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Johnson's Russia List


June 4, 1999    
This Date's Issues: 3323 3324

Johnson's Russia List
4 June 1999


Date: Thu, 03 Jun 1999 
From: "Fritz W. Ermarth" <>
Subject: My Article

Seeing Russia Plain: The Russian Crisis and American Intelligence
By Fritz W. Ermarth

Fritz W. Ermarth retired from the CIA in October 1998 after a career
that included chairmanship of the National Intelligence Council and two
tours on the NSC Staff. This article was reviewed by CIA's Publications
Review Board to prevent disclosure of classified information and
cleared; clearance does not constitute endorsement of assertions or
judgments in the article.

[The printed version of this article appears in the Spring 1999 edition of
The National Interest, pp. 5-14, which retains copyright. Excerpts and
citations should credit this journal.]

When charged with spinning its intelligence analysis to fit policy
preferences, the CIA usually replies that it "tells it like it is." This is
usually valid. In the case of Russia, telling it like it is and seeing it
like it is really are both difficult. This article explores some of the

The saddest disappointment of the post-Cold War era has been the failure of
Russia to find its way irreversibly to the path of political and economic
democracy. In the long run, this disappointment may also be the most
dangerous, because Russia spans ten time zones and contains thousands of
nuclear weapons and other deadly materials that can threaten the
surrounding world.

Most troubling of all the effects of the Russian crisis is its impact on
hearts and minds. When the Hammer and Sickle gave way to Russia's tricolor
in 1991, Russians believed themselves destined for democracy and
free-market economics, constituents of what they called simply a normal
society. They also exhibited admiration for the United States unequaled by
any other of America's adversaries after the great conflicts of this
century. Such attitudes are now hardly perceptible. They have been replaced
by hostility toward what has been foisted on them in the name of democracy
and capitalism, and toward the United States, which most believe to have
been in some degree responsible for the failures and perversions of "reform."

Hostility to reform now ascendant in Russia stimulates forces that could
for generations hence take the country on another detour into the swamp of
authoritarianism, muddled etatism, and social stagnation. Neither Stalin's
nor Brezhnev's Soviet Union can be restored. But some form of weak,
irresponsible state authority over a disordered society could sink roots
that corrupt the capacity of new generations on whom so much hope now
depends to truly govern themselves.

At the bottom of this reflection lies a most disturbing thought. What if
the Russians simply cannot make it? What if the post-communist experience
of Russia means that the self-evident truths of Jefferson and Lincoln are
not for all people, but only for some? In its aspirations, Russia has been
oriented toward Europe and the Atlantic world for a thousand years. Its
failure at a time of high promise finally to enter that world would not
only be a tragedy for Russia itself but a deep injury to Euro-Atlantic
values. The perils of nuclear and other junk emanating from Russia are
frightening enough. But the grim possibility at stake in the Russian
experience-that civilized self-government is not for all people-is more
frightening still.

Where is Russia at the moment? Media pundit Igor Malashenko recently
characterized its present situation as "the dead end of the beginning", the
complete failure of a false start. Russia's perennial
democrat-in-opposition, Grigory Yavlinsky, has characterized the Yeltsin
period and its misfired reforms as the true end of the Soviet era, citing
in particular how it has been dominated by Soviet nomenklaturchiki of
various stripes. Yavlinsky sees the prospect for a fresh start, grounded on
post-communist generations and ignited by victories for sensible democrats,
notably himself, in upcoming parliamentary and presidential elections.

Whatever else it is, the present moment of fading Yeltsin and aging
Primakov, a kind of interregnum, should be a moment for stock-taking. We,
too, have a bit of an interregnum on our hands.

Aspects of the Russian Crisis

Russia's crisis is widely identified with the financial meltdown of August
and the replacement of the reformist Kiriyenko government by one whose top
figures, Yevgeny Primakov and Yurii Maslyukov, are Soviet-era functionaries
evidently committed to achieving political stability by not doing much of
anything. These
developments are but symptoms of more long-lived disorders.

The revolution of 1991 was not as revolutionary as it seemed. Gorbachev
destroyed a vast structure by trying to reform the unreformable. But the
termites had long been chewing away within while the wrecking balls of
glasnost and perestroika assailed from without. The Soviet system collapsed
because a large portion of the nomenklatura, those with hands directly on
state property, deserted the CPSU and the Soviet state to pursue business
interests and nationalist political agendas. This had been going on sub
rosa for years; the events of late 1991 only unveiled and accelerated the
process. As a result, the post-Soviet scene in Russia is dominated by the
people, relationships, and habits of the late Soviet era, particularly in
the nexus of property and power. Relatedly, the process left the Russian
Communist Party, the only real party on the scene, an assembly of angry
losers: a Soviet-style intelligentsia at the top, and a vast population of
pensioners and pensioner-like workers at the bottom who were not in a
position to seize property in the name of the market. A substantial
majority of the Russian population is, therefore, now made up of people who
are either fearful about their shaky hold on new-found wealth, who sit
astride assets that do not produce real wealth, or who are
resentful about having no places at the trough. Their understanding of, and
perceived stake in, real political and economic reform is weak at best.

Russia possesses two important features of democracy, elections and a more
or less free press. But it does not have the essence of democracy: an
assured, law-based process for selecting leaders and policies and
protecting rights. Prospects for attaining real democracy and preserving
existing democratic features are at risk.
Russian politics are based less on principles, programs, and parties, than
on personalities and shifting coalitions among clans and their hold on
evanescent money. The results of politics are less mandates and
real power to effect policies than pecking orders and opportunities for
aggrandizement. They feature at their summit a president with vast nominal
powers under a skewed constitution, but little real power to influence the
life of the nation-save for starting local wars.

Power continues to leach out of Moscow into the regions. But there is no
clear sign of stable federalism, as opposed to fragmentation of the country
or worse. Elections are generally freer and fairer than in Belarus or
Kazakhstan. It is more apt to call them free-for-all and fair-or-foul,
since money, manipulation, and political violence continue to play a large
role. There is freedom of the press in that ideologically diverse media
host lively commentary on Russia's affairs. But Russia's media are
controlled by the politico-business clans who dominate national and
regional politics. "Not by accident", as Stalin would have said, are
journalists prominent among the bankers, tycoons, mafiosi, and politicians
assassinated since 1991. Neither vice nor virtue is a sure protection in
this turbulence.

The glass of Russian democracy, while not half-full, is assuredly not
empty. Elections occur and matter. The press presents the real stuff of
democratic debate. In the regions, devolution of Muscovite power spottily
shows real local self-government. Polls show that Russians, for all their
alienation, still associate their desire for a normal society with free
thought, free politics, and free enterprise. When they say they want a
strong hand in power, most mean the opposite of Stalin's arbitrary
ruthlessness. They want a government that works, an economy that works,
and, underlying it all, law and order. They want a voice in crafting those
things. This is not an exotic agenda.

Russia's economic failure is clearly at the heart of the general crisis.
Finding the root causes and essential nature of this failure is daunting.
That the August crisis of devaluation and default is a spinoff of a deeper
predicament is clear. But what is that predicament? It is not the collapse
of the financial bubble, a bubble blown out of a brand of snake oil that
government and speculators sold to each other. It is not the budget
indiscipline of the Russian government. Lacking real power to act with
fiscal responsibility, it chose to survive on short-term, high interest
credit and not paying most of its bills. It had willing and
well-credentialed accomplices who justly deserve to be now holding empty
bags. It is not the absence of real investment in the "real" economy, nor
the ubiquity of capital flight. These are all effects, not causes.

The essence of the economic debacle is twofold: The collapse of production
which has brought GNP down to less than half of 1990 levels; and the
impoverishment of the majority of the Russian people, with something like
50 million living below what is itself a ridiculously low poverty line. The
unmeasurable effect of the informal economy and widespread moonlighting in
ameliorating these dismal conditions does not substantially change the
picture. They merely explain how Russians manage to survive. The collapse
impoverished the Russian state beyond the capacity of oil exports and
financial legerdemain to sustain.

Russian politics revolves around the question of who is to blame for the
economic collapse, even more than who might conceivably offer a path out of
it. The root causes lie in a) the decay of the Soviet economy for decades
even before perestroika, b) the hugely destabilizing actions of Gorbachev,
and c) the misguided and
inadequate policies of the post-1991 reformers. There is plenty of blame to
go around.

The reformers of the Yeltsin period clearly sought to break up the
collapsing structures of the Soviet order so that they could not possibly
stage a political comeback. This was primary. Their secondary aim was to
encourage the emergence of a true market economy-through elimination of
price controls and other regulations, as strict a monetarism as they could
manage, and privatization of state assets. It is impossible to exaggerate
how much this aim rested on the dogma, embraced by both the reformers and
their Western supporters, that, as
the state was removed from the economy, real market capitalism would arise
naturally and rapidly even in the conditions of Sovietized Russia.

This did not happen. What did happen was a puzzling combination of some
reform, failed reform, perverted reform, no reform and deep depression. The
Russian experience also made glaringly obvious a truism too often neglected
by the reformers and their Western allies: market capitalism depends on a
pervasive environment of congenial law, business custom and skill, and
popularly respected institutions. These took centuries for the West to
evolve; history left Poland and other Central European states more
receptive to them; history left Russia without them, and with a political
culture inimical to their creation.

The largest part of the Russian economy is what two American economists,
Clifford Gaddy and Barry Ikes, have called the Virtual Economy.3 Other
experts quarrel with their analysis, but their metaphor is instructive. The
Virtual Economy is, in essence, the living rubble of the old Soviet
economy, i.e., the old state enterprises, without the Soviet state
machinery to hold it together. It continues to function by using barter and
other non-monetary devices to generate products less valuable than the
required inputs while pretending to add value. Managers pocket cash
revenues and keep workers pseudo-employed in company-town settings. Given
the huge populations and interests involved, these dinosaurs refuse to
commit suicide through bankruptcy or what the IMF gently calls
"restructuring". Except for private plots and some farms that work for
McDonalds, most of agriculture is sadly mired in this sector.

Beyond the Virtual Economy is what the Russians call wild capitalism,
mistaken by many as a reformed economy. This is where the "new Russians",
working with organized crime and corrupt officialdom, extract wealth as
quickly as possible and send abroad what they don't ostentatiously consume.
The most powerful actors in this sector are deeply invested in phony
banking, controlled media, and patronage politics.

A third portion of the economy is an archipelago of real capitalism, in
which genuine private entrepreneurs assemble capital and put it to
productive work, mostly, but not solely, in small, service and consumer
oriented businesses. This is the smallest part of the economy; politically
and economically the most vulnerable-but also the most promising.

Sorting out this triadic domain is a mighty challenge for analysis,
policymaking and investment. It cannot be done at a distance. Many
enterprises participate in all three sectors. Much of the illusion
about reform in Russia rests on the mistaken beliefs that the first
sector is receding, that the second is really like the third, and that
the third is increasingly dominant. Collusion in this illusion lies at
the heart of the policy failures of reformers and their Western

There are other aspects of the Russian economic crisis well deserving
of treatment, which space does not allow: the collapsing physical
infrastructure, calamitous environmental conditions, and the public
health disaster. One topic deserving more than a few words is crime and

The Criminalization of the Russian State: What Did We
Know and When Did We Know It?

The criminalization of the Russian state is now a
standard theme in assessment of the Russian crisis by both Russian and
American analysts.4 It is also a common thread in all
eulogies to Galina Starovoitova, the liberal Duma member recently
assassinated in St. Petersburg. According to the U.S. Deputy Secretary
of State, Strobe Talbott, it is an offensive stereotype brandished by
Hollywood.5 Unfortunately, it is much more than that.

Russian crime and corruption are deeply embedded in the failure of
Russia to advance toward real democracy and capitalism since 1991, as
cause, consequence, and symbol of Russian realities. They constitute,
in the perceptive terms of a senior State Department official with whom
I have discussed the topic, an "environmental problem." They are
pervasive in government, politics, business, and security affairs; even
foreign relations are affected. They are regional, national and
international, and can threaten America by enabling the proliferation
of weapons and by infiltrating American business and politics.6

At the crime end of the spectrum are assassinations, theft,
protection rackets, drug and arms trafficking. At the corruption end
one finds bribery for all manner of state services, privileged
arrangements for export and import without taxes and duties, insider
privatization deals at fire-sale prices, speculation for private profit
with state funds, off-budget commercial operations by government
agencies. Hardly any institutions or public figures are free from
taint, especially the police.

Crime and corruption lead naturally to the offensive stereotype noted
by Talbott, because they are so extensive and dramatic. Most
businessmen, however, regard organized crime and contract killing as
less of a problem than is capricious corruption in government. A viable
legal and tax system could legitimate and regulate many now dubious
activities, such as private security services and tax exempt
organizations. But they are undeniably a huge part of the Russian
political and economic crisis, undermining the state, deterring
investment, spurring capital flight, and alienating society.

This raises a touchy question: long a visible, ubiquitous and powerful
threat to reform, should the extent of Russian crime and corruption not
have warned American policymakers that Russian reforms were not on
track? A recent article in the New York Times
raised this question obliquely by reporting allegations that the
Clinton administration ignored or discouraged intelligence about
corruption in the Yeltsin regime.7 I can shed some light
on this matter by recollecting what I observed from the sidelines,
tracking the topic and the struggles of intelligence analysts to report

To start with, any analyst worth his salt should have been alert to
the threat to reforms posed by Russian crime and corruption. What
first-year Russian history student does not remember the following
apocryphal exchange? Tsar Nicholas I tells his son, "You and I are the
only ones in Russia who do not steal"-and the son replies, "Yes, but
that's because we own everything." Here one begins to understand the
shaky status of private property in Russia since the Mongols. All
students of Soviet history heard such aphorisms as "blat vishe
Stalina" (corrupt influence is higher than Stalin) or "Soviet
power is built on matye, blatye, and tuftye" ( . . .
profanity, corruption, and falsification). Arguably the most important
development in the history of Russian organized crime occurred in the
late Stalin years: the "Bitches' War", in which old-time vory v
zakonye ("thieves under their own law", who refused any
dealings with the state) battled the "bitches" (new-type crooks who
found collaboration with state authorities, in running the gulag for
example, quite acceptable). The "bitches" came out ahead. Soviet
totalitarianism did not eliminate crime and corruption; rather it made
the nomenklatura the greatest mafia of all.

Crime and corruption grew visibly after Stalin, especially in the late
Brezhnev years. The scandals of Boris the Gypsy, Galina Brezhneva's
diamonds, and her MVD general husband Churbanov (who later went to
jail) played a significant role in Andropov's rise and were widely
reported in the West. In 1985, based on work by two superb CIA
analysts, the National Intelligence Council produced the first and only
comprehensive NIE on the internal condition of the Soviet system (since
entirely declassified).8 It identified growing crime and
corruption as a major pathology threatening the Soviet system.
Konstantin Simis and Arkadiy Vaksberg wrote books that spelled it all

Toward the very end of the Gorbachev era, in May 1991, I
vividly recall the eminent Russian sociologist, Vladimir Shlapentokh,
warning a conference of intelligence community analysts that the
criminalization of Russian society was the most profound trend we had
to assess.

For me personally-and for a number of younger analysts more
influential than me in later years-an important learning experience was
the "Saga of the KGB Money." In mid-spring 1992, early in the Yeltsin
regime, a retired colleague visited me to report that the international
detective firm for which he now worked had been hired by the
Yeltsin-Gaidar government to find vast sums essentially stolen by the
KGB on behalf of itself and the CPSU and deposited abroad in bank
accounts and front companies. Might not U.S. intelligence help to
recover this money for the benefit of Russian reforms?

Our specialists on the KGB had, indeed, observed such activity since
the late 1980s.10 Subsequent evidence reveals that it
stemmed from top-level CPSU instructions in the mid-80s. Using
semi-private cooperatives, the KGB sold cheaply acquired Soviet
commodities abroad at world prices, putting the proceeds into disguised
foreign accounts and front companies, including, according to many 
public sources, the later notorious Nordex. Initially the KGB objective 
was simply commercial cover.
But the program evolved into operating businesses for off-budget
revenues, and from there into avenues for squirreling away funds for
the safe retirement or political comeback of embattled communist
leaders. Lines of business came to include money laundering, arms and
drug trafficking, and other plainly criminal activities. Before long,
intelligence, business, politics and crime blurred indistinguishably
into each other.

What sums were involved? Some in the U.S. intelligence community
estimated about $20 billion. But there was a wide range of uncertainty;
one private analysis I learned about later estimated $4-6 billion;
Russian press speculations ran to $100 billion. By all reckonings the
amounts were very substantial.

Could U.S. intelligence help find the money? Specialists in collection
disciplines informed me that we could indeed help, although at some
risk to our sources, should, for example, court cases expose them. It
would be rather similar to tracking money in pursuit of drug

But should the U.S. Government render such help to Russia? For a
policy decision, the late Ed Hewitt, then running Soviet affairs on the
National Security Council, assembled officials from State, Treasury,
Defense and the intelligence community. The answer was no. Some worried
about risk to intelligence sources. But the main rationale was the
following: Capital flight is capital flight. We can no more help Russia
retrieve such money than we can help Brazil or Argentina. If they get
the economic fundamentals right, the money will return. I can not
remember whether anybody put it so explicitly, but the implication was
clear: It doesn't matter who has the money or how it was acquired, even
if by theft; so long as it is private, it will return to do good things
if there is a market.

About a year later, my retired colleague updated me on subsequent
developments. On its own, his company located substantial funds
expatriated by the KGB. It informed its client and suggested approaches
for recovering the funds. By that time, however, the Russian government
no longer seemed interested. Obviously, top officials and organizations
had found ways to access the funds that did not require, indeed would
be disrupted by, official efforts to repatriate them. When some while
later I read an interview in which Pavel Borodin, the long-time
quartermaster of Yeltsin's Kremlin, proudly reported that he managed
several hundred private companies to bring in off-budget revenues, I
had a feeling I knew where he got his start-up capital. I also felt I
knew more about the suicide of Central Committee money handler Nikolai
Kruchina after the aborted August 1991 coup. He obviously feared the
most severe punishment at the hands of the post-communist regime.

This tale conveys several lessons:

The great Russian rip-off began not under Yeltsin but under Gorbachev.
It set the course for what accelerated after him. This should put into
perspective the clamor of Russia's communists about corrupt reformers
and comprador capitalists: Are they outraged by the crimes committed by
their former (and some present) associates, or by their failure to get
a share of the loot? It should also give pause to those who pine for
the lost opportunities of <italic>perestroika</italic>. While Gorbachev
pondered the "500 Day Plan", his minions were already plundering

When the KGB was energetically moving money west and south, Primakov
was a very influential advisor to Gorbachev on security and
intelligence affairs, and Maslyukov was head of Gosplan. Did they not
know what was going on? Later heading the SVR<bold>11</bold>, Primakov
inherited control over the funds. Yet, reportedly, he urged closing
down the Supreme Soviet investigation into what happened to them. It
would now be a nice gesture, at least, to include a fresh look into
this matter among the current Russian government's anti-corruption

Washington's part in purveying in Russia the dogma that markets will
triumph over all, that the ownership and source of wealth matter not so
long as it is (or seems) private, began not in the Clinton
administration but under President Bush. I confess some chagrin for not
making more of a fuss at the time. If the KGB's theft of Russia's money
in 1985-91 was capital flight, then so was the smuggling of Nazi gold
in 1945. The crime spree that began under Gorbachev and the dogmas
about Russian economic reform that began in Washington under Bush had a
similar fate: they both escalated to do more damage under their

The burden of the foregoing is that American intelligence analysts and
policymakers should have known about the Russian crime and corruption
problem as a threat to reform and as a challenge to our grasp of
Russian realities. Indeed, a fine analysis was done by the State
Department's Bureau of Intelligence and Research in April 1992. But
subsequently, neither American intelligence analysis nor American
policymakers adequately appreciated the crime and corruption problem.
Why was this?

One source of trouble was what we call "politicization", the warping
of intelligence analysis to fit political agendas. James Risen's
<italic>New York Times'</italic> article alluded to above charged that
the Clinton administration's Russia hands did not want to hear about
Russian crime and corruption, especially that involving top figures,
because this whole theme would complicate on-going policies and tarnish
the images of those Russian and American officials who were partners in
reform and a new strategic relationship.

Risen's article cites unnamed policymaking officials as objecting that
reporting about the corruption of high Russian figures was vague; it
contained no "smoking gun"; and it was felt to imply that the United
States should not deal with reportedly tainted figures. These
objections constitute, in my judgment, admission to the charge,
affirming that policymakers did resist this information and seeking to
explain why they thought they should. But such rebuttals were and are
entirely beside the point. This analysis aimed not to support
prosecution of, or estrangement from, the foreign officials being
analyzed, but to inform American decisionmaking about
their interests and the context in which
they had to operate. The recipients evidently did not
want to hear this. Their disdain for analysis about corruption of
Russian politics and their Russian partners did, indeed, have a
chilling effect on treatment of these topics, especially during the
critical years 1993-96. Friends in the foreign service tell me that the
same syndrome crimped reporting, especially on economic reform, by our
embassy in Moscow. But there were other culprits than "customer sales
resistance" at work.

Intelligence analysis brought its own vulnerabilities to the table,
first, in the form of a post-Cold War agenda that has become ever more
operational (i.e., supportive of daily business) rather than focusing
on understanding the big picture; and second, a management code that
prizes above all serving-which can easily degenerate into pleasing-the
customer. Our policymakers did not much want, and our intelligence
analysts had little incentive to provide, a big-picture, long-term
assessment of Russian realities. They mainly wanted to get through the
next Gore-Chernomyrdin meeting, or the next quarrel about Russian
missile dealings with Iran.

Another difficulty was the tendency of a large bureaucracy to
pigeon-hole a topic with many aspects into one, typically
turf-conscious, organization. Needed, but lacking, was a multifaceted
team effort bringing together perspectives on Kremlin politics, Russian
business, privatization, banking, economic reform, intelligence,
foreign relations and weapons proliferation. Meanwhile, the downtown
customer community was fragmented by differing agendas, such as
managing our diplomacy with Moscow, supporting economic reform,
stopping proliferation, and thwarting international organized crime.
The challenge to intelligence posed by Russian crime and corruption was
in these respects similar to other topics on the post-Cold War agenda,
such as weapons proliferation.

Nevertheless, efforts to paint the big picture still occurred. When
they did, intellectual blinders were as important as political
inhibitions in complicating the task. In particular, economic dogma was
at work. Analysts with impressive credentials in economics but little
appreciation for Russian history would say such things as, "Russia's
robber barons will ultimately go legit, just like ours did." In doing
so, they overlooked the fact that our robber barons operated in a
culture of law that eventually regulated or dismantled the monopolies
early industrialization allowed. American robber barons, unlike the
Russian, actually built productive enterprises. Again, some opined (as
Anatoly Chubais did in a recent interview) that criminal protection
rackets meet an objective economic need for security that is unmet by
the state.12 This claim reminds one of a scene in the
movie Good Fellas, where the local Don is described as
providing police protection to people who cannot go to the police.
While it may be sound economics this claim is socially perverse; it
says something damning about both the situation and about those who
make it. And yet again, some analysts noted that corruption and
officially-tolerated crime are the rule in most parts of the world, and
that the United States, as an island of cleanliness, is very much the
exception, ignoring both our own corruption and what John Donne said
about islands. And, of course, they neglected the fact that Russia is
not Sicily, Colombia, or the Philippines, but a nation of ten time
zones with twenty thousand nuclear weapons. It matters whether any
country is ruled by tyrants or thieves; but in the case of Russia it
matters more, much more.

In the end, these failings did not, I believe, have a direct impact on
U.S. policy. Rather, they represented some participation by U.S.
intelligence analysis in a general pattern of overlooking the darker
sides of Russian realities with respect to the Yeltsin regime, the
reform team, the consequences of the monetarist dogma, the real nature
of privatization, the fiscal and financial environment, and flaws in
elections. Where these realities impinged dangerously on pressing U.S.
security concerns, such as Russian nuclear and weapons dealings with
Iran, there was greater willingness to accept and act on bad news. But
even here, failure to face the Byzantine disorder of Moscow politics
and institutions probably impeded our ability to get the desired

The Anatomy of Complicity

Dimitri Simes has given a vivid commentary in these
pages on American complicity in Russia's crisis. My closing thoughts
aim at some structuring of the problem for continuing debate.

The first culprit is, of course, the dogma of monetarism, its
associated postulates and especially its oversights. It is clearly
inadequate and often wrong for Russian conditions. Although its
adherents frequently say the right things, they actually pay too little
attention to the social, cultural, legal, and institutional setting
required for economic reform, and to the gaps between reality and
pretense in various aspects of reform. Their healthy opposition to
E9tatism slides into an unhealthy neglect of the need
for a viable state in Russia, and, indeed, in most societies in need of
major economic and political reform.

The second culprit is a cynical Washington habit of prettifying
policies and glossing over their risks, failures, and negative side
effects. Much of Washington's action and rhetoric on Russia has been
aimed at preserving the image of a foreign policy success, even as the
image became more tarnished. The debacle of the past several months has
elicited major "course corrections" from Secretary Albright, Deputy
Secretary Talbott, and others about Russia policy. But one combs
through them line by line without finding any hint of an admission that
past policies may have been flawed. Perhaps complete candor on a
complex policy cannot be expected of any administration. But the lack
of candor has serious costs. It magnifies the impact of failure when it
occurs and multiplies the difficulties of recovery. Systematic
misrepresentation of what our policies, our recommendations, our
political support were producing has also contributed much to expunging
popular respect and admiration for America among the Russian people, a
tragic loss of a major political asset.

Finally, we must face the sensitive issue of cronyism. The emergence
of crony politico-capitalism in Russia has been accompanied and
facilitated by inadequately transparent relationships among actors in
Moscow, Washington, Wall Street, and Cambridge, among other places.
Some of this has been at least minimally illuminated-for example, the
dubious activities of Harvard's Institute for International
Development.13 George Soros' remarkable revelations about
his lobbying for Russian bailout money during the summer of 1998 shed a
bit of light on another level of this general phenomenon.14
How can one distinguish between suspicious dealings that ought
to be stopped and the efforts of public and influential private figures
legitimately but discreetly trying to influence sensitive matters? Why
do I sense that when Chubais boasted last summer that "we conned"
(my kinuli) the IMF into the latest pledge of credits,
"we" did not mean just Russians?15 If this is merely
chumminess among a few top Russians and Americans who share belief in
the monetarist dogma, it is bad enough. The larger concern is, as it
were, "environmental." Our foreign policy, security, and business
dealings with Russia involve the gravest of stakes, enormous sums of
money, and interaction among guileful, aggrandizing, and, in some
cases, ruthless players. These dealings have gone so deeply into a
thicket of insider relationships that some bush hogging is called for.
Without more transparency, there is too much room for the wasteful, the
dangerous, and the sinister.

Not all of America's relationship to Russia's crisis is complicit in
its causes. Although far less than the Russian population, we too have
been victimized by its results. A lot of U.S. taxpayer dollars now rