SEC. RUMSFELD: (Applause.) Thank you. Thank you very much. Nice to see you all.

Well, good morning to all of you and to the folks watching on the Pentagon Channel around the world.

Pete Pace, thank you so much for your able leadership. I hope you're prepared to answer all the tough questions. (Laughter.) You are. You're always ready.

This is September of '06 and it was just last week or two weeks ago that we marked the fifth anniversary of September 11th attacks. It was a day that our country became engaged in a war that was so clearly not of our making.

As I was thinking about that day, it occurred to me that the day before that attack, September 10th of 2001, I spoke to a gathering very much like this one on the subject of transforming the Department of Defense, as fate would have it. Probably some of you were there. We talked about a number of things.

One thing I wanted to punctuate was the -- that the Department of Defense needed to be rearranged for the 21st century, the new era, to be ready for a time when -- and this a quote from my remarks on September 10th, 2001 -- "a time when threats can arise from multiple sources, most of which are difficult to anticipate, and many of which are impossible even to know today." That was on September 10th.

If I think back, I was never asked a word about Afghanistan or al Qaeda in my confirmation hearings -- what would have been about nine months before that. And of course, the very next day we learned how true that was.

September 11th has a special meaning for those of us who were here, those who -- and I guess an awful lot of you were here -- remember the 125 of our fellow workers who came in that morning and never went home. Everyone here, no matter where you were in the building that day, you could feel it shake and smell the smoke fill the building and the jet fuel burning. A lot of you went out and helped evacuate people. But the thing that I felt the most was the determination to deal with that problem and bring those who were involved to justice. And here we are, what, five years later and I know that we've not forgotten.

I think I'd also mention that, if you remember, the Pentagon stayed open that day and the next day and every day thereafter. And ever since, those of us in the department have understood and recognized that we have to treat every day the way we felt on September 11th and September 12th. And there's no doubt in my mind that because of that attitude here that a number of attacks against our country or the American people have been thwarted, including last month's plot to explode the airliners that were on the target list to come from England to the United States.

There's no doubt in my mind that the American people are safer today than they were five years ago, in no small part to the number of things that have changed in how we approach, in this department the effort, the Department of Homeland Security and elsewhere in the government.

The process of transforming began, of course, well before September 11th. It's a continuum. It's a process that goes on and on, but it was certainly accelerated by the urgency that September 11th brought. A lot of people said, my goodness, there's no way you can transform the Department of Defense and simultaneously deal with a war on terror and go after the al Qaeda. And of course, just the opposite has been true.

The sense of urgency from those attacks has caused the people in this department and the world to understand the urgent necessity of changing how we do business and seeing that we do get arranged for the 21st century.

The hard work that's been done by the folks in this department has led to impressive and historic shifts over these past five years. As I know all you know, we're adjusting our global posture in the world from really -- which was a downsized post-Cold War posture to something that is much more expeditionary, much more oriented to this new century and much more designed to deal with not defense in place from conventional attacks, but more designed to deal with the kinds of asymmetrical and irregular attacks that our country has been and inevitably will be facing.

We're changing our posture here at home as well as a result of the BRAC posture -- process, and a process that ultimately will save billions of dollars for the taxpayers and, equally important, will assure that our forces are more joined, as they must be. The services are well on their way. They're not there, but they're well on their way to being able to operate as a single fighting force, not simply de-conflict one from another, but actually to gain the leverage and the power and the lethality that comes from functioning as a truly joined force.

Consider the scope of these changes: BRAC alone involved hundreds of people devoting hundreds, if not thousands, of meetings at all levels, and tens of thousands of hours of effort. At the same time, people in the department have been involved in fighting two wars in the two central fronts of the global war on terror, making adjustments and altering approaches along the way. Key changes in the department have contributed to the successes that the troops have felt on the battlefield.

The troops have removed an al Qaeda sanctuary in Afghanistan. They eliminated an ally of terrorists and a threat to regional stability in Iraq. And today they're helping Iraqi and Afghan security forces to stand up so that they can ensure that the democratic aspirations of millions of people -- some 50 million people in those two countries -- are not rolled back by the enemy -- and a determined enemy it is.

Earlier this week, General Pace and I met with all the combatant commanders -- they were in from all around the world -- as we do two or three times a year. It's impressive, always, to meet with them and to review what the military is doing around the world. Consider just some of the recent operations:

Under the Pacific Command, the USNS Mercy recently returned from a medical assistant deployment in East Asia where it cared for something like more than 60,000 patients, and performed more than 1,000 surgeries for the people in that part of the world. European Command and Central Command worked together very skillfully and expeditiously to evacuate nearly 15,000 American citizens from Lebanon -- halfway around the world, starting from scratch, and they did it within a matter of days. They actually evacuated a small city. And at the Central Command, troops assigned to the Horn of Africa provided disaster relief to thousands of people that were displaced as a result of the flooding in Ethiopia last month.

