Accept No Substitutes: Only Systemic Soviet Reform Will Reduce The Threat, Justify US Aid

Submitted Testimony by Frank J. Gaffney, Jr. Director of the Center for Security Policy

before

the House Armed Services Committee

30 July 1991

Mr. Chairman, it is both an honor and a distinct challenge to appear before you today. I am deeply honored to be asked once again to contribute to this distinguished committee’s deliberations on an issue of immense importance to the security of the United States — in this case, a discussion of the future course of the Soviet Union and the circumstances under which the U.S. and its allies might provide assistance to Moscow.

More importantly perhaps, few topics are more challenging to address in a coherent and comprehensive way than the present one. This is partly due to the historical character of the Soviet Union which Churchill so rightly described as mystery, enigma and riddle all rolled into one. It is partly a product of the considerable turmoil affecting so many aspects of Soviet life at the moment — seemingly involving almost daily changes in the institutions, traditions and processes of the USSR.

What makes this task especially daunting, however, is the extent to which experts — like my colleagues on this panel, Graham Allison and Arnold Horelick — to say nothing of the public at large perceive and respond to such changes. In the face of such difficulties, it seems to me that any responsible treatment of the question of aiding the Soviet Union must be rooted as much in an understanding of what has not changed there as in hopeful interpretations of what is emerging.

Consequently, Mr. Chairman, in my remarks today I propose to concentrate on one aspect of the so-called Grand Bargain: the question of helping the Soviet Union convert its massively overbuilt military establishment to unthreatening civilian purposes. As you know, this is a topic high on the agenda for the Bush-Gorbachev summit now underway in Moscow. I believe it is also an excellent and instructive paradigm for the general approach advocated by Dean Allison and others.

In addressing the proposition of aid for Soviet defense conversion, I hope to provide a critique of the Grand Bargain or “Moment of Opportunity” or whatever the current marketing handle is for a scheme that would have us provide aid up front in return for Moscow’s pledge in principle to pursue economic reform. Because my approach is necessarily of a more “micro” nature, I would ask that the more comprehensive critique of Dr. Allison’s proposal provided by my colleague Roger W. Robinson, Jr. before the Senate Foreign Relations Committee last month be entered into the record at the conclusion of my remarks.

Continuity Characterizes the Soviet Military-Industrial Complex

Nowhere is it more obvious than in connection with schemes to help convert the Soviet military-industrial complex that such initiatives are front-loaded, predicated on the promise of Soviet structural reform — not its occurrence as an accomplished fact. After all, if there is one area of the system by which the USSR has been governed which remains essentially unchanged by glasnost, perestroika, the putative end of the Cold War, democratic elections, interest in free market reforms or economic crisis in the Soviet Union, it is Moscow center’s defense industrial establishment.

The highly respected Committee on the Present Danger’s unclassified estimates of Soviet defense expenditures offers powerful evidence to support this contention. The Committee made the following observations in its report on Russian Military Expenditures released in April 1991:

• Gorbachev continued the same pattern in the military’s share of Soviet resources in the original 12th Five-Year Plan [1986-90 — i.e., an 8% increase per annum], as he has now admitted, and projected these priorities to the year 2000 as well. The combination of deliberate increase in the military burden, the perennial failures of Soviet “socialized” agriculture and Gorbachev’s own economic policies finally led to the 1988-89 crisis….Subsequently, that crisis has evolved to near economic collapse. 

* * *

• [While this crisis has compelled Gorbachev to modify the original 12th Five-Year Plan,] about the only thing that can be said with much confidence is that Soviet military spending has ceased its rapid growth. Preliminary 1989 data indicate no measurable reduction from the 1988 level, military expenditures may have increased a few billion rubles in 1989. Reliable data are not yet available on which to base a ruble estimate of Soviet military outlays in 1990, but reductions, if any, will be only a few billion rubles. Soviet military outlays in 1990 will be very close to the 1988 level. 
• …Most, if not all, of the “cuts” in Soviet military outlays in 1989-90 and beyond would come from foregoing previously planned increases in Soviet military outlays. 

