CANDY CROWLEY, HOST: This week, President Obama delivers his state of the union speech to congress, entering the last half of his term he is all president and all candidate, one of many balancing acts. On the economy, Mr. Obama has to keep the free market stimulated enough to produce jobs and still cut government spending.

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PRESIDENT BARACK OBAMA: The past two years were about pulling our economy back from the brink. The next two years, our job now, is putting our economy into overdrive.

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CROWLEY: Overseas he needs to wind down the unpopular war in Afghanistan while maintaining enough stability in the region to keep it from falling back into a terrorist haven.

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OBAMA: Progress comes slowly, and at a very high price in the lives of our men and women in uniform. In many places, the gains we've made are still fragile and reversible.

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CROWLEY: And in the political arena, the president needs to gear up for a tough re-election campaign, shore up his rest lesion base, all the while delivering on promises of a kinder, gentler political arena.

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OBAMA: Only a more civil and honest public discourse can help us face up to the challenges of our nation.

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CROWLEY: Easier said than done. Two weeks after the Tucson shootings, the only noticeable change in the theater of politics, Republicans and Democrats are promising to sit beside one another for Tuesday night's speech. Is that the best we can do?

Today, former secretary of state and retired General Colin Powell on the way forward. Then, two former presidential aides on the White House balancing act, Democrat Paul Begala and Republican Michael Gerson. And 50 years after landmark speeches by Presidents Eisenhower and Kennedy, what history tells us about today with historian Richard Norton Smith.

I'm Candy Crowley. And this is State of the Union.

Few people who have labored in and around the field of politics have done it as artfully and diplomatically as Republican Colin Powell who endorsed and worked for President George W. Bush in 2000 and voted for Barack Obama in 2008.

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POWELL: I think he is a transformational figure. He is a new generation coming into the -- on to the world stage, on to the American stage, and for that reason I'll be voting for Senator Barack Obama.

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CROWLEY: Halfway through his term, is President Obama achieving the change promised by Candidate Obama?

Joining me here now in Washington, former Secretary of State, retired General Colin Powell. Thank you so much for joining us.

POWELL: Hi, Candy. Good to be with you.

CROWLEY: Let me just ask you right off the top. Has he been the transformative figure you envisioned?

POWELL: Yes. I think he's got a way to go. I mean, he hasn't achieved all of his purposes, but he's stabilized the economy. The economy is now starting to rebound, more slowly than we would like to see, but it is rebounding. Whether you approve of health care or not, he took on that issue which I think is a major challenge for the American people. What do we do about 40 million Americans who have no health insurance? And so I hope we can fix whatever may be at fault in the bill that was passed, but we need some kind of health reform, and I think he took that on.

I think he has reached out to countries around the world and has developed good relations with countries around the world. And I think he's working very hard on the issue of unemployment which I think is the major problem facing America right now, and I think and I hope that this will be the centerpiece of the State of the Union speech.

CROWLEY: And that goes back to something you said earlier, that you -- at least suggesting he may have taken his eye off the ball, that there were too many things going on and really it was the economy. Do you feel as though that message has gotten through?

POWELL: Well, I hope so. I still feel that way and felt that way when I said it. I think what the American people were expecting was for him to focus on the economy and the unemployment problem almost to the exclusion of everything else initially and he did that, but he also felt he had to go after health care and he did that and he got a bill. But now I think the American people, and it's not so much us so-called experts and commentators about what he ought to say in the State of the Union address, the American people are expecting him to say something about what he's going to do to fix the economy even more than it has been fixed already, keep it moving forward and to get the unemployment rate down. That's what they are looking forward to hearing about.

CROWLEY: One of the things, and you just mentioned it, that the president came into office and just by being a different president people thought internationally, relationships have already improved, just because there's a different person than former president George W. Bush. Do you think that international relations that the U.S. has with other countries is demonstrably better now, and where has it shown up in something tangible?

POWELL: Well, I think it is better. I think the favorability rating of the United States and the administration has gone up. But, you know, we didn't elect Superman, we elected a human being, Barack Obama, who came in with an idea, with energy, and I think with a youthful -- a more youthful approach to things. And I think that has been proven useful as we see more countries helping us out in places like Afghanistan, where we see people who want to work with us on climate change and other issues, where we see the invigoration of the G20 as a new economic forum in which to do things.

So I think, yes, there have been improvements, but at the same time we could not expect everything to improve for the better all at once just because a new personality came on the scene. Every nation in the world ultimately reflects, in its policies its national needs and its own political situation and doesn't just reflect who the American president is.

CROWLEY: Well, you mentioned, yes, polls show that people like us better. Does that get us anywhere?

