out of high school? 

(CROSSTALK)

MATTHEWS:  The aerospace plant or building train cars or subway cars? 

That‘s what we used to do in Philadelphia. 

FRIEDMAN:  Is our standard of living higher today than it was in 1950? 

(CROSSTALK)

MATTHEWS:  If you have both people working a combination of 70 or 80 hours a week, missing time with the kids, missing vacation time, missing the old habit of coming home at 5:00 or 5:30, with the sun still up, throwing the football or the baseball around and having a little time after dinner, a little time before dinner and still have a full income coming in.  Those days are gone. 

FRIEDMAN:  Do I miss that world?  Absolutely.  I grew up in that world, OK?

MATTHEWS:  Right. 

FRIEDMAN:  I‘m just here to tell you, it is gone.  And you can‘t recreate it.

MATTHEWS:  Well, now, we‘re all running around like Hungarians at the time of the changeover there.  We have got a husband and wife running.  They‘re practically—currency changes.  We‘re going nuts.  People are working so hard.  And we‘re working hard to compete with other people around the world, because there‘s a guy in Bangalore who will work for $5 an hour. 

FRIEDMAN:  Exactly. 

(CROSSTALK)

MATTHEWS:  And you say this is OK, though.

(CROSSTALK)

FRIEDMAN:  I‘m just saying it is here.  I‘m saying it is here and you better adjust to it, and that there are a lot of things about it that will actually drive innovation and raise our standards of living at the same time. 

MATTHEWS:  How do you know it‘s better?  FRIEDMAN:  Very simple, OK?

OK, you want to start a company in Silicon Valley today, all right look at how—some of the new companies that are started out there.  Who is on this side of the ocean?  The chief financial officer, the chief technology officer, the chief marketing officer, the vice president, and the senior management.  OK, they‘re here because the market is here.  Who is in India, OK? 

Basically, the designers and the software writers, basically, OK.  The high-end jobs are here.  The fact that they can outsource those jobs to India allows them to innovate much quicker, much more cheaply and sell to much bigger markets, OK?  Look at the cell phone industry, all right?

MATTHEWS:  But what jobs are really uniquely American?  Like, I was looking at it.  I got this hat given us at Harvard the other day, walking around in one of those Harvard baseball ball hat, just like when we had that college tour up there.

(CROSSTALK)

MATTHEWS:  And it says Bangalore.  I‘m sorry.  This was made in Bangladesh, OK?

FRIEDMAN:  Yes. 

MATTHEWS:  Now, one thing is that baseball hates and baseballs were made in Haiti for years.  OK.  But once you start working up that chain of jobs, what about the sophisticated service, what do you call it, manager or sophisticated service counselor who is explaining to you how you put your computer together.  If you lose those jobs overseas, aren‘t they job we should want here, sophisticated answer questions? 

FRIEDMAN:  Absolutely.  Absolutely.

But they‘re not all going, No. 1, OK?  Let‘s not exaggerate this phenomena.  And No. 2, all right, I‘ll tell what you is uniquely American jobs, the guys who invented Google.  That‘s union uniquely American.  Now going to be a huge IPO. 

MATTHEWS:  Yes. 

FRIEDMAN:  How did they do that, by being at the cutting edge of math.  Google is based on algorithms, OK?  The people who invented eBay, Yahoo!, Amazon, think about how many jobs those companies have created.  That‘s about American innovation. 

(CROSSTALK)

MATTHEWS:  You‘re talking about 50 people. 

FRIEDMAN:  Are you kidding? 

MATTHEWS:  How many people have invented Web sites that are making a lot of money? 

FRIEDMAN:  You don‘t think Amazon employs a lot of people? 

MATTHEWS:  Yes. 

FRIEDMAN:  You don‘t think Yahoo! employs a lot of people?  You don‘t think they can enable and empower a lot of people?

(CROSSTALK)

MATTHEWS:  Who looks up all this snuff?

