Inside the CIA (23 page)

In 1983, the CIA said the rate of growth of Soviet defense spending was declining. The estimate conflicted with the agenda of the Reagan White House and Caspar Weinberger’s Defense Department. Nor did Casey have any impact on the CIA’s estimates on the prospects for the Nicaraguan contra rebels—the Reagan administration’s pet project. A June 1985 estimate on Nicaragua said, “The Sandinista military . . . cannot by itself destroy the guerrillas, but neither can the insurgents destroy the Sandinista military.”

Not that Casey didn’t try to alter that judgment.

“I argued with him [Casey] and others in this building, because for a number of years, the argument of the intelligence community was that the contras would not win the war in Nicaragua,” said Richard J. Kerr, then the CIA’s deputy director for intelligence and later deputy director of Central Intelligence under Webster. “They did not have the force, they did not have the confidence of the people, they did not have the capability to carry Nicaragua. He [Casey] did not believe that at all. But if you look at our product, it consistently said they would
not
win by force of arms. They weren’t going to make a strong political movement. All they would
do is cause the Sandinistas to modify their behavior. He didn’t really agree with that, and he never came down and said, ‘You change that.’”
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Robert Gates, who was deputy director for intelligence, chairman of the National Intelligence Council, and deputy director for Central Intelligence under Casey, said Casey never influenced the analysts.

“The analytical side of the agency was always more pessimistic about the prospects for the contras than the policy side of the government or the clandestine service,” Gates said. “At the same time, we were probably overly pessimistic about the Salvadoran military.
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“The bottom line,” Gates said, “is that throughout that period, the agency did a lot of analytical work that was very unpopular with the policy side. The notion of analysis being influenced politically is dead wrong.”

“He never told me to write something different than what I wrote,” Kerr said. “What he did do is say, ‘I don’t believe this. I don’t think this is what was reported. I don’t think it’s well documented. I don’t think you’ve done a good analytic job on it, and I think you’ve missed what I consider to be the major issue.’

There are other people who say in that process, he did that [bring political pressure to bear], because he was the boss and he could intimidate you. He tended to be more hard-line, but not always. He had views, and they were strong views. They weren’t necessarily always identical with conservative issues. If you were not willing to defend yourself, you could be rolled over by him, no question,” Kerr said.

But by and large, CIA remained impervious.

“It’s not because we are better than other people, although we are good, but part of it is we believe there is no alternative to being impartial,” Kerr said. “That’s what we do, and that’s the only reason people read us. It’s because they believe we have some contribution to make that is not tied to departmental policy. We may not understand it, we may be wrong, but it’s not because we are pushing a line that is somebody’s policy. If you vary from that, you lose your access, and you
lose people who read you. For us, you are doomed if you do that.

“Ideally,” Kerr said, “you don’t have a DCI like that, but you do need one who forces you to test things. He can have strong opinions. He needs to have different views to get people to develop their arguments.”
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Nowhere was that better demonstrated than on the question of the Soviet economy.

S
INCE THE END OF
W
ORLD
W
AR
II,
THE
CIA’S D
IRECTORATE
of Intelligence has struggled with a close to impossible task: estimating the size of the Soviet economy and the amount of money spent on defense. It is difficult because of the nature of Soviet society. Until the end of the Cold War, the Soviet Union was closed to the outside world, but that was only part of the problem. The larger difficulty was that the economy of the Soviet Union defied all common sense. In theory, it was a planned, centralized economy where production, price, and quantity were dictated by Moscow. But in practice, because of this artificial control, it was larded with under-the-table transactions and fraud that were impossible to measure.

From massive waste to black-marketing, the Soviet economy operated on many levels. Under the planned economy, Soviets had no incentive to work hard or to produce anything. They got paid the same regardless of whether they did anything or not. Because prices of goods bore no relation to their
actual cost or to their value to consumers, they did not serve the normal function of regulating supply and demand. In a free economy, if sneakers or chocolate are in short supply and in demand, their prices rise, spurring entrepreneurs to produce more of them. That was missing in the Soviet economy, where ponderous bureaucracies regulated supply. Even if it were possible to regulate millions of transactions from Moscow, the bureaucrats had no incentive to keep up with changes in demand. No matter how much chocolate or how many sneakers consumers wanted, the price and the supply remained the same.

The Soviets themselves did not know the true size or shape of the Soviet economy. Much of the economic activity took place off the books—in bartering transactions that ate up a good chunk of each citizen’s day. And the Soviets did not want to know about the huge amount of waste and fraud that consumed so much of the country’s output. If the Soviets did not know, how was the CIA to know?

The answers were critical. In order to better judge the strength of its adversary, the U.S. needed to know how much the Soviets were spending on defense and how long they could continue to do it. If the Soviet economy was strong, the Soviets could continue to pour massive amounts into defense indefinitely. If it was weak, the Soviets could be expected to cut down on defense spending. The two questions were interrelated: If the Soviet gross national product was higher than generally thought, the proportion it spent on defense was lower. If the GNP was lower, then defense spending was proportionately higher. In either case, the amount spent by the Soviets on defense was considered to be roughly the same amount spent by the U.S.

For years, the CIA estimated that the Soviet economy was expanding by an average of 2.4 percent a year. Beginning in 1980, the CIA signaled that the Soviet economy was in trouble and “losing momentum.” It revised its estimate of annual growth slightly downward, suggesting it was averaging 2.1 percent a year.
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But the CIA’s figures on the Soviet gross national product did not fully reflect how serious the problems were. According to CIA estimates, the Soviet per capita GNP
was roughly half that of the U.S. Yet one did not need a Ph.D. in economics to see that that clearly could not be. Any visitor to the Soviet Union was shocked to find that, with the exception of its military, the USSR was a Third World country.

Going into a grocery store was like walking into a tomb. On most days, they had literally nothing to sell except potatoes and onions. If they had some meat, it was almost entirely fat and invariably previously frozen. Chickens appeared to be a different species—virtually all skin and bones. Milk was sour when it was purchased. Often, milk sold as fresh was actually powdered. Apples were tiny and shriveled. The oranges were still green. Grapes, if available, were rotten. To meet plan quotas, tea was mixed with tiny branches and leaves of other plants to increase its bulk. Most Third World countries at least had enough to feed their people.

To get an apple, one would have to try to wedge one’s way into a crowd to get a peek at the prices. Then one would have to stand in line for a half an hour to get to the cashier to pay in advance for it. Finally, one waited in another line for another half hour to present the chit to a second clerk who weighed the apples and gave them to the customer without any bags or wrappings.

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.
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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.
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“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.”
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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.