Each of these operations required thousands of DOD personnel -- the men and women on the front lines, to be sure, but many, many more here in the United States and elsewhere in the regions to support them. There's no other military on the face of the earth that could have succeeded in these humanitarian efforts so quickly and so professionally.

I know that at times it's difficult for all of us to see the larger picture, but I'm convinced that with the distance of a few years, we'll all be able to look back at this time and see that while a number of things that have been accomplished have been controversial -- and we understand that -- nonetheless, we are becoming a stronger, a better equipped, a more flexible and a considerably more capable force.

When you change the way things have been for a long time, there's bound to be resistance. It's human nature and we understand that. It always causes friction. It causes uncertainty. Uncertainty makes people uncomfortable. They're much more comfortable -- we're all much more comfortable with the known than with the unknown. And you are -- anyone who tries to change anything is certain to be second-guessed and challenged, but I guess that's okay. It's a good thing to have people force you to look at things from a variety of different perspectives. It's helpful to all of us.

And with all the challenges that come with changing an institution of some 3 million people, I know that there are a great many determined to help overcome those challenges. I've met thousands of men and women in this department and I know they are devoted public servants who go to work each day dedicated to the defense of the nation. Consider how fortunate we are to be privileged to serve in this department here in the halls that George Marshall marched down, in the war rooms where liberations have been planned and fashioned, in the building where our enemy struck -- specifically because this is an institution of such importance to our country.

It is a high honor of my life to work with this great department, to work with folks like Pete Pace and the combatant commanders and the people here who work so hard and so diligently.

And I know we all feel blessed to live in a country where citizens admire the military. It's interesting -- in so many countries that's not the case, and in this country, it is. You look at the polls; you look at where they rank different professions and different institutions of the country, where they rank the media or the Congress or the press or the business people or labor unions and all of those; the military always ranks near the top.

It says -- it clearly says something about the military, but it also says something about our country. And it seems to me that what it says is that there is an understanding about the men and women in the Department of Defense and the men and women in uniform that the work they do is historic. It's important. It's central to the success of our country and it is helping to make the world more free.

Thank you. (Applause.)

GEN. PACE: Thank you, Mr. Secretary.

What I'd like to say to you I've said before, but it cannot be said too often. That is quite simply, thank you. Thank you for all you do every day. Your work ethic, your drive and your determination makes a difference every single day.

If you're like me, when you come in in the morning, you probably feel just a little bit guilty that we are working in air conditioned spaces when others are not, and while so many of our fellow servicemen and women are out at the point of the spear. But I guarantee you that they depend on each one of us back here to provide the support that they need, and you do that magnificently well.

Your families deserve enormous thanks as well, because each of our families serves this country as well as any of us who've ever had the privilege of wearing a uniform or serving in the civil side of this department. So I would ask you here in this room, and those watching on television, tonight to thank your families for what they are doing for this country.

There's one special family I'd like to highlight. They do not know I'm about to do this, and that adds fun to it. (Laughter.) But we are a department of families. There's an incredible American whose name is Joyce Rumsfeld. (Laughter, applause.)

Joyce is a great mom, great grandmother and loving wife for sure. She does so much for families not only in the military but in all of her life, for those who are in need. And she has been an enormous source of strength to our secretary. I mention Joyce because, first of all, she deserves to be mentioned separately, but also, the man standing on this platform right now just set a new record. He has been the youngest secretary of Defense -- (laughter) -- he is now serving as the oldest. (Laughter, applause.)

But that's not the record -- he's had that record for a while. (Laughter.) We should start talking about retiring again, I guess. The record that he sets today is that his cumulative service as the youngest and oldest secretary of Defense is now the second-longest tenure of any secretary of Defense. And when you look at the last almost six years, and what has happened with our military and for our country, I hope you'll join with me in thanking Joyce Rumsfeld and our secretary for their family and what their family is doing for this country. (Applause.)

SEC. RUMSFELD: Thank you very much. Thank you. (Applause.)

I had -- I had no idea what he was going to say. I was not aware of that. But I do know that when people ask Joyce, "How in the world did you stay married to that guy for 51 years?" she says, "He travels a lot." (Laughter.) I thought she was kidding, but she's serious. (Laughter.)

All right now, you don't have to answer the tough questions, because David Chu is here. We can heap some to David. We're happy to respond to some questions.