(CROSSTALK)

FRIEDMAN:  If business is so bad

(CROSSTALK)

FRIEDMAN:  Damn it, I want to talk. 

(LAUGHTER)

MATTHEWS:  OK, go ahead.

FRIEDMAN:  OK.

We are at a stage in our country‘s life where there‘s never been more outsourcing and what are the latest economic statistics, that jobs are on the rise?  Well, how could that be?  If everything is going overseas, how could that be?  Maybe it‘s because what indeed goes around comes around.  You look at our documentary.  We visit an animation company in India.  And what have they done?  They‘ve just outsourced the writing. 

They‘re doing a cartoon on the life of Krishna, the Indian deity.  And who is writing it?  They went to America to get the writers, the best writers in the world, OK?  Where are they doing the voices?  In America.

MATTHEWS:  You mean they like the American accent in English, that Indian accent in English? 

FRIEDMAN:  Yes, exactly.  The Bank of India just announced this week that they‘re outsourcing their backroom.  Where?  To H.P. 

(CROSSTALK)

FRIEDMAN:  What goes around comes around. 

MATTHEWS:  Let me tell you something.  You‘re a smart guy.  Everybody likes Tom Friedman.  And I‘m not sure if you‘re right on the war, but let‘s move on.  I know you said it was an isolated case, we had to do it. 

By the way, have you changed?  Is it a blunder? 

(CROSSTALK)

FRIEDMAN:  It‘s not over. 

MATTHEWS:  Could it be a blunder?  Could it turn out to be a blunder?

(CROSSTALK)

FRIEDMAN:  Let‘s let it finish.  We just got a new Iraqi government. 

(CROSSTALK)

FRIEDMAN:  Everyone wants to write the end.  It is over.  It‘s finished.  Let it finish.  Let‘s let it play out. 

MATTHEWS:  But just remember what Churchill said.  There‘s two kind of success, initial and ultimate. 

FRIEDMAN:  Right. 

MATTHEWS:  OK, but let me ask you about this.  You‘re telling me—and it‘s really the gains of trade argument, the whole idea of the least comparative disadvantage, all the things we learned in grad school about economics, which is, you do benefit from free trade.

FRIEDMAN:  Right. 

MATTHEWS:  Now you‘ve made that case up to date. 

FRIEDMAN:  Right. 

MATTHEWS:  But you‘re going out there to try to carry Ohio.  Ohio right now is still leaning toward President Bush. 

FRIEDMAN:  Right.  Really? 

MATTHEWS:  Yes, I just saw it today.  So maybe that is all right.  I mean, you don‘t think the Democrats are going to be able to win in states where you have—upstate Pennsylvania, upstate New York, upstate Pennsylvania, right across the so-called Rust Belt through Indiana, Illinois, all those states?  You don‘t think they‘re going to be able to make the economic development has slowed under this administration? 

FRIEDMAN:  I‘m sure they will. 

But I don‘t know how well it will resonate.  All I know is, as an

American, I want my tax dollars to go to cushioning and helping people who

are hit by outsourcing to get into

(CROSSTALK)

MATTHEWS:  If Bush runs from free trade, will you vote for him? 

FRIEDMAN:  I can‘t talk about who I‘m going to vote for. 

(CROSSTALK)

(LAUGHTER)

MATTHEWS:  Do you think the Democrats like Kerry and probably Edwards or Gephardt, who are very much protectionists, do you think if he put those two guys on the ticket, he will signal that the Democratic Party is a protectionist party and therefore be running against what you know to be the future? 

FRIEDMAN:  No, because I think Kerry‘s heart has always been...

(CROSSTALK)

MATTHEWS:  He is a free trader. 

FRIEDMAN:  He is a free trader.  Whatever he said during campaign and in the general, I think his basic gut instinct is free trade. 

(CROSSTALK)

MATTHEWS:  I agree with you.  So, no matter what he says, we‘re all free traders now. 

