DDI Speech 3/20/96

Speech before the World Affairs Council by John C. Gannon, Deputy Directory for Intelligence.


Thank you for your kind introduction. It's a great honor to be here.

I should tell you that I accepted your invitation to speak here before discovering that the World Affairs Council in San Francisco hosted Vladimir Zhirinovskiy a little over a year ago. And I have to admit that, when I was told about Zhirinovskiy's speech, I had some second thoughts about coming here. Prior to his talk, Zhirinovskiy had dominated the Duma elections of 1993, winning nearly a quarter of the vote. His brand of strident nationalism was generally regarded as a major political force within Russia. After meeting with the World Affairs Council, his electoral support dropped by more than 50%, and he's now thought of as yesterday's news. I can only hope that my speech today doesn't have the same impact on my career.

You haven't, by any chance, thought about inviting the Communist leader Zyuganov [ZyooGAHnuff] to address you?

In my business--intelligence--we distinguish between "secrets" and "mysteries." Secrets, at least theoretically, can be obtained in one way or another. An example might be the specifications for a new weapon system being developed by a foreign government. That government might guard information about the weapon system as a secret, but another government might be able to obtain the secret information through clandestine means.

Mysteries, on the other hand, are unknown or unexplained phenomena. "Will Boris Yel'tsin suffer another heart attack before Russia's presidential elections in June?" "Will Russia evolve into a democracy?" It's futile to try to steal the answers to these questions. But with the collapse of the Soviet system, intelligence analysts are being asked more and more to try to unravel such mysteries.

This challenge--attempting to understand and explain Russia's political and economic future--relates to much of my talk today. In discussing the trends in Russia, I want to highlight three key points:

1. Russia has made great strides toward democracy and a market economy in a remarkably short period since the collapse of the Soviet Union a little over four years ago.

2. No matter who wins the presidential election in June, the old Soviet system we knew is unlikely to be reassembled.

3. Russia's transition will remain volatile for at least a decade or two, whatever path of development the country takes.

Russia's Great Strides

I'll discuss first the great strides that Russia has made since it gained independent statehood in 1991.

There's a joke about progress under Communism that was popular in Moscow during the Soviet era. Stalin, Khrushchev, and Brezhnev are on a train, and the train is stalled. Stalin, impatient with the lack of movement, orders that the engineer be shot. Still, the train fails to move. Khrushchev denounces this Stalinist crime and calls instead for a campaign of the masses to propel the train forward. Still, no movement. Finally, Brezhnev reaches to the window and pulls down the shades. "Now," he announces, "the train is moving."

No one who has walked along the main street of downtown Moscow--Tverskaya Street [tfairSKYah]--can deny that there has been dramatic movement in Russia's economy since 1991. In the old days, the street was called Gorkiy Street [GORkee], named after the Communist writer, Maksim Gorkiy. Long lines of shoppers clogged the sidewalks in front of empty gray state-run stores, and a handful of Soviet-made Lada and Volga cars trickled down the street. Women carried netted shopping bags in their purses that they nicknamed "Just-in-Cases"--to be used "just in case" a store got a product in worth buying. Everyone knew that they had to purchase it immediately whether they needed it or not, because they might never get another opportunity.

The Tverskaya Street of 1996 is clogged not by lines of shoppers, but by Mercedes and Jeep Cherokees--Russia is now among the world's fastest growing markets for Mercedes. Shoppers can choose from a wide range of colorful stores bursting with products from all over the world. New construction is proceeding at a pace that would impress even the most efficient Western firms. Looming over the building that once housed the State Planning Committee--the Mecca of the Communist economy--is an enormous electronic advertising billboard. And the old Manezh Square just outside the Kremlin is today hardly recognizable as the place where Lenin once rallied crowds. The square has been excavated to make way for a shopping mall and business center complete with a parking garage.

Looking below the surface, it's clear that there have been substantial structural changes in Russia's economy. The defense budget has been slashed by roughly 50 percent in real terms since 1992. Entrepeneurs have started hundreds of thousands of new businesses, which employ almost a third of Russian workers. More than 20,000 large enterprises and 100,000 small ones have been transferred from state ownership under Russia's ambitious privatization program. As a result, the private sector now accounts for more than 60 percent of Russia's gross domestic product.

Nearly all prices, once set by the state, have been freed. Russia now has a functioning civil code to govern market transactions and protect private property. The state monopoly on foreign trade has been dismantled, and the great bulk of export and import transactions are being carried out at exchange rates determined by market forces. Inflation--which swelled to two-hundred fifty percent per month shortly after the collapse of the Soviet Union--reached a record low in February of 2.8 percent. That's still high by our standards, but it's a significant achievement nonetheless.

The political changes have been nearly as dramatic as those in the economic sphere. In a country where religious activity was once all but banned, and churches were dynamited by government authorities, there is now a religious renaissance among both young and old. Government officials waste few opportunities to be seen at celebrations of religious holidays and at ground-breaking ceremonies for the construction of new cathedrals, hoping to tap into the powerful symbolism of the church. Even Communist Party head Gennadiy Zyuganov has publicized his Christian faith.

The print media are diverse and free-wheeling, despite their struggles to stay afloat financially without state subsidies. Independent television stations have sprung up throughout the country, and even the state-owned network has been surprisingly critical of the Chechen war, juxtaposing graphic scenes of carnage in the Chechen capital with shots of Yel'tsin toasting the new year's celebration last year.

Direct access to information from outside Russia is also flourishing. Millions of Russians can now tap into CNN. And, as thousands of Russians do everyday, one can dial a modem to link up with the Internet and chat with computer users across the globe. Such contact with the outside world was unthinkable for Russians as little as a decade ago.

Perhaps the most significant testimony to Russia's political transformation is the fact that the election ballot--not military power, and not state ideology--is becoming the ultimate arbiter of political power. Russia has now held two elections to the state legislature and two national referendums since gaining independent statehood. Nearly 65 percent of eligible voters cast ballots in last December's Duma election--well above US turnout rates--and 43 political parties took part. That's an impressive level of political participation. And all indications are that there will be a presidential election in June, which could potentially produce the first electoral change of government in Russia's thousand-year history.

I do not want to exaggerate the extent of change in Russia nor underestimate the obtacles that remain in its path. Much remains unchanged, particularly in regions far from Moscow and St. Petersburg, and the institutions of civil society remain weak. Inflation has yet to be licked, and a painful period high unemployment may well occur, as unprofitable enterprises fail. One need look no farther than the government's handling of the war in Chechnya to note that Russia still has a lot to overcome. But my point is that, in noting the great distances Russia must still travel if it is to become a stable, market-oriented democracy, we should not forget how far Russia has already come.

Return to the Past Difficult

Turning now to my second point, I'd like to talk a little bit about the prospects for reversing the reforms that I've just discussed. I should note here that the changes in Russia have come at a price. The transformation to the market has wiped out the life savings of millions of Russians, crippled the state-run social welfare system, and fostered soaring rates of crime and corruption. Scientists and university professors, who once sat near the top of the social and economic ladder, have watched their real incomes plummet while con men and corrupt bureaucrats have made fortunes. One could argue that such byproducts of Russia's transition were unavoidable. But--avoidable or not--material and pyschological hardships have produced nostalgia for the past among many Russian voters and sapped President Yel'tsin's popularity.

There's a joke making the rounds in Moscow today on the subject of Yel'tsin's reelection prospects. Walking about at his country dacha one day, Yel'tsin stumbles across an old oil lamp. Rubbing the lamp, as you can guess, produces a genie, who announces that he is prepared to grant Yel'tsin's fondest wish. Yel'tsin thinks a little bit, and then he takes out a map and points to Bosnia and Chechnya. "I can think of no greater good," he tells the genie, "than to bring peace to these war-torn regions." The genie scratches his head, wrings his hands, and finally responds that bringing peace to Bosnia and Chechnya is beyond even his formidable powers; could Yel'tsin come up with a second choice? Yel'tsin says fine, my second choice would be to win reelection as President of Russia. The genie scratches his head, wrings his hands, and then asks, "Could I take another look at that map?"

It's far too early, of course, to rule out Yel'tsin winning the June elections, or, indeed, to predict any winner. Ambassador Pickering, in an excellent speech last month, said that "only the foolhardy would venture now to predict the outcome of the Presidential election." We agree with the Ambassador on this, because there are simply too many factors at play--not because a foolhardy risk isn't a kick for us analysts from time to time. Yel'tsin has been counted out many times before, but he's made a career out of beating the odds. He's betting that, if faced with a choice between returning to horrors of the Soviet past, on the one hand, and staying on the bumpy course toward economic and political freedom, on the other, Russian voters will in the end choose to vote for him. He may be right.

Still, it's not too early to start asking questions about how realistic a return to the Soviet past might be. Communist leader Gennadiy Zyuganov is leading in the polls. He almost certainly can't get the 50% of votes needed to win the presidential election outright in the first round, but he's a solid bet to make it into a runoff race against the other top vote-getter. Surveys conducted by Russian polling organizations of potential runoff races suggest that Zyuganov could beat Yel'tsin, despite the fact that Zyuganov is not particularly charismatic and not even that popular within his own party.

Should Zyuganov win the presidency, there's a significant chance that his government would try to reverse many of the changes that have occurred in Russia over the past several years. Unlike some of the Communist parties in Central and Eastern Europe, the Communist Party of Russia has not transformed itself into a social democratic party. Most of its members remain true believers in Communism. And the party's agenda certainly gives cause for concern. It calls for, among other things:

· Renationalizing private firms in the energy, transportation, and agricultural sectors.

· Reestablishing a state monopoly over foreign trade in natural resources.

· Reimposing state regulations on the prices of basic necessities, energy, and transportation.

· Restoring the former system of soviets--or local councils--which were once beholden to the Communist Party.

· Reintegrating the now independent states of the former Soviet Union on a "voluntary" basis.

These policy goals suggest, at a minimum, that we wouldn't see much more progress toward democracy and the market under a Communist regime. There would be a significant risk of an inflationary spending spree. And the reintroduction of price controls would only make matters worse, leading to the reappearance of shortages, queues, and black markets.

These dangers are not hard to foresee. But the tougher question is how successful the Communists might be in turning back the clock and restoring key elements of the old Soviet system.

Here, we have some reason for doubting that the Communists--or any other hardline regime--would be able to undo very much of what's already been accomplished. That is not to say that reform in Russia is wholly irreversible. But I do think we can say that it has gone far enough that a reversal would be so difficult as to be unlikely.

We can probably rule out the most ominous of the Communists' policy goals--rebuilding a union among the independent states of the former USSR. Doing this on a "voluntary" basis, as the Communists say they favor, is really a dead end. With few exceptions, these independent states simply do not want to return to a union with Russia. Most of them remember very well, and not very fondly I might add, what life was like for them under Moscow's rule.

The prospects for forceful reintegration of these states are even bleaker, at least for the foreseeable future. Russia's military is a mere shadow of the Soviet Union's once powerful armed forces. Resources for defense have fallen so sharply for so long that some units now survive only on wartime reserves of food and fuel. Officers and enlisted men alike sometimes go for months without being paid. Warships are occasionally stranded in port for long periods because the Navy cannot pay for repairs.

The readiness and modernization of equipment has also suffered. Some observers estimate that seventy-five percent of Russia's land force divisions are not combat ready, and that over half of the 2,500 fighter aircraft that Russia inherited from the USSR are inoperable.

It's not surprising that this deterioration has hurt morale. Sailors have refused to sail. Soldiers--including officers--have refused to go to Chechnya. And corruption is rife throughout the ranks. Lower-level personnel are involved in drug trafficking, stealing fuel, and selling weapons and munitions on the black market. Even some generals are alleged to be involved in corrupt and criminal activities. This is not a military that is in any condition to invade or even to intimidate Russia's neighbors, nor will it be in such a state of readiness any time soon.

So in all likelihood, the Communists won't be able to regain the old empire, at least not over the course of the next four-year presidential term. What about restoring some of the other aspects of the old system?

Well, reestablishing state control of key sectors of the economy and rebuilding the old network of local soviets, (or "councils") are probably more realistic goals. Even these would be difficult to achieve, though, for a number of reasons.

First, Russia is a state in which powerful and diverse business interests have emerged. Among these groups I would list new entrepeneurs, enterprise directors, stockholders, bankers, corrupt government officials, and organized crime groups. Much of the old Soviet elite now has too significant a financial stake in the new market economy to want to go back to the old system. Not all of these people, obviously, are Jeffersonian democrats or disciples of Adam Smith. But they share a common desire to hold on to the wealth, perqs, and property they've acquired, and they have the clout to resist any efforts by the government to take them away. The Communists would have a fight on their hands if they were to try to renationalize Russia's hugely profitable energy sector or steal the cash cow of foreign trade from private importers and exporters.

Second, one must recognize the fact that, over the past several years, a great deal of power has devolved from the central government in Moscow to regional governments in Russia's 89 territorial units. Not all of these regions are reform-minded. Some of them, quite frankly, are run by old-line Communists. But most of these regional governments share a common interest in one thing, and that is protecting their ability to call the shots in their territory by resisting central control from Moscow.

Yel'tsin's government has supported this devolution of power, which might be called the growth of federalism. But I'm sure that it's also been a frustrating thing for Yel'tsin. The President issues a decree; the regional governments ignore it. Yel'tsin demands, cajoles, and pleads, yet the governors do their own thing. It's reached the point where Yel'tsin recently fired a few of these governors for failing to disburse federal funds as Moscow had directed.

Despite these firings, regional autonomy is only going to grow stronger over the next year. Why? Well, until recently, most of Russia's regional governors have been appointed by the President. But a new law requires that all of them be elected officials by the end of this year. That means they'll be even less beholden to Moscow than they are now, and more focused on the demands of their region's constituents. And that suggests that the Communists would have a hard time reinstituting the old Soviet system of top-down, centralized government.

Finally, in addition to the emergence of business interests and the growth of regional autonomy, I would note that the telecommunications revolution will provide Russians with greater and greater access to the outside world in the coming years. This will continue to diminish the prospects for a future authoritarian regime relying on the levers of propaganda to sustain its rule.

Again, I don't want to exaggerate the barriers to revanchism in Russia. The historic parallels to Weimar Germany are too close to be ignored when studying contemporary Russia. But the obstacles to a return to the past are significant enough that we should not automatically assume the worst if the Communists win June's presidential elections.

The Long and Bumpy Road Ahead

Let me now turn to my final point.

A man that once held my job, and later went on to become the Director of Central Intelligence--Robert Gates--was fond of saying that when most people smell flowers, they look for a garden. But when an intelligence officer smells flowers, he or she looks for a funeral. We're not morbid by nature. It's simply our job to warn of the dangers that confront the United States in the world.

Russians sometimes seem to share this boundless capacity for pessimism. In Moscow, they say that a pessimist is someone who believes things can't possibly get any worse. An optimist thinks that of course they can.

Tonight, in examining the trends in Russia, I've tried to temper this penchant for pessimism with an appreciation of all that has changed and a sober look at the obstacles to turning back the clock to Soviet times. But I would be remiss if I failed to note the long list of dangers that still exist in Russia. It's not hard to be pessimistic about a country with almost no democratic tradition, an economy ravaged by some seventy years of Communism, an alarming rate of crime, a nuclear arsenal that still numbers in the thousands, and dozens of potential environmental disasters in the making.

It will be decades--and perhaps even generations--before Russia's transformation is complete. In fact, Russia is a country in which three revolutions are occurring simultaneously. The old centrally planned economic system is being dismantled and replaced by a system based on market principles. The old Communist system of centralized government is being replaced by an inchoate system based upon free elections. And the old Soviet Empire has been broken into its constituent parts, forcing Russia to struggle to redefine its place in the world. Any one of these revolutionary transformations would be taxing for a country. To imagine that all three could be completed in a short period is folly.

There are certainly no guarantees that Russia will be a democracy with a free-market economy when this transformation ends. If history is any guide, however, we can be sure that any movement toward these Western models will be cyclical, with periods of active reform followed by periods of consolidation or even some steps backward. And during this long period of change, any number of things could go wrong. A high level of vigilance from the intelligence community throughout this transition will be essential.

One of the most extreme dangers is that political polarization could result in violence and instability. The Intelligence Community must carefully monitor possible indicators of a coup in Russia. President Yel'tsin is warning that a Communist victory in the June elections could increase the chances for civil war within Russia, and there has been talk in recent days about the possibility of postponing these elections. Part of this is campaign hyperbole. But we can't be complacent about such possibilities. Few people appreciate how close the putchists in the Russian parliament came to seizing power in October, 1993, when President Yel'tsin had to rely on military force to retain control. The center of the political spectrum is very weak in Russia, and wide ideological and political gaps exist between old-line Communists and Russia's democrats, who represent a significant slice of the electorate. There are signs of similar divisions within the disgruntled military. This could prove to be a volatile mix, particularly if a hardline regime were to press too hard in trying to take away the property and freedoms that Russians now enjoy, or if the present government were to attempt to remain in power through force. In the face of such threats, it is vital that fair elections and constitutional processes remain the vehicles for determining who is in power and settling policy disputes.

A second danger is the potential for a terrorist campaign arising from the war in Chechnya. Since fighting began late in 1994, Russian forces have occupied all major population, transportation, and economic centers in the region, but they have been unable to end the fighting in the mountains and countryside--or even fully secure the places they occupy. Chechnya has become a classic guerilla warfare situation, and the threat of terrorism is increasing. Several instances of hostage-taking have already occurred, with one of them spilling over Russia's borders into Turkey, and another into Central Europe. Even more ominously, some Chechen rebels have warned that they will target Russian nuclear facilities. In an event that was widely publicized in Russia but received little attention in the West, Chechen militants buried a small amount of cesium in a Moscow park last year to demonstrate their ability to carry out a terrorist act in the heart of Russian territory.

Third, although the nuclear threat from Russia is far reduced from what it was during the height of the Cold War, Russia retains tens of thousands of nuclear weapons. It is incumbent upon the intelligence community to continue careful monitoring of these weapons and to remain alert to the possibility that they could fall illegally into unresponsible hands.

Finally, the rapid growth of criminal activity in Russia presents the intelligence community with a formidable challenge. There are now over 8,000 organized crime groups in Russia, according to the Russian Ministry of Internal Affairs. Of this number, about 200 are large, sophisticated criminal organizations with operations throughout the former Soviet Union and abroad. Many Russians believe that organized crime is now the dominant power in Russia, with its reach extending throughout the government. If Russian authorities are unable to check the growth of organized crime, the impact on reform and on Western interests could be profound.


Well, as serious as these dangers are, it somehow seems inappropriate, being in sunny Southern California, to end on a note of gloom and doom. I've already described the dramatic changes that have taken place in the lives of ordinary Russians. But I'd also like to mention how profoundly the threat from Moscow has changed from the point of view of American presidents. Presidents Eisenhower and Kennedy, as you'll recall, presided during the height of the Cold War, when nearly every aspect of US foreign policy was geared toward coping with the Soviet Union and international Communism. These presidents lived with the very real threat of strategic nuclear war with the Soviet Union--a threat that almost became a reality during the Cuban missile crisis. American school children had to participate regularly in air-raid drills. Suburbanites built bomb shelters. The existence of a supposed "missile gap" with the Soviets was a key issue in the 1960 presidential campaign.

Under presidents Nixon, Ford, and Carter, detente and arms control eased the danger of nuclear war, but Soviet activities in the Third World increased dramatically, and each of these presidents had to contend with the possibility that Third World instability could spill over into direct conflict between the superpowers. In several of the Arab-Israeli wars, and in Afghanistan, tensions between Washington and Moscow nearly reached the breaking point.

Presidents Reagan, Bush, and Clinton have presided over a period of truly revolutionary change in superpower relations. Berlin--once a focal point of East-West tensions--is again the capital of a united Germany. The Warsaw Pact no longer exists, democracy and free markets are thriving in Eastern and Central Europe, and enormous cuts in Russian and American nuclear arsenals have become possible. Cooperation between the United States and Russia has made possible progress that was once unthinkable in resolving the Arab-Israeli conflict. And President Clinton is awaiting the results of a free and fair election in Russia--not the latest lineup atop the Lenin Mausoleum--to tell him who his counterpart in the Kremlin will be.

I'd like to thank you for this opportunity to share my views. I'm sure that you have thoughts of your own on the challenging subject of Russia's future, and I'd be happy to respond to questions and comments. There are, however, a few important provisos:

1. First, I was told that there would be no math questions.

2. Second, I should warn you that I'm not at liberty to reveal the Agency's prediction on the results of the NCAA basketball tournament. That information is still classified.

3. Finally, the boxers versus briefs question is definitely out of bounds.