POWELL: Sure. It gets us -- it gets us -- it puts us in a better place to ask things of people and to listen to them. Of course, I think it helps us.

But, you know, we should never reach the conclusion or come to the conclusion that somehow because our favorability ratings went down in recent years, that this reflected a total negative turn away from the United States of America. As I like to say, even as people were criticizing us, every morning at every one of our consular offices and embassies around the world, people were lined up, and they were all saying the same thing when they got to the window, I want to go to America.

We still are that place. We still are that place of inspiration. We're that place of initiative. We're that place that people look to when they want problems solved throughout the world. So America still has a dominant position in the world, and I think that President Obama understands that. He's using the powers of the presidency well to further our agenda but the agenda of the world really. It's really now a worldwide agenda. We all need better economic progress in our countries. Unemployment throughout the world, poverty throughout the world, hunger, disease, climate control, these are no longer just issues that belong to the developed countries, they belong to the whole world.

CROWLEY: Talk to me a little bit about China. We just had the big high-level meetings with the presidents at the White House, but it seems to me that since even before you were secretary of state human rights, trade and fair trade in general and what china is doing to protect its own currency were constantly talked about, and nothing ever happens. What moves China off the dime?

POWELL: You have to remember that China has come a long way in the last 40 years. I've been going there for 38 years. And I have watched their economic miracle take place, which has benefited some roughly 400 million Chinese citizens.

We have to remember there are still 800 million, twice plus the size of our own population, who are in poverty, and China first and foremost is concentrating on bringing those people out of poverty because if they don't do that, it will start to cause them internal problems. So China is not going to respond to every request we make to advance or to re-evaluate their currency or to respond to every issue we have on trade. We have to recognize that.

The summit that was just concluded I thought was very successful. The president made our positions clear. He spoke about human rights, but China has its own policies, and you shouldn't expect Hu Jintao to run back home and suddenly say I've seen the light or I've gotten, quote, religion as one person said and -- and change all their policies. He goes home looking like he preserved his positions as well. Both sides came out of this I think rather well. We'll see some improvement in trade, a lot of American products were purchased by the Chinese while they were here or the deals were announced.

But don't expect China to suddenly turn on a dime and change its internal policies. They are going to remain an authoritarian nation. They believe that's the only way they can run a nation of 1.3 billion people, and they haven't done badly in recent years.

They are an emerging power, and they will use their new found wealth to hip improve their country. They are doing marvelous things with infrastructure and education and, yes, they are also modernizing their military and making some of their neighbors nervous.

So we have to work with China. It's a complex relationship, and it will have its ups and downs, but I think generally over the 40 years that we have been in this relationship with China, the slope has been steady and upward, even with the things that come and go.

CROWLEY: Let me ask you about a couple of hot spots, primarily Afghanistan. We are six months from when the president says he wants to begin withdrawing U.S. troops from there, from what we see -- and we're not over there and I'm sure you know a great deal about it, it does not look as though there's been so much change that we can begin to bring home troops in June.

CROWLEY: Do you see that date as being a time for a major withdrawal, or do you think there will be a symbolic withdrawal?

POWELL: I can't answer that. And I don't think anyone can. I think the president and his advisers and his commanders, General Petraeus and others, will have to make a judgment in June or July as to...

CROWLEY: Is it heading in that direction, do you think?

POWELL: I really can't answer that. I think that one year of surge has produced rather inconclusive results. There is no question that when you put an American infantry battalion somewhere or a Marine battalion somewhere, it's going to get quieter. And they are going to destroy some of the enemy and some of the enemy is going to slip away and hide and come back later.

So I'm confident we can do that. But unless you back-fill with a functioning government that's non-corrupt, that is competent, and that will give the citizens in that area confidence in their security and confidence in their government, then it will slide backwards.

And so I cannot yet tell whether or not the surge is successful. There are some elements that suggest success and some elements where I think there has been back-sliding. So I'm not sure where we're going to be in July. But the president is committed to have a review at that time. And based on the circumstances, have some level of withdrawal. I just don't though what that level will be, and I don't think anyone knows yet.

CROWLEY: Let me ask you about Pakistan. There was another drone strike, we were told, by Pakistani intelligence. That six militants were killed. At the same time, they had thousands on the streets, particularly in northern Waziristan, with "Death to America" signs because the local populaces are -- killing civilians here.

Have these drone attacks, while they may have helped protect troops in Afghanistan -- U.S. troops in Afghanistan, have they worsened our prospects of getting any semblance of a friendly relationship with the Pakistani people?

POWELL: It's a two-edged weapon, really, if you can call it that. It definitely is taking out some leaders of al Qaeda and leaders of the Taliban. And so it has been very effective there, and is being done in Afghanistan and, of course, in Pakistan. But at the same time it isn't the perfect weapon, and when Pakistani civilians are killed by these strikes or Pakistani civilians are seeing these strikes take place on their territory, a sovereign nation, and America is coming in and using these strikes, it causes a great deal of unrest within the population.

And I think our military commanders and our political leaders, our diplomatic leaders, have to make a balance.

CROWLEY: Is the balance OK as far as you can see, or should we draw back?

POWELL: As I see it right now, the balance is OK. There are a lot of other issues going on in Pakistan that are causing distress, not just predator strikes. The rise of Islamic extremism in Pakistan is disturbing to me. The fact that the government isn't as secure as it ought to be, the fact that the military seems unable to move into these areas and secure them and get rid of the Taliban, so perhaps these strikes wouldn't be necessary.

So it is not just the Predator strikes that are causing the trouble in Pakistan. It's a far more extensive problem than that.

CROWLEY: General Powell, stick with us for another segment. We'll be right back.

POWELL: Thank you, Candy.

CROWLEY: And when we come back, want to cover a lot more, including a little politics, with General Powell.

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CROWLEY: We are back with retired four star General and former Secretary of State Colin Powell.

Let me ask you about your reaction to the shootings in Tucson. It became this message about society in some ways, and, you know, some people saw, you know, things about gun control, mental health, the culture just -- you know, that it seems that there are more and more of these things.

Did you see a message about this country in those shootings, or did you just see a random, senseless act of violence?

POWELL: Well, I think, first and foremost, it was a random, senseless act of violence by a deranged individual who should have been caught. Something should have been done about this individual long before he committed this horrible, horrible crime.

And in the process of thinking it through and looking at it, everybody started to speak about civility. That's a good subject for us to talk about because there has crept in our society and our public dialogue a coarseness, a nastiness, an attack of people who don't share the same views as you do. And not just attacking the policies but attacking the individual. He's a communist. He's a socialist. He's un-American. He ought to be thrown out. All sorts of nastiness. And it is not just politicians who are doing this to each other, and, frankly, politics has always been a contact sport in this country.

I mean, they did this back in the 17th and 18th Century, but with all of the cable channels and talk radio and blogs, especially blogs, where people can be anonymous with their nastiness, I think has caused a level of coarseness in our society that we've all got to think about. And politicians should think about it. All leaders in every aspect of American society should think about it. And I think television needs to give this some thought. A lot of this is frankly coming through on television.

CROWLEY: And do you think though that that's a genie that can be put back in the bottle? As you say, there's anonymity on the Web. You can say the foulest, cruelest things...

POWELL: Yes.

CROWLEY: ... on the Web and not have your name. And do you think that television -- television seems to march forward sort of with the times, sometimes it leaves the times, and I understand that. I mean, can it be done and can it be done by political leaders talking different to each other?

POWELL: I think you can't put the information revolution back in the bottle. That's out of the question. But at the same time, we can just act more responsibly in the language we use with each other. And we need to start pushing back on some of the more extreme language that we hear on radio or we see on television or we hear from our politicians.

The reason they do it is because we accept it as people. So I think the American people have got to start demanding more of our public officials and of the media that is trying to come into our homes every evening. But, unfortunately, there is a certain attraction to this kind of dialogue.

And the other thing is, with so much information available to us, you can just stay in your little stovepipe of information and only listen to others and talk to others and reflect the views of others who think just like you.

And so we're not broadening our knowledge base too often by all of the information that's available. We're becoming even more stuck in that segment of the knowledge base that reflects our views.

CROWLEY: You've been around politics and public life for some time, and you've seen George W. Bush called any number of names, now you've seen Barack Obama called any number of names.

CROWLEY: When you look at just the political part of it, do you think that there can be real bipartisanship, because as you say politics is hardball, and I don't know how you go about changing that.

POWELL: Politics is hardball. I mean, we can go through our history and see things that are far worse than anything we're seeing now. Thomas Jefferson complained bitterly about how he was treated by the media and the nasty things that were said, but I think you can have this kind of contact politics and also do it in a bipartisan way. You have to do it though out of the glare of light. You have to do it quietly without everybody knowing what you're doing.

Our founding fathers in Philadelphia in 1787 did not let any press in. They never briefed anybody as to what was going on until they were finished with the constitution. It's a little harder now to have that kind of...

CROWLEY: Somewhat.

