Gen. Colin Powell. (AP)

(CNSNews.com) – Former Secretary of State Colin Powell said America “shouldn’t be afraid” to use the word capitalism when encouraging economic growth in emerging democracies in the Middle East because “it’s what gave us all our wealth.”

At a forum on Tuesday sponsored by the Atlantic Council in Washington, D.C., the retired four-star U.S. Army general discussed the challenges for the United States and Europe in the wake of the Arab Spring.

When asked about how to bring about economic progress in transitioning democracies, Powell, who served as a national security advisor to President Ronald Reagan, defended free markets.

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“I think that the traditional forms of aid still have a role to play but I have no problem with new ideas coming forward to enhance the concept of free enterprise, the concept of capitalism,” Powell said.

“We shouldn’t be afraid of that word,” he said. “It’s what gave us all our wealth.”

“And so I think the traditional forms are still relevant but there’s nothing wrong with looking at new forms,” he added. “We did that during the Bush administration with the Millennium Challenge Corporation, which I think has made a big difference.”

Powell also said that beyond foreign aid the United States should facilitate trade between countries to foster growth.

“During my time as secretary we always recognized that trade is more important than aid,” he said. “And the principle duties of our embassies, frankly, was to see if they could conclude trade deals between companies in America and markets over there, and companies there and markets here in the United States of America.”

“So, trade is essential,” Powell said. “I would focus as much energy as I could on trade.”

“But at the same time there are things you have to do before you can really get a solid trading relationship,” he added. “Do you have corporate, commercial law undergirding the economic systems so that investors will be comfortable and feel that their capital is safe? Do you have democratic courts so that there is recourse in the law to any problems that arise in trade? This has been a major problem in some of the emerging countries of Europe.”

“The Russians still don’t quite understand law with respect to trade,” Powell said. “So trade is important, but there are other needs that countries have.”

Powell also said one of the “great deficiencies” is education throughout the world, bringing a challenge to educate young people for “21st century” economies.

The former chairman of the Joint Chiefs of Staff was featured in a discussion along with Dr. Javier Solana, the former secretary general of NATO, at the W Hotel in Washington, D.C.