Thank you, Pete -- appreciate that very much and so will Joyce.

Questions? Yes -- there's a mike coming towards you.

Q Mr. Secretary, we see signs around us that say we're at war, and we know that Congress technically has the power to declare war. And I'm wondering if the omission on their part to actually do so has hamstrung the Department of Defense in any way in its efforts.

SEC. RUMSFELD: It does what from the Department of Defense?

Q Has the lack of declaration of a war, officially, hamstrung the Department of Defenses efforts in the crises around the world today?

SEC. RUMSFELD: That's an interesting question and I -- let me come to that part of it and preface my response this way: Gosh, 40 years ago I was a congressman and there was a joint committee to -- commission to look at the organization of the Congress. And one of the subjects I went before the commission and testified on was this issue of declarations of war, and what the role of the Congress is in the foreign policy/national security decision-making process.

As you know, we've not had a declaration of war by this country since World War II. And we've been in the Korean War; we've been in the Vietnam War; we've been in various other conflicts. And the era where you're either in a declared war or not in a declared war, meaning peace, is really behind us a long way, because if you think about it, there was no declaration of the Cold War.

And to come to your question, I lived through World War II. I was 10, 11, 12, 13 years old, and my father was in it. And the fact that everyone -- with the declaration of war and with victory gardens and with a feeling of involvement on the part of the American people supporting the men and women who were serving overseas with a system where large numbers of people were engaged in it, it created a different tone and tempo in the country. The reason for that poster, obviously, is because a lot of the country doesn't feel they are at war. And even some of the government doesn't feel they are at war, because it's a different kind of war. That was equally true during the Cold War, where you don't have the battles, you don't have the signing ceremonies when they're over, and it -- but to the extent to which it hamstrings, I think you said, the department I think is an open question.

I think all of us -- the reason I give these out and put them around and then passed them around to other Cabinet officers and have tried to see that people -- I guess, yeah, this is the poster over here -- that people are aware that we are in a struggle in this world that's dangerous and important, and that we need to keep reminding ourselves because so many of the aspects of war and conflict are not as visible as they would be in a more conventional or traditional circumstance.

Thank you.

Question. There are people with mikes. There's one. Who's got the mike? There it is. Sir.

Q Hello, sir. Major Mills with Army Medical Specialist Corps. I recently read a proposal for a unified military medical command. Could you please speak to the status of that and what the implication for our forces will be?

SEC. RUMSFELD: I've not seen the proposal.

Have you, Pete?

GEN. PACE: No, sir. I do know it's being looked at by the medical folks in all the services to see if they can come to a more efficient, effective organization, but it's not come forward yet.

SEC. RUMSFELD: It's a fair question for people to ask. Are there efficiencies or savings or improvements that could be achieved by bringing together the medical services? There's also the constant question that's raised as to what portion of the total medical service that's provided to military people, families, Reserve, Guard -- all of that universe that involves the Department of Defense -- is best provided by people in uniform as opposed to being provided by the private sector. There's a mix that's used. And so that's a second question that gets looked at. I'm afraid it's the kind of a question that probably there isn't going to be a simple, easy answer to. It's going to probably require looking at different elements of medical assistance to people, and not asking a single question but asking a question with respect to the various types of activities that people are involved with.

Question. Stick your hands up.

There's one right here. Here comes the mike.

Q (Off mike.) I'm with the Joint Staff but I guess this could also be applied (inaudible) In our office we're looking at, the Joint Staff is looking at new (inaudible) information assistance (inaudible). We seem to be having to do this more and more often that their overall management is not thinking in terms of every two to three years. They're thinking more, okay, every five, six years. How are you -- and I'm thinking this also -- (off mike) -- in terms of just general -- equipment in general. I mean, you know, material, everything. How do you see the changes that will be needed in the management to insure that you're keeping up with the technology, even ahead of our enemy.

SEC. RUMSFELD: Oh, boy. It's a tough one. And when I was secretary 30 years ago, the average time for the development of a weapons system and then the deployment of that weapons system was I don't know -- what, 8, 10, 12 years? Long time. And since those days under Moore's Law, the power of computing has doubled every -- what, every 18 months -- according to Gordon Moore. And yet, here we are today where instead of shrinking that time period, it's actually probably doubled the amount of time it takes to produce a weapons system. And that's backwards. Something's wrong -- (chuckles) -- if the technology is moving that fast.