(LAUGHTER)

FRIEDMAN:  Until the election.

(LAUGHTER)

MATTHEWS:  OK, thank you, Tom Friedman.  The name of the show is “The Other Side of Outsourcing.”  It premieres Thursday  night at 10:00.  It‘s on from 10:00 to 11:00.  That‘s June 3.  God, we‘re in June.

Friedman, you‘re a genius.

(LAUGHTER)

MATTHEWS:  OK, thank you. 

Coming up, the battle for the White House.  President Bush and John Kerry trade shots over national security.  We‘ll get a report from David Shuster when HARDBALL returns.

(COMMERCIAL BREAK)

MATTHEWS:  Welcome back to HARDBALL. 

In the battle for the White House, it has been a day of debate over security. 

HARDBALL‘s David Shuster reports. 

(BEGIN VIDEOTAPE)

DAVID SHUSTER, NBC ELECTION CORRESPONDENT:  Thanks, Chris. 

John Kerry was in Florida today talking about bioterror.  This is part of Kerry‘s 11-day focus on national security issues.  Today, he accused the Bush administration of making an 11 percent cut in vital first-responding resources in case of a bio or chemical attack. 

The president for his part today was in Colorado also talking about national security, but in the president‘s cases, he was at the Air Force Academy graduation comparing to fight against terror to the struggle during World War II. 

But there is late-breaking news tonight.  The White House is telling NBC News that the president has, as the White House described, put a lawyer on standby, a private attorney to handle a federal criminal investigation.  This is the investigation being conducted, the Washington, D.C. grand jury into the leaking of Valerie Plame, who is the wife of former Ambassador Joe Wilson. 

This is a story that begins with Wilson.  He was asked by the Bush administration to go to Niger to investigate claims that uranium was being shipped to Iraq.  He came back from Niger and said that the claims were unfounded, but the claims still made it in the president‘s State of the Union speech before the war.  And when Wilson publicly complained in a newspaper column, his wife‘s identity was then outed by the administration. 

And since then, the grand jury has been investigating whether—who in fact may have leaked Valerie Plame‘s identity, a CIA operative, and whether this investigation warrants criminal charges.  The White House counsel‘s office, which usually handles legal matters for the president, it will not get involved.  It is not to be involved when this is a private matter, such as a possible request from a grand jury.  And that appears to be the case this evening.

There are a number of questions about this, such as when the president decided to have this lawyer on standby.  Was it something several months ago, when it became clear that this grand jury investigation was going to be active in asking questions of White House officials?  Or was this a decision that was made just in the last couple of days because of some specific request from the grand jury and from the U.S. attorney leading the investigation?

Those questions remain unanswered tonight, but, again, the White House confirming that a lawyer has been put on standby, a private lawyer to handle the grand jury investigation.  Federal prosecutors say they would like to treat witnesses to the grand jury the same, whether they are simply a secretary or a president.  But it still takes some indication by a grand jury that a witness has relevant information to ask them to cooperate with a grand jury. 

But, again, no indication tonight that the president has done anything wrong or that he is the target of the investigation.  We just have a very clear indication tonight from the White House that it believes and that the president believes that the time has come for him to have a private lawyer on standby to handle any requests that may be made of him in the investigation into the leaking of Valerie Plame, a CIA operative, who was the wife of former Ambassador Joe Wilson, now an outspoken critic of the Bush administration. 

We will of course keep everybody posted on this story.  No doubt a lot of questions will be asked tomorrow, Chris, at the White House press briefing about these developments.  But, again, the president has a private attorney.  That is headline tonight regarding a criminal investigation—

Chris.

(END VIDEOTAPE)

MATTHEWS:  Thank you, David Shuster.

Join us again tomorrow night when we examine how this year‘s presidential election, with its emphasis on national security, is looking a lot like that race between Ronald Reagan and Jimmy Carter back 24 years ago in 1980.

Right now, it‘s time for the “COUNTDOWN” with Keith.

END   

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