* * *

• As the 1990 edition of the U.S. Defense Department’s Soviet Military Power reports, except in the case of tanks, artillery and aircraft, production of major weapons continues at traditional high levels. In a number of categories, weapons production in 1989 exceeded the average annual output during Gorbachev’s first four years in power. Even if tank production is cut in half for the second time, i.e., to about one-quarter of the 1988 level, Russia will still be the world’s largest tank producer. 

* * *

• …The military industrial complex is the only sector of the Russian economy that is functioning normally….[This] complex consists of much more than the R&D organizations and production factories responsible for visible weapons output. Supporting these final product organizations is a vast complex developing and producing high quality metals and advanced materials, based on Russian deposits of all varieties of rare metals and earths. 

• As a result of decades of preferential claims on the best available resources and near unlimited funding, the military industries also have the only technological base that approaches or equals Western levels. The military industrial complex is the only sector that has been able to assimilate Western technology which the Soviets were successful in acquiring both by legal and illegal means. 

* * *

• If military production declines drastically in 1991, it will not be the result of a deliberate change in policy but the consequence of economic pressures. 

It is not hard to identify the fruits of such a continued, vigorous Soviet military program. According to Jim Guirard, a noted analyst of such matters, the following disproportionate production in key weapons program has resulted over the past two years from Moscow center’s defense spending under Gorbachev:

What We Do Not Know: Defense Conversion vs. Modernization

In view of the fact that, to paraphrase the Ford Motor Company, armaments are still “job one” in the Soviet military-industrial complex, it is incumbent on us to exercise real care in considering initiatives aimed at helping Moscow center improve its production capabilities. As with so many of the features of Grand Bargain-style plans for assisting the USSR, aid for defense “conversion” has considerable potential to make matters worse — not better.

What distinguishes this area, however, from others (such as ruble convertability schemes, balance of payments relief, debt rescheduling etc.) is that the way in which matters might get worse is one directly inimical to vital U.S. interests: The Soviet military’s capabilities to build more advanced weapons more efficiently and at less cost for the USSR’s own arsenal and for sale overseas could be greatly enhanced by an infusion of Western technology, know-how and investment.

At the very least, before we embark on any program to help “convert” the Soviet defense industrial facilities to civilian use, answers must be obtained to important questions like the following:

• What is the true size of the Soviet military industrial complex? What is its budget, where does the money go and how do the various elements of the complex interoperate?

• Who is in control of the military-industrial complex? Which ministries are involved (for example, what are the respective roles of the VPK and Gosplan)? Given the prominent part played by the KGB in foreign trade activities, what is their function in the work of this complex?

• What will be the division of responsibility for these activities between the federal and republic authorities as the All-Union Treaty or other “devolutionary” arrangements are put into place?

• If, as has long been the case, the military-industrial complex remains a major redoubt for Soviet communists, what impact will Boris Yeltsin’s decree banning party activities and cells from factories have on the complex?

• Given the thorough integration of the civilian and military industrial bases — virtually all defense plants produce some consumer goods and vice versa — can elements of the military industrial complex be upgraded for civilian purposes without the benefits flowing to the Soviet military as well?

Unfortunately, in the absence of full data disclosure and transparency, no realistic answers can be given to these questions. Even once they can be satisfactorily determined, however, it is far from clear whether U.S. assistance in the name of conversion of the Soviet military industrial complex is a good idea. The following are but a few of the reservations that might be mentioned in this connection:

• Where defense “conversion” has been undertaken in this country in response to the declining demand for military-related production, it has often not worked out very well. Even corporate efforts to compete for markets within the same industry (e.g., aerospace) have shown that all-too-often skills required for defense work are not necessarily translatable to commercial applications. In any event, it is difficult to imagine how a government-dictated, planned market strategy for such conversions will prove more effective than has the free market.

• There is a real danger that a piecemeal defense conversion scheme in the Soviet Union would wind up helping revitalize Moscow center’s least productive enterprises when the ones we most want to see diverted from military production are those actively involved in advanced Soviet modernization programs.

• The question inevitably arises: Should U.S. tax-dollars be used to underwrite Soviet conversion — when, in so doing, we are likely helping prospective competitors (e.g., space industry) — even though the federal government is exceedingly reluctant to help American companies cope with market shifts?

• What is more, if the Soviet military-industrial sector does wind up benefitting from U.S. aid, will that help Soviets produce more advanced weapon systems? This could result in a “double whammy” for the United States — adding a new dimension to the threat we face and encouraging competition for overseas arms sales upon which the American defense industrial base is already unduly reliant to maintain vital production capabilities.

What We Do Know: Soviet Jury-rigging Has Not Worked

Ironically, according to knowledgeable analysts, there was actually a greater marginal output of civilian-related machinery from the Soviet military-industrial complex in 1986-87 — before Gorbachev’s much ballyhooed “defense conversion” initiative got underway than afterward. Starting in 1988, Moscow center began telling plants in the complex to produce things they had not manufactured before, diverting labor, imposing new layers of management and oversight and disrupting the supply of necessary raw materials.

Not surprisingly, productivity for non-military durable goods fell off. If the complex had simply been told to churn out fewer military products and manufacture more of the same consumer goods (radios, televisions, washing machines, etc.) that they had been producing, substantially greater rates of production of such goods could have been achieved. While this would not necessarily have met longer-term needs of the Soviet marketplace, to say nothing of producing hard currency-earning goods for export to the West, it would have alleviated somewhat present consumer demand, eased the ruble overhang and bought time for the necessary, slower transition to fabrication of other non-military products.

What We Do Know (II): Access to Western Technology and Financial Assistance Can Spell Trouble

While the Soviet central authorities have not gone much beyond paying lip service to the idea of cutting back military production to increase the supply of manufactured goods for civilian purposes, they have shown a keen interest in reducing the costs of that military production. The manner in which Moscow center has tried to accomplish the latter has grave implications for this Committee’s responsibilities.

In the 1970s, the Soviet Union imported almost half of its inventory of military and civilian machine-building technology. The sources were roughly equally split between those of Eastern Europe and those of the West. It is no overstatement to suggest that, had the USSR not be able to receive this tremendous infusion of machinery, it would likely have collapsed a lot earlier.

In short, the Soviets understand that access to modern Western technology is absolutely essential to preserving the competitiveness of the Soviet military in the face of declining budgets and Western advances. The Toshiba sale of advanced machine tools to Moscow in the 1980s is a clear case in point of the force-multiplier effect of such technology acquisitions: For roughly a $30 million investment in equipment used to manufacture “quiet” naval propellers, the USSR compelled the United States to make over $1 billion in investments on improved anti-submarine warfare systems.

The bottom line for Moscow center is to make its military-industrial complex more efficient, to achieve higher productivity even as it reduces the costs involved in to manufacture state of the art hardware. Soviet spokesmen have indicated that they are content with a minimal nuclear deterrent but remain determined to enjoy conventional superiority. We must expect that the central authorities of the USSR have pored over the results of Desert Shield/Desert Storm to help identify present shortcomings in Soviet conventional arms and to target the technologies needed to produce competitive versions in the future.

Accordingly, Mr. Chairman, I commend you and your colleagues for taking an interest in the question of technology security and specifically decisions affecting the transfers of dual-use technologies to the USSR. In particular, you deserve the heartfelt thanks of all of us concerned with Soviet military capabilities for seeking joint referral to this Committee of legislation renewing the Export Administration Act. I very much hope that by so doing you can begin to correct the deplorable performance of the Foreign Affairs subcommittee that has heretofore exercised virtually exclusive oversight of this vital portfolio.

The Soviet Protection Racket

Some would have you believe, Mr. Chairman, that notwithstanding the aforementioned concerns, we have no alternative but to aid the Soviet Union — whether it is with militarily relevant technology, untied financial assistance, economic assistance or through other means. It has even been said by some that we have spent $1 trillion to defend ourselves against the Soviet threat since World War II, surely it is worth our spending as much as a further $250 billion over the next few years to “end” that threat. Never mind that we did not want to squander our resources to deter and contend with the possibility of Soviet aggression; logic actually suggests, the USSR should pay us for the trouble its activities put us to!

There have been numerous variations on the theme. President Gorbachev used the occasion of his acceptance of the Nobel Peace Prize to announce that the USSR felt it was “entitled” to Western assistance. He like others — including the Grand Bargaineers — have resorted to nuclear fear-mongering: If we do not pay up, we may have a “Yugoslavia with nuclear weapons.” I understand that Sen. Joseph Biden has actually been moved by concern over such a possibility to propose legislation that would strip 1% off the U.S. defense budget and apply it to a “defense conversion” program for the Soviet Union.

In my view, such threats amount to little more than extortion or, as Sen. Bill Bradley recently put it, “nuclear blackmail.” While the possibility that Soviet nuclear weapons might be loosed in the future at the United States does argue for strategic defenses against purposeful or unauthorized attacks against us, it does not justify paying what amounts to protection money to Gorbachev. That is especially true if the effect of such protection money will surely be to help perpetuate the system he rules — the same system that has created the nuclear and other dangers Moscow center poses to vital U.S. interests.

The Alternative: The Kyl-Yeltsin Amendment

Fortunately, there is an alternative to the sort of aid-for-promises approach embodied, whether Dr. Allison likes it or not, in the Grand Bargain. This approach would make Soviet structural reform — political, economic, military, foreign policy — a necessary precondition to future taxpayer-underwritten U.S. aid. It was endorsed in broad terms by Russian Republic President Boris Yeltsin when he was in Washington last month and was subsequently overwhelmingly approved on 19 June by the House of Representatives, 374-41.

Unlike the Grand Bargain — and the Bush Administration variation on the theme, which we at the Center for Security Policy call the Grand Bargain-on-the-Installment-Plan, the Kyl Amendment offers real incentives to systemic democratic and free market reform. It also poses powerful disincentives to continued obstruction of such change by Gorbachev and his regime.

As you may know, Mr. Chairman, the Kyl amendment was also adopted last week by the Senate in a slightly modified form as the Pressler Amendment to the Foreign Aid Authorization bill. One of the changes made in the Senate version was to eliminate the requirement that, in the event the President decides to waive the preconditions specified in this legislation, he would have to obtain Soviet collateral for any taxpayer-underwritten loans, guarantees, etc. I hope the House will consider instructing its conferees to insist upon this very important safeguard in the upcoming conference.

Systemic vs. Symptomatic Approaches

In conclusion, Mr. Chairman, I believe it imperative that the United States adopt in all aspects of its relations with the Soviet Union a systemic approach, rather than a symptomatic one, to the need for change there. This is, by the way, as true of arms control and it is at least as true of economic relations.

If we are successful in facilitating the wholesale transformation of the Soviet system, we can realistically expect to see not only the people of the USSR experience freedoms and opportunities for which this great country has tong stood. Such a development is justified in its own right both morally and economically as it holds out the only real promise for improving the Soviet standard of living. What is more, however, the Soviet people’s ability to decide the form and policies of their government — and the uses to which their resources are put — will inevitably translate into a magnificent diminution of the threat still being posed by the USSR to the U.S. and its allies.

I urge you and your colleagues to insist on nothing less than this sort of systemic approach. By so doing, you can not only avoid the dangers inherent in perpetuating the present, fundamentally unreformed Soviet regime but you can help create opportunities for a genuine, fundamental and irreversible “conversion” of the Soviet Union.