Everything was made so cheaply and maintained so poorly that virtually nothing worked. A hotel such as the National across from Red Square in Moscow—supposedly high quality, used by foreigners—confronted guests entering the lobby with a moldy smell and carpets that were threadbare and soiled. Standing at the reception desk was like going back to the nineteenth century. There was a wooden Teletype machine that looked like one of the first radio sets. The guest rooms were out of the American West, circa 1890. The furnishings were about what one would expect in an American prison, with two beds the size of cots that sank like pedestrian underpasses in the middle. They were covered with tattered spreads with holes in them. The sheets had small rust stains. The pine dresser was so battered it would not be sold at a rummage sale in the West. A table was covered with a cloth that looked as if it had been used for wrapping fish.
But that was nothing compared with the bathroom. The tiles were coming off, nothing was plumb, the toilet seat was as thin as the skin of a toy airplane, the sink was old and rusting, there was only one small piece of soap, and the toilet paper was coarser than the coarsest Western writing paper. The towels were so thin and worn from repeated washings they could barely absorb any moisture.
Downstairs in the dining room, there was at least one waiter for each table. Yet the service dragged on for hours because most of the time the waiters remained in the hallway chattering with each other. There was no incentive to do a good job or to cut down on extra workers because everything was owned by the government, which decided from Moscow how many waiters should work in each hotel, what prices should be charged, and how much food was needed.
Souvenir shops had three saleswomen who helped each other ring up a sale. One would hand each item in turn to the cashier. The cashier rang up the sale, while the third employee milled around and eventually wrapped the items. All three took more time to ring up a sale than the usual one American cashier.
In the same vein, five or six taxi cabs would pass by before one would pick up a passenger. The drivers got paid the same regardless of whether they picked up riders or not, so they continued driving without bothering to pick up anyone.
After Soviet leader Mikhail Gorbachev took over in 1985, the already fragile Soviet economy began to crumble. His policy of perestroika, or restructuring, had the effect of destroying much of the existing system, without replacing it with a new one. It was then that the CIA was blamed for failing to predict that the Soviet economy would collapse and for clinging to estimates of the Soviet gross national product that clearly did not portray how bad off it was. Yet for decades, the CIA’s method worked.
Because official statistics could not be trusted, the CIA developed a model of every facet of the Soviet economy, from the steel and transportation industries to production of coal and oil. Based wherever possible on visual evidence from satellites, the CIA determined the quantity and value of each item produced. For example, the CIA estimated the cost of producing a Soviet fighter plane by adding the value of the labor and the cost of the steel. Where satellite coverage would not work, the CIA used the observations of Soviet émigrés or information obtained by intercepting Soviet communications. Then the CIA translated the findings into rubles and dollars. Since rubles could not be exchanged for dollars, the CIA had to estimate the conversion rate based on what each currency could buy—how many BTUs of coal, for example.
The task was awesome. The CIA contracted out estimating the cost of reproducing each Soviet armament. As many as fifty CIA officers worked on the military questions alone. Every now and then, they got a break—a Soviet book that listed shipbuilding costs, an overheard conversation about the size of the Soviet military budget, or a defector such as Nicholas Shadrin. Shadrin was a Soviet Navy commander who knew the costs of building destroyers.
In 1975, a Soviet émigré who claimed to have seen the defense budget cited figures that tended to indicate Soviet military spending was higher than the CIA thought. Lt. Gen. Daniel O. Graham, then director of the Defense Intelligence Agency, decided the CIA was ignoring him. Although the man had failed lie detector tests, Graham thought the CIA had botched the tests by making the man nervous. Graham interviewed the man himself and decided he was telling the truth. He said he wanted the CIA to polygraph him again, this time using questions he prepared. The man passed.131
The CIA’s estimates of military spending doubled the next year—from 5 to 6 percent of the Soviet GNP to 11 to 12 percent. CIA officials said the emigré’s information played a role in the revision, which they claimed would have occurred anyway.