We know that there are pockets of excellence and creativity in government. I mean, DARPA has done some amazing things over the years. Other parts of our government have been able to do that. We also know that in terms of the real creativity and energy, the private sector is where the overwhelming majority of the new ideas and the innovations -- whether it's in medical care or electronics or what have you -- occur. And transferring that information into government in a timely way so that government can take advantage of it -- big institutions -- is hard. It's hard because smaller institutions, where a good deal of that creativity exists, don't want to deal with government. It's just too expensive; it takes too many -- too much time; you've got to have lawyers; you've got to have lobbyists; you've got to have a presence in Washington to deal with government. And pretty soon there's a risk of dealing with government in case you get more like government in the private sector. And you know, to interact effectively with government, you've got to kind of match government in some way.

And companies -- so some companies literally avoid dealing with government. And the amount of money that is spent and the amount of energy that is spent trying to do exactly what you said is just enormous in this department. And of course, the enemy -- which is what the essence of your question was -- the enemy goes, takes it right off the shelf. They don't have to be able to develop these things or think of them or manufacture them. They can use all the advances that occur and take them right off the shelf, and use them in a manner that's adverse to our interest.

So I guess the short answer to your question is we do it imperfectly, but with a great deal of effort in trying to do it right.

Pete?

GEN. PACE: I would say that's why the spiral development process is so important to us now in the department, because if you're going to buy a thousand of something and you buy all thousand at one time, in the age the secretary has already described, those thousand arrive already late to the capability that's out there. If you buy a hundred at a time, you can then, each iteration of the hundred buy, you can add what you learned in the ensuing months. So it's not perfect, but it allows you to have the mean point in whatever you're doing to be further ahead than if you try to buy all in chunks.

SEN. RUMSFELD: Question?

GEN. PACE: Right behind you, sir.

SEN. RUMSFELD: Oh.

Q Good morning, gentlemen. Corporal Stukins (ph), United States Marine Corps. Just wanted to quickly ask you a question. It's a two-part question. The first part to my question would be: As you all know, negativity in the press is absolutely detrimental to the morale of our forces and our efforts in Iraq and Afghanistan. What are we doing to confront this problem and to better the morale of our forces over there -- not only over there, but here as well at homeland? What are we going to do to confront this, as it is becoming an overwhelming issue?

GEN. PACE: Thanks, Corporal. That was a great question. Thank you. (Laughter.)

SEC. RUMSFELD: Out of the park!

GEN. PACE: First of all, as you recall, when the war began, we had 24-7 coverage. We had television, newspapers, magazines. If you were interested, you could read as much as you wanted and you could watch as much as you wanted, and you could form your own opinions. News is a business, and now the news cycle is such that only certain amounts of every day are allocated to coverage of the war. And unfortunately, the parts of the war that then become shown are the parts that capture people's attentions, which is the parts where the bombs are going off and the like and not where the schools are being built and the like. It's incumbent then upon all of us as leaders, every chance we get to speak publicly, to be very open, forthright about not only the bad, but the good, and to present it in a way that our fellow citizens can understand and accept.

It's also important to realize that it is what it is. And therefore, you can complain about access, or you can change how you operate.

One of the things we have changed is as troops come home from overseas now, they are being given the opportunity to take an extra day or two of leave -- not leave on their part, but leave that we would give them extra -- if they would stay home and just talk to their local communities. Not with a script, not with all kinds of props, but just for this corporal coming home from Iraq to go to his or her hometown and tell the people in his or her hometown what their experience was like, and just to be up front with our fellow citizens. We need to find more opportunities at every level in the department to make ourselves available to the American people so that we can in fact get more of the story out here so that the American people -- whose center of gravity is really very, very, solid -- have the opportunity to digest all that information and judge for themselves what's really going on.

SEC. RUMSFELD: Question?

Q Sir, and the second part to my question, sir, in your infinite -- (laughter, applause) -- in your infinite wisdom, sir, do you think, honestly, this year Navy will beat Notre Dame? (Laughter.)

GEN. PACE: The last time Navy beat Notre Dame, I was a plebe. (Laughter.) So go, Navy! (Laughter, applause.)

SEC. RUMSFELD: Question? Yes.

Q Sir, you are living proof that senior citizens can provide great value -- (laughter, applause). Unfortunately, many of the BRAC surveys are showing that people over the age of 50 are going to be unwilling to move when their installations move. How can we continue to tap the experience, the knowledge, and the talent of these people, especially in the science and engineering professions, so that they can continue to serve the Department of Defense in some way? For example, is there a way to provide telework or satellite facilities or other ways so that they don't have to uproot themselves in their golden years? Thank you. (Laughter.)

SEC. RUMSFELD: You know, the market tends to work pretty well, and what happens is that an activity exists in a certain area, people gravitate to that activity. At some point that activity in -- I'll take textiles in New England decades ago. It moved down South, and eventually it moves offshore to a large extent. And what happens is, some people do move, others don't, and then they find different things because suddenly there's a value there -- people with competence and ability to do something -- and an activity moves into that area. And you find it in previous BRAC activities, I am told -- this is the first one I've ever been involved in, and if it weren't for the honor of it, I'd just as soon not, but -- (laughter) -- the -- in the past, what happened was there were a great deal of concerns about your point with the value of the individuals involved in those areas and, in other cases, the impact on those areas as a result of the movement of something out. And in instance after instance, the areas have prospered, people have benefited and been able to do a variety of things, and no one would have predicted beforehand exactly how it would have sorted out. But the availability of that capability creates an attraction, a magnet that brings other people into there to have something done that had not previously been done there. So it's not something that anyone is wise enough to know exactly how it sifts and sorts, and goodness knows it's never done perfectly, but the marketplace has that effect, and it seems to work pretty well.

Question? There's one way in back.

Q Mr. Secretary, could you tell us about your activities and your feelings on that fateful day in 2001? What you were doing and what you were feeling about what was happening that day?

SEC. RUMSFELD: Well, I was having a breakfast in the room right next to my office with, I think, 12 or 15 members of Congress, and they were people who were not terribly supportive of the Department of Defense as opposed to -- Social Security lock box was a big thing. Do you remember the lock box issue? And they were for the department, but they were feeling a lot of pressure to reduce the Defense budget in early 2001, and they wanted to move more money into something called a Social Security lock box. And I can remember saying that I was a Congressman once and understand those pressures that exist, but that -- I said to them, and they remember it, and as a matter of fact, we've had the same group back for breakfast on subsequent years on September 11th -- and what I said to them was, "The lock box pressure is real right now. But for -- something could happen in this world of ours that would put in jeopardy the safety of the American people, and you would not want to have been on the wrong side of seeing that we make the appropriate investments so that the American people can be safe." And I said I don't know what it would be, but because the surprises, as my opening remarks indicated, can come from anywhere today.

It isn't like the old days when the Cold War -- you knew the Soviet Union was the threat, an expansionist threat. And today, it can come from locations that you can't predict. And I cautioned them and said, "You do not want to be on the wrong side, politically and substantively, of permitting our country to invest an appropriate amount to provide for the safety and security of the American people, notwithstanding the pressure for the lock box." Well, I haven't heard of the lock box in five years since. (Laughter.) I don't know where it went, but we've heard a lot about security. And that was what I was doing, and someone passed me a note that said a plane had just hit the first tower, and we adjourned. They left, and -- fortunately, they left, but the -- I was in my office with my CIA briefer and was told the second tower had been hit, which pretty well persuaded people it wasn't an accident, and then shortly thereafter the -- our building was hit.

Questions? Yes, down here?

Q Sir -- (off mike) -- Anbar province have decided to fight the insurgency. I noted a series of articles that deal with particular dispositions by locals-- (off mike) -- with the killings of fellow Muslims. And I would ask, could you give us a short overview of those promises -- those promising developments that indicate that the locals are taking a greater, let's say, determination against the bloodshed and against the targeting?

GEN. PACE: Yeah, thanks. There are numerous examples of things that indicate clearly that the Iraqi people understand that in the final analysis this is the Iraqis' problem to solve, and that their future is in their own hands. We certainly as an international community can continue to help them provide security. Example one: When the golden dome mosque was bombed, the intent was to create so much strife and chaos that that government would fall. There has been, no doubt, increased violence because of that. But there's also been leadership, governmental and religious leadership in that country, that has stepped back from the precipice and has helped moderate the reactions to that. Out in Al Anbar, as you said, there had been reports that there are multiple tribal leaders who are fed up with al Qaeda and the like trying to dominate their lives. You've also seen intelligence reports written by our own folks that have articulated where the problems are, and the response in Al Anbar is what it must be across the nation.

First, security: Security provided by whom, in this case, properly so, two Iraqi divisions that are under the command of the Iraqi prime minister. Both of those divisions are at about 50 or 60 percent strength, and they're being built right now so that they are properly a mixture of Sunni, Shi'a, and Kurd.

What the tribal leaders now are saying publicly that they want to band together, that they want to work with the central government. So what is being said publicly is good and now it's time to assist, as we can, but also to watch and applaud as the Iraqi leadership at every level works together to find the peaceful solution.

I've said it before, but I'll say it again: Shi'a and Sunni are going to have to love their children more than they hate each other and we're beginning to see that.

SEC. RUMSFELD: Question?

Q Hello, sir.

So, I'm interested -- since this is such a broad-ranging conflict that says we're at war, I'd like to hear your understanding of who the enemy is, what they want and why you understand -- in your understanding, why they're the enemy?

SEC. RUMSFELD: In the broadest sense, the struggle that we're engaged in is a reflection of the fact that there's a struggle within the Muslim faith, within that religion. A handful -- relatively small number -- of violent extremists are trying to hijack that religion and seize it and enforce their view on the hundreds of millions of Muslims that exist in the world who do not agree with the violent extremists. That struggle is going to play itself out, and it won't be fast. It'll take time.

The aspects of it that we see in Afghanistan, or we see in Iraq, or we see in the bombings in Bali or London or elsewhere in the world, have mixtures of things. There is what I've just characterized of that struggle within that faith, but there are also people, for example, in Afghanistan who simply want to seize back power; in Iraq people who would like to seize back power and prevail. The Sunnis ran that country for decades and the Shi'a are the majority and they've now got the majority of the votes and there are clearly Sunnis who would prefer that that not be the case.

There are also criminal elements that are involved in the activities -- the killing, the violence that's taking place. There are also struggles within the Shi'a community. We see the Sadr forces arrayed against the non-Sadr Shi'a forces within the country.

The enemies are really, in the first instance, the violent extremists who are determined to try to impose their will on their fellow Muslims to destabilize the neighboring Muslim states and re-impose a caliphate in that part of the world and in other parts of the world -- including southern Europe and Africa and parts of Asia. That's an enemy.

There are also people who are using those -- are making mischief with respect to the divisions that exist, for example, in Afghanistan or in Iraq or in Lebanon and what we've seen in Israel. You have the activities of Iran and Syria. Iran is obviously trying to influence what happens in Afghanistan, its neighbor. It's trying to influence what happens in Iraq, its neighbor.

There are -- it is unlike a war -- a major conflict or the Cold War where you know, you can identify the Soviet Union. You know what their military capabilities are. It's reasonably predictable and sustained over a period of time. Your intelligence can focus on it. You can get quite good at it and it does not change that fast. The number of submarine changes or the number of ballistic missiles may change, the number of aircraft or the types, but the nature of the problem is fairly constant -- although technologically advancing continuously.

That's not true. I mean, you talk to General Casey about what's going on in Iraq and he'll go back and describe the different faces that the enemy has -- the faces -- the different faces of the enemy over the past three and a half years and he can describe how it's changed -- the mix is changed.

He now sees power struggles going on within these factions -- the Kurds and the Sunnis -- and they're going to have debates about federalism. They're going to have debates about reconciliation process and what should be done. And the question is, how do you move the debates from weapons to words? And that is what they're going through and what they're trying to do.

The idea that the reason there are problems in the world is the United States is baloney. We are not what's wrong with the world. (Applause.)

I had a friend once; he was asked by a U.N. organization to chair a committee and the committee was to be titled, in effect, "what causes poverty?" And the orientation was to study that and have the international community address that. And he declined. He said, I'm not going to do that. And they said, well, why? And he said, well, because the implication of that is that the natural state of man is to be prosperous and that there's something in the world that's causing people to be poor. And he said that is not the case. The natural state of man is to be poor and there are certain things happening in the world to make people more prosperous and more successful. And that is the orientation we would have.

We should be looking at what works, not what is imposing harshness or difficulty or disadvantage on the rest of the world. And any movement in this world that begins with the concept that something is denying them the opportunities I think is doomed, because if you look down from Mars on this globe and ask yourself, "who's doing well?" -- I mean, just take the Korean Peninsula. Same people in the north, same people in the south; same resources in the north, same resources in the south. And a satellite picture down shows in the south all the electricity and the energy. The south has got the 10th or 12th strongest economy on the face of the earth and the people in the north are starving.

And what's the difference? Not the people, not the resources. The only difference is the system. The south has a free political system and a free economic system and opportunity for people, and the north has a vicious dictatorship and it has a command economy. And that is the difference.

And it seems to me that the people who are suggesting -- I mean, Osama bin Laden wasn't some poor kid. He came from a very wealthy, prosperous family. And Zawahiri's a doctor. And these folks who are managing this process, they're not the ones strapping suicide belts and getting killed. That's for darn sure. They're just fine, thank you. But those folks are not people who've been put upon by the rest of the world or by the West. They're people who've made free choices that they've decided that they want to try to impose their views on everybody else, and that strikes at the very heart of free people.

And that's what we are: people who want to be able to say what we want and think what we want and go where we want, work where we want and get up in the morning and send our kids to school and have high confidence they'll come home. (Applause.)

