Jim Lehrer: In October 2011 you made a speech about the economy and said, "Our foreign and economic relationship remains indivisible, only now our great challenge is not deterring any single  military foe, but advancing our global leadership at a time when power is more often measured and exercised in economic terms." Explain what you mean.

Hillary Clinton: If we didn't know already, the events of 2008 should have taught us that we are living at a time when the forces of the global economy are going to, perhaps more dramatically than previous times in history, shape how the world is organized; who is leading it and for what purposes; and the role and place of the United States. What we've tried to do in the State Department is to demonstrate clearly that economic statecraft is an essential part of American diplomacy, and we want to use all of the tools and the forces of the global economy harnessed with our diplomacy on behalf of America's interest and values and on behalf of the job creation that we need here at home.

Our goal is to firmly anchor economic work and not just a traditional State Department role of commercial diplomacy, which has been around a long time. We have thousands of economic officers around the world, three hundred people here in the State Department. We do business investment trading, open sky agreements, lots of advocacy on behalf of American business. But we need to really look at the global economy now, to understand how we are going to influence and to an extent manage it in furtherance of global prosperity, American economic leadership, job growth, and all the other goals we seek.

Lehrer: How does innovation in a global marketplace fit into the foreign policy world of today as a practical matter?

Clinton: We now have tools through the World Trade Organization to deal with some of the economic challenges and distortions coming from the Russian economy. China is now going to have to come to grips with being a responsible stakeholder in the global economy as well as in the traditional area for economic statecraft. In Iran, we are using economic sanctions to try to influence their behavior. In South Sudan, the economic developments are as important as political development. You could go on and on.

What we are trying to do is more firmly embed these issues within the State Department. We have put into one place the work we do on the economy, the work we do on energy, and the work we do on the environment because they are all interconnected, and we are looking for new ways to innovate. We are bringing businesses and investors together to try to explore what new, innovative ways we can think about growing our own economy here at home, creating jobs for Americans and creating an environment around the world where it's a much more even playing field, where our companies, our workers are not from the get-go disadvantaged. But we are also looking for ways to do what we have historically done more effectively. We are asking people around the world how do we get more information about rainfall or irrigation or drought and seeds that can survive to poor, small stakeholder farmers in Africa and Asia. how do we try to keep babies alive when they are born in very difficult situations, when the nearest hospital is a long way away? What can we do to innovate to create a kind of package of interventions that is available in even the poorest community? There are lots of examples like that where innovation is mostly carried out by interacting with entrepreneurs. Inventors and scientists are all part of how we see our mission now.

Lehrer: When you made the decision to criticize what was going on in the Russian election, did you consider the possible fallout that would have economically and otherwise with the United States' ongoing relationships with Russia?

Clinton: you always take all of that into account, and there might be times when our criticism is private and other times when it's public; when it's a one-off and other times when it's persistent, because you're always trying to calibrate what will work. I’m not into just criticizing for the sake of criticizing. you are trying to give voice to and support to people who are standing up for values that are important. But to link your point in a way directly to the economy, I think the evidence proves and we certainly believe that middle-class people, societies that have upward mobility, the opportunity for entrepreneurs to start businesses, grow those businesses, create jobs and wealth— all of that is in America's interest.

And when the government is either heavy-handed, or largely the economy of a country is driven through state owned enterprises, that disadvantages our businesses and by extension our workers, our investors, our people. Or if you have oligarchs that control so much of the wealth, that it is difficult for people with a good idea in their own country to be able to break through to start that business, that doesn’t add to the intellectual property of the entire world or create additional opportunities for our investments.

Lehrer: Is China a competitor? Is it an enemy, a collaborator, a friend, or what? Describe it.

Clinton: We describe our relationship, and I think it is accurate at this point in time, as a positive one, a cooperative one, and a comprehensive one. That doesn't mean we are also not competitors in the economic field and for political influence. That goes with the territory. We compete with countries all over the world on a range of issues. But what we have tried to do is to be very clear that we want a positive relationship with China. We do not begrudge or fear a peaceful rise of China. We think that is in the interest of the Chinese people and a remarkable story of economic growth over the last thirty years. We also think that it's in our interest as well. We want to have a positive relationship.

At the same time, though, countries go through phases like individuals do. China is off and running. They have developed a strong economic engine for growth that is not only benefiting the Chinese people but also having quite dramatic effects elsewhere in the world. Their hunt for natural resources is almost inexhaustible because of their population and the rising expectations of their people. There are ways to do that that will be sustainable, and ways to do it better, and so we engaged with the Chinese, as we do with others around the world. Let’s work together in the global community to try to be more responsible. There are many issues under the umbrella of the strategic and economic dialogue that Treasury Secretary Tim Geithner and I jointly chair. We have working groups on a vast array of subjects that don’t break into the headlines but are advancing science and technology cooperation. But we also have differences, as we do with even our closest friends.

Lehrer: One of the main things the United States has always contributed to the world and does to this day are ideas. We are an idea society, and China is stealing them, and it all comes under the term "intellectual property." What are you doing about that?

Clinton: We are looking for leverage points, these new rules of the road to protect intellectual property, to tighten up our own controls so that we don’t see the leakage or the theft of intellectual property. But, again, on the scale that this is occurring it is quite large, but it’s not a new problem. Americans have faced intellectual property challenges and outright espionage from other countries and business people in many places. But the scale of this is different and the control over the economy, because you are not dealing with a free-market economy, you’re dealing with a still very government-controlled economy, which means that you have different challenges in trying to compete in China.

When China was opening up they were very welcoming, and American businesses took advantage of that. Now they are trying to say to themselves okay, we want to do this ourselves now, and we think we have advanced to the point where we can begin doing this, so what’s the shortcut, and we see it. We see the shortcuts being taken, and it’s deeply distressing. It would be one thing if you were competing against another business doing that, but you basically have the whole Chinese trade and governmental apparatus that you have to deal with. So we have to come to the defense of and champion our businesses in fighting this out on a case-by-case basis, but we also have to begin to move China along with others to accept new global rules about how we are going to protect global intellectual property.

Lehrer: Some say China has yet to come to grips with accepting its leadership responsibilities.

Clinton: That's one of the arguments we're making on an almost daily basis.

Lehrer: And how do you make that argument? Who do you say it to?

Clinton: We say it at the highest levels of the Chinese government in our constant interactions with them. You can imagine the ambivalence of the Chinese, because they look at what they have accomplished in thirty years, and they see how much more they have yet to do. They see still the lack of development in many parts of the countryside, the problems they think they might run into, unemployment as their wages naturally rise, and then even Chinese businesses start to look elsewhere for cheaper labor. They are trying to manage a galloping horse, so to speak, and we come in and say you are now the second largest economy in the world. Your growth trajectory is still incredibly fast and high. You are influencing what is going on, and you need to be more thoughtful about that. You need to engage in a more responsible leadership role.

This is not a conversation that’s by any means over. It’s an ongoing conversation. We have engaged the Chinese in talking about their business and development practices in places like Africa and South America. We’ve talked to them about water management, demining rivers that can dramatically affect their neighbors, and we have a long list of what we talk to them about under the rubric of responsible leadership.

Lehrer: The Arab Spring: What have been the economic consequences for the United States from that?

Clinton: Our emphasis has been how do we support their democratic aspirations and how do we ensure that the economic aspirations are married to that, because in all of these transitions people expect change immediately. They expect a better job, they expect a rise in income, they expect to have their business left alone by the many hands of government officials who are holding them out. And we know that if we can't bring some economic progress, then we are not going to see the kind of institutional foundation for these changes that we want.

Lehrer: Was what Newt Gingrich said about the "invented people" of Palestine helpful?

Clinton: No, and I think he recognized that from what I read. I think he realized that was one of those "innovative" moments that happen in politics.

Lehrer: How would you summarize the accomplishments and meaning of the Iraq war?

Clinton: It is a functioning state. It has a democratically elected leadership. It is able to protect its own internal security mostly, although they face a lot of challenges. And there is a great commitment to investment and trade that they have made. So the agenda is a good agenda. Translating it into the hard daily work of setting up for government ministries that actually function in a productive way, of opening up to businesses— that's going to take time. They are moving in the right direction. We just have to keep doing everything we can to keep them on that path.

Lehrer: Was it worth the cost in US lives and resources?

Clinton: That will be a retrospective for historians, but the Iraqi people now have a chance to chart their own future, which they didn't have before.