In the early 1960s, William T. Lee, an analyst at the CIA, had devised a different estimating system that made use of Soviet statistics. It showed an even higher proportion of military spending. In 1964, Lee left the CIA over disagreements about his method. He later joined the DIA, but he continues to testify before Congress that the CIA’s estimates—still based on methods developed when Lee was with the agency—are unrealistic. As of 1990, Lee was estimating So viet defense spending at 25 percent of the Soviet GNP.132
“They [the CIA] wanted me to recant, and I left in disgust,” Lee said. “I was saying that the method I was using is a better method than what they were using.”133
The CIA said its method was superior because it was based wherever possible on what could be seen, rather than on Soviet statistics, which were notoriously fallacious and selfserving. Yet in the end, Lee’s figures seemed to be closer to the truth than the CIA’s.
Igor Birman, a Soviet émigré and economist, also concluded early on that the Soviet economy was in much poorer shape than the CIA was claiming. According to Birman’s figures, the Soviet GNP was only a third of U.S. GNP—more in line with that of a Third World country such as Mexico.
In 1980, Birman described the Soviet economy in Soviet Studies as being in a state of “crisis.”134 On October 27,1980, Birman said in an op-ed page piece in the Washington Post that the CIA’s estimates of the Soviet economy were far too rosy. Birman said the Soviet standard of living was “only a fourth or even a fifth the American level.” Birman said Soviet military spending is “very likely about 20 percent” of the Soviet GNP, a proportion then almost double the CIA’s estimate.135
“I was alone in the world, saying the huge CIA is wrong,” Birman said. “The wonderful American press has criticized the CIA for spy operations, but never their analysis. I did. I knew I was alone, and if I say the truth, nobody would believe me.”136
More recently, the CIA has said the Soviets spend 15 percent to 17 percent of their GNP on the military, compared with a figure of 25 percent cited by many of the critics.
As the Soviet economy continued to deteriorate, Henry S. Rowen, a former chairman of the National Intelligence Council and later assistant secretary of defense for international security affairs, and Andrew W. Marshall, director of net assessments at the Defense Department, began sounding similar warnings. In 1986, they and Charles Wolf, Jr., dean of the RAND School of Graduate Studies, met with President Reagan to tell him the Soviet economy was in worse shape than the CIA was saying.
“Your advisers have seriously underestimated the difficulties of the Soviet economy,” Rowen told Reagan. “We are in a much stronger bargaining position.”
Their position coincided with memos William Casey had given to Reagan from Herb Meyer saying the Soviet economy was in much worse shape than the CIA was saying.
Still, the CIA clung to its position. Indeed, that same year, the CIA said the Soviet economy was improving. Later, the agency took note of problems in the Soviet economy but did not significantly revise its estimates of the GNP. For example, in 1987, the CIA said, “The Soviet economy has made solid gains since 1960 . . . but its growth has slowed, especially in the last decade.”137
In retrospect, the critics’ characterization of the Soviet economy as a system in serious trouble has proven to be correct. Their estimates that Soviet military spending takes up a far greater chunk of Soviet output than the CIA thought
are undoubtedly true as well. That individual economists, working with practically no funding, could come out closer to the truth than CIA analysts with their immense resources is cause for concern.
At the same time, no one knows the true figures. How does one account for the fact that, because the Soviet system measures output by square yards of glass produced, glass-manufacturing plants make plate glass that is so thin that most of it breaks before it leaves the plant? Or that ornamental vases made of lead are produced in vast quantities but no one buys them? They are therefore stacked in a yard and melted down to go into the next year’s supply of unwanted vases.
Trainloads of new tractors are delivered in a cannibalized state because people cannot obtain spare parts. People therefore steal the wheels and transmissions right off the tractors after they leave the factory. Likewise, up to a third of the Soviet wheat harvest has been estimated to consist of rubbish, weeds, and moisture. At the same time, because of poor transportation and storage facilities, as much as half of Soviet farm production never gets to market. Gorbachev himself estimated in June 1985 that a fifth of the overall agricultural harvest was being lost.