Q (Off mike) -- Corps of Engineers. I'd like to get your thoughts on the potential for standing up a separate combatant command for the continent of Africa, recognizing the changing threats in a post-Cold War era.

SEC. RUMSFELD: Pete and I are for it and we've been pushing and pushing for six months and trying to get the system to come up with the details as to exactly how it would be done, whether it would be a -- what do you call it?

GEN. PACE: Sub-unified command, sir.

SEC. RUMSFELD: Sub-unified command like Korea is -- kind of a command, but sort of under PACOM -- or whether it would be simply free standing. And I don't know, where are we?

GEN. PACE: Sir, General Jones and his folks are working that. It should be in to you within the next couple of weeks with their recommendation.

And exactly what the secretary just said is happening. Looking at the various options -- you can have a unified command, which means a separate headquarters, and all that entails in getting that stood up right away. You could have a sub-unified command, which is plugged into part of the European Command, working with some dual-hatted individuals in that command, or you could just leave it the way it is with European Command running it.

Clearly, with what our enemies have said -- and they've said it very clearly -- you know, Hitler published "Mein Kampf" and al Qaeda has published what they want to do. They want to reestablish a caliphate from Spain, all of Europe, Africa, across Asia, Indonesia. They've said that very plainly. That challenge is there. We need to arrange ourselves in a way to address that challenge, and Africa Command, in my opinion, is a right way to confront part of that problem.

And the question then becomes: Is the most efficient way to do a one-step process -- meaning go directly to unified command -- or a two-step process, sub-unified and unified?

SEC. RUMSFELD: Questions? Yes?

Q Susan Law (sp) in Navy Logistics and Readiness. The Navy spent this last spring putting the final touches on POM '08 budget. And our requirements to sustain readiness, prepare for the future and take care of our people far exceeded the available resources.

My question to you is, how do you envision that we are going to meet your strategic vision and objectives within the fiscal constraints that we are facing?

SEC. RUMSFELD: Well, looking at it from our standpoint, I would answer with a single word: skillfully. (Laughter.) And looking at it from the standpoint of everyone who's on the receiving end, the answer would be imperfectly, I fear. It's always been so. Resources are finite. They've never been infinite. It's always been limited. And what we have to do -- fortunately, we've got a lot of bright people and they have lots of ideas and lots of things that they are doing that are important, lots of things they want to do.

And so the appetites -- often the word "requirement" is used; I think of it as an appetite often. The appetites are enormous. And they all come in and it's a terribly difficult job for the services to sit down and shift through all of those and prioritize them, and then for the department as a whole to work with not just the services but with the combatant commanders and look at their priorities and attempt to rationalize the combatant commanders' priorities with the services preferences -- appetites, requirements, whatever word you want to use -- and to do it then on a macro basis for the entire department.

It is -- I suppose where you stand depends on where you sit. And if you think about it, in the last -- well, this is the sixth year now we're completing -- if you say it's been with supplementals, close to a half billion dollars a year

GEN. PACE: Half a trillion, sir.

SEC. RUMSFELD: Pardon me?

SEC. RUMSFELD: Half a billion dollars a year -- I mean, half a trillion dollars a year -- then it would be like $3 trillion over the six years. That's not nothing. That is a pile of money. And you look at it -- let's say it's 2.5 trillion (dollars), just to be conservative. And then you look at what all the rest of the countries in the world spend on defense and you look at what percentage of GDP we're spending.

I mean, we're -- when I came to town, President Eisenhower was president. And we were spending in the Eisenhower-Kennedy period about 10 percent of GDP, gross domestic product, on defense. And when I was secretary 30 years ago, we were down to about 5 or 6 percent, and today we're down at about 3.4 to 3.7 percent, 3.8 percent -- depending on if you count supplementals or not.

So it's not a big bite out of the gross domestic product -- 3.7 percent doesn't sound like a lot out of a dollar for defense, which creates an environment within which everything else is possible. I mean, nothing is possible absent security. So it's an investment that we can afford to spend. We're spending at a rate that is low historically. And if you consider wartime, it is a very low percentage of gross domestic product that we're spending.

On the other hand, it is an enormous amount of money. And in business what you have to do is, as you decide you want to do something new, you tend to be forced to look around: what are things you can stop doing or do differently or more effectively or more efficiently?

And so what we have to do is in this big institution of ours try to fabricate the kinds of incentives that exist in the private sector that focus the mind -- the ability to fail and go out of business. I mean, that's what forces you in the private sector to suck up your gut, figure out how you're going to make something work better, and get it done so that you can compete against your competitors.

In the public sector, there isn't anything like that. We can't fail. We can't go out of business. Therefore, we have to find things that we can look at -- best practices in other fields -- that we can constantly look at and say, how can we do better at what we're doing? How can we do what we do more efficiently and more effectively? How can we be more cost conscious and more respectful of the taxpayers' dollars?

And through the aggregation of all of that is how we're going to be able to see that we have the resources we need. We've been -- the president's budget each year has been "X." And each year, the money we've had to spend has been a lot less. And it's been a lot less for a variety of reasons, which I think it's important for all of you to be aware of.

If you talk to Gordon England, Gordon England calculates that it may be as many as $35 to $50 billion a year less than the president's budget requests. And it's a combination of the following things: budget cuts by Congress. They just agreed last night, I believe, to the lower amount. One house -- I think the Senate was trying to cut 9 billion (dollars) and the House was trying to cut it 4 billion (dollars). So they cut it 4 billion (dollars). Well, 4 billion is 4 billon. It isn't 9 billion (dollars), so you're happy. (Laughter.) Supposedly happy, but it's 4 billion (dollars), and that hurts, because the president's budget was carefully thought out.

Then there's the category of things that the Congress adds in that they don't put money in for, which means that the things we wanted to spend on, we believe were needed, we can't spend on because we're required to spend on the things that the Congress put in.

Then there's a third category. And the third category are the things that we want to stop doing, and they're going to make us continue to do them: the second engine for the Joint Strike Fighter, the 12th carrier that is going to cost a fortune if we have to try to refit it.

Then there's a fourth category of things -- proposed savings we put in. For example, some modest adjustments in the health care thing, which haven't been changed when, since 1991 or something?

GEN. PACE: Since first enacted, yeah.

SEC. RUMSFELD: Yeah, the early '90s -- that would have saved us some money. We're now spending something like $84 billion a year, the taxpayers' of America, on health care for reserves -- active and retired. That's an enormous amount of money and we've got to manage it intelligently.

You add all of those up and then you add in fuel costs going up higher than you expected, and inflation, and instead of having a sizeable increase each year, when you add of all that up, it reduces what we got -- what we've been able to spend on the things that we believe needed to be spent for by about $35, $40 or $50 billion. That's a lot, and that hurts.

And we've got to see that, for example -- I just -- Pete and I just met with Pete Schoomaker and Fran Harvey about it -- and we've simply got to see that the force gets reset properly, and that the reconstitution after people come back and their equipment comes back, that we do it now in real time so that people have the equipment they need to train on and that the capability exists in case they need to be deployed somewhere else.

So I guess I like the first answer best: skillfully. (Laughter.)

STAFF: Mr. Secretary --

SEC. RUMSFELD: Yeah?

STAFF: -- we have time for one last question, sir.

SEC. RUMSFELD: Let's make it two.

Pete, that's yours -- I can tell.

Q Sir, Major Bates (sp) from U.S. Army.

With the growing voices of discontent from South America recently and in the U.N., what's our strategy there over the next 10 to 20 years and specifically with Cuba? How -- what direction do you see that taking, sir?

SEC. RUMSFELD: Here's the former SOUTHCOM commander.

GEN. PACE: Well, first of all, we have lots and lots of good friends in Central America and South America. There have been increases in government actions that are not friendly to us.

President Chavez is clearly not a friend to the United States. Anybody who watched his performance at the U.N. the other day would recognize that, and it'll be interesting to see what that body does. Venezuela wants to have a seat on the U.N. Security Council. What the U.N. Security Council does has impact on the U.S. military. It will be interesting to see what kind of credibility President Chavez has with regard to his country's desire to have a seat there. He has also been sending money to other countries in South America to try to destabilize them, or get elected those who he believes would follow in his footsteps.

With regard to Cuba, we all know that President Castro seems to be -- he is ill. We don't know how ill. Sooner or later, just like me, he's going to die -- (laughter) -- and then the Cuban people will have an opportunity, again, to state who they are and establish the kind of government that they want to have.

So I'm very, very optimistic about our hemisphere because we are in this as a large family and we do have very common goals and aspirations. But we need to be alert to the fact that there are forces brewing right now that are not friendly to the United States and not friendly to other freedom-loving countries in this hemisphere. And together, we need to do something about it.

SEC. RUMSFELD: Question -- last question. Right here -- yes, sir?

Q Ken Littlefield, Army Financial Management and Comptroller. Gentlemen, thank you.

What is on your wish list? Low-hanging fruit -- if you could have your way -- what would it be?

GEN. PACE: Peace.

SEC. RUMSFELD: Peace. (Applause.)

Thank you very much. (Applause.)

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