POWELL: Somewhat harder, but at the same time you have to find ways to reach across the aisle, as they say, and start to talk with the other side in civil terms. Then you can go out in front of a camera and do something differently, but there has to be a civil conversation.

I think President Obama in recent weeks has been making an effort to do that. And I hope that his effort will be reciprocated by the other side.

CROWLEY: Let me ask you on a domestic spending. You have criticized Republicans for sometimes saying, okay, let's just freeze spending where we are and then we can save money without addressing the revenue side. Does that mean that you think when you look at the domestic agenda, education something you're very involved in, there are going to be some things that you're going to have to invest in and some things that you're going to have to cut.

Where would you with specificity say, look, we don't need a bigger military and we cut there.

POWELL: Yeah. I think we have to look at everything, both domestic and our international accounts. As we draw down from Iraq and as over the next several years as we draw down from Afghanistan, I see no reason why the military shouldn't be looked at.

When the Cold War ended 20 years ago, when I was chairman and Mr. Cheney was secretary of Defense, we cut the defense budget by 25 percent. And we reduced the force by 500,000 active duty soldiers, so it can be done. Now, how fast you can do it and what you have to cut out remains to be seen, but I don't think the defense budget can be made, you know, sacrosanct and it can't be touched.

But the real money in the entitlements, it's Social Security and Medicare and Medicaid. And unless we do something about those, you can't balance the budget. You can't fix the deficit or the national debt by killing NPR or National Endowment for the Humanities or the Arts. Nice political chatter, but that doesn't do it. And I'm very put off when people just say let's go back and freeze to the level two years ago.

Don't tell me you're going to freeze to a level. That usually is a very inefficient way of doing it. Tell me what you're going to cut, and nobody up there yet is being very, very candid about what they are going to cut to fix this problem.

CROWLEY: We are entering a presidential campaign season. Do you see anyone currently in the Republican field that would prompt you to vote Republican in 2012 and not vote for the re-election of Barack Obama? Anybody interest you in the Republican field? POWELL: I will always vote as I have throughout my life, for the person that I think is best qualified to be president of the United States, and I don't adhere to a single party line. So I'm not committed to Barack Obama. I'm not committed to a Republican candidate. I will see who emerges.

Right now I do not see on the Republican side any one individual who I think is going to emerge at the top of the pile. So it's going to be an interesting 2011 and a very interesting early 2012 as the primaries begin and they separate themselves.

But I am not committed to any candidate until I see all the candidates and finally see who the two candidates are who are going for this position.

CROWLEY: You don't see anybody in the Republican field right now that might tempt you away from your support for President Obama?

POWELL: I have not yet seen anybody in the Republican side who I'm prepared to commit to, but as I say once again, I'm not committed to President Obama either.

CROWLEY: Let me play real quickly for you something the president had to say about you recently when you were over at the White House.

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OBAMA: I just want to again thank General Powell for his good counsel, his friendship, most importantly his service to our country.

(END VIDEO CLIP) CROWLEY: I know that you talk and have you said that you have talked to people in the administration from time to time when they have come calling. Have you ever talked to the president about any position in his administration?

POWELL: No. I'm not looking for a position, and when he was a candidate and during the transition period, various conversations were held within the staff, but nothing was of interest to me. I've had 40 years of service, and I would rather be someone the president calls on from time to time for personal advice without me expecting anything in return or asking for a position.

CROWLEY: You know, because there's a scenario out there with Secretary Gates leaving, and there's this thought, well, Colin Powell might like to come back because your career ended on the Iraq war and that you would rather rewrite a little bit of that and have another shot at it.

What do you think of that scenario?

POWELL: I've never heard that scenario quite that way, but scenarios, the media loves to come up with various scenarios, but the administration knows that I'm quite content with the work I'm doing now with young people, with education and a variety of other interests that I have, so I'm not anxious to be offered a government job and I'm not interested in a government job.

CROWLEY: But overall if I had to say, you know, first two years of the president's administration, I would say Colin Powell a round of B for him?

POWELL: You know what, I never play that game of a, b, c, or d. I think he is doing a good job right now. I think the ratings suggest that the American people are still with him with respect to the policies that he has tried to implement. I think he's got some tough times ahead, and I think he's had some setbacks, but I have been in four presidential administrations, now I'm watching this one, a fifth one, and every president has ups and downs, every president has a challenge when it goes from campaigning to governing. It takes a while to figure out the difference between campaigning and governing. And now we see at the end of the second year he is definitely focusing on governing, and he has seen what the challenges are in many president of the United States and we'll see how 2011 goes.

CROWLEY: Thank you so much, General Powell. Pleasure.

POWELL: Thank you, Candy.