According to Swedish economist Anders Åslund, if Soviet manufactured goods were sold in the West, the prices they would fetch would be lower than the prices of the raw products used to manufacture them.
“It is a startling experience to walk into Soviet stores, assess the Western value of Soviet-made commodities, and compare them with actual Soviet prices,” Åslund has written. “In the vast majority of cases, the Western market value of a Soviet commodity—food as well as industrial goods—would be nil or close to nil, since their quality is so poor that they could not be sold in the West.”138
Meanwhile, a large chunk of consumer needs is met on the black market, still another quagmire that is impossible for economists—in or out of the country—to measure accurately.
“We try to account for fraudulent production like glass that breaks,” a CIA analyst involved in producing the agency’s Soviet figures said. “Sometimes we succeed, sometimes we fail.”
By April 1990, John L. Helgerson, the CIA’s deputy director for intelligence, was finally venturing that the Soviet economy was in an “unstable state” and could be “pushed over the edge into sharp deterioration” by further strikes or ethnic unrest. Still, “the most likely outcome for 1990 is that the Soviet economy will stagnate or decline slightly,” the CIA said.139
It was too little, too late. By then, the CIA had clearly blown it.
With some exaggeration, William Safire wrote in The New York Times, “The central mission of U.S. intelligence is to gather and evaluate data on the economic and military strength of the Soviet Union in comparison with the U.S. We are now discovering how the CIA has botched that assignment.”140
Even Abram Bergson, the Harvard economist who helped develop the model used by the CIA while working for the RAND Corp., has said recently, “I think the GNP is overstated [by the CIA]. How much is controversial.”141
But given the difficulty of the job, the CIA over the years had done remarkably well. Predicting even the American economy correctly is a daunting task. For every five economists, as the aphorism goes, there are six opinions. In the early days of the Cold War, the CIA gave U.S. policymakers a rough indication of the strength of the Soviet economy and the amount being spent on armaments. Contrary to Satire’s comment, the agency accurately catalogued the size and shape of the Soviet military. This was far more important than predicting the proportion of the Soviet economy spent on defense. It was only when the Soviet economy began to disintegrate that the CIA moved too slowly to recognize the change.
Whether through the CIA, Herb Meyer’s memos from Casey, or his meeting with the critics in 1986, the word got through to President Reagan. In his book An American Life, Reagan wrote, “As president I learned the Soviet economy was in even worse shape than I’d realized. It was a basket case, partly because of massive spending on armaments.”142
“Did they get the numbers wrong? Yes. Did they underestimate the percentage of Soviet GNP going to defense? I’d bet my life on it,” Robert Gates, who oversaw the CIA’s estimates as deputy director for intelligence, said when he was President Bush’s deputy assistant for national security affairs. “But did they generally portray a Soviet economy in trouble and one less and less able to support this superstructure of the military and intelligence? I think they did.”143
As the stories about the CIA’s tardy response to the changes in the Soviet economy faded from memory, the CIA’s intelligence directorate was faced with a new and much more critical challenge: predicting what Iraq was doing as it moved troops toward Kuwait.
15
Triumph
AS THE COLD WAR ENDED AND THE SOVIET UNION BECAME less of a threat, the press began to question the need for a CIA. But those who raised the issue had only a limited perception of what the CIA does. By spying on friendly countries, the agency prepares for threats that may develop when those countries turn hostile. There could be no better example than Iraq’s invasion of Kuwait on August 1, 1990.
During Iraq’s ten-year war with Iran, the United States had tilted toward Iraq as the lesser of two evils. The Reagan administration approved giving Iraq the data from satellite reconnaissance to help it fight Iran, along with U.S. agricultural credit guarantees and Export-Import Bank financing. When the war ended, Iraq had $80 billion in debts and dwindling oil income. As his money problems worsened, Saddam Hussein, the Iraqi president, became belligerent toward the West.
By February 1990, Hussein was calling for the U.S. fleet, which had been in the Persian Gulf for forty years, to return to the United States. On March 15, over British protests, Iraq executed Farzad Bazoft, an Iranian-born journalist working for the British press, for spying. On April 1, Saddam Hussein threatened to “make the fire to eat up half of Israel.” On April 12, he told five U.S. senators that an “all-out campaign is being waged against us in America and the countries of Europe.” At the end of May, he charged that Kuwait was waging “economic warfare” against him. He complained that Kuwait would not agree to lower oil production in order to raise oil prices—increases that Iraq needed to pay off its mounting debts.
Analysts at the Directorate of Intelligence watched these developments with keen interest. During Iraq’s war with Iran, the CIA had built up an extensive data base on Iraq and its military and industry, including its chemical and biological weapons plants. The CIA also knew what kinds of movements the Iraqi military made before taking offensive action. However, in part because the CIA had been ordered to help Iraq during the war, the Directorate of Operations had not had much interest in developing an extensive array of agents or human spies within the government. Moreover, since Saddam Hussein trusted only close friends and family members, it would have been extremely difficult to do so under any circumstances.
In November 1989, the CIA prepared a National Intelligence Estimate that said Saddam Hussein wanted to be the “bully of the Middle East.” Going with what a reasonable man would think, the estimate said it would take three years before he had recovered enough from the war with Iran to take any action. In 1990, an analyst wrote a “think piece” suggesting that the Iraqi leader might invade islands coveted by Iraq off the Kuwaiti coast, and that he might go on to invade Kuwait itself.
Three weeks before Iraq’s invasion of Kuwait, the CIA’s Directorate of Science and Technology began receiving hard evidence of a military buildup near the Kuwaiti border. The question was whether Iraq meant to invade Kuwait or merely to threaten it. The State Department’s Bureau of Intelligence and Research thought Saddam Hussein was probably bluffing. But as days wore on, the CIA began warning the president that Iraq would most likely invade.
“Strong words could threaten them [the Kuwaitis], let alone one hundred thousand troops,” Richard J. Kerr, the CIA’s deputy director for Central Intelligence, said.144 “It was clear there was more there than was needed [to bluster], and
there was a serious military option, and given the forces, there was an increasing possibility—and probability as we walked down to the last several days—that he would actually move at least partway into Kuwait,” Kerr said. “There was a probability he would take the northern area and the oil fields and islands, and a possibility he would go much farther and take the whole thing.”
On August 1, the CIA said it was more likely than not that Iraq would invade within twenty-four hours.
By predicting the invasion, the CIA had given President Bush and his policymakers additional time to plan a response, which came almost immediately in the form of a demand that Iraq pull out of Kuwait. Whether the early information could have been used, or should have been used, as the basis for a stronger warning to Iraq before the invasion is debatable. In now famous remarks, April Glaspie, the U.S. ambassador to Iraq, told Saddam Hussein on July 25 that the United States had “no opinion” on Iraq’s border dispute with Kuwait. But she also warned, according to her later statement before Congress, that the United States would protect its vital interests in the area. Glaspie’s cables reporting on her meeting with Saddam Hussein did not support her testimony to Congress that she warned the Iraqi president that the U.S. would protect its interests in the area. However, a cable from President Bush to Saddam Hussein after the meeting said, “We believe that differences are best resolved by peaceful means and not by threats involving military force or conflict.”145
Bush could have warned Iraq more bluntly that any invasion would be turned back by force. But the U.S. would have had to be in a position to back up any threat with action, and the administration was not yet ready to take that position. Indeed, Saddam Hussein asked Glaspie to assure Bush that he had no intention of attacking Kuwait. That reassurance was soon amplified by King Hussein of Jordan, President Hosni Mubarak of Egypt, and King Fahd of Saudi Arabia, who each told Bush that in their view, the Iraqi president would not attack.
Inside the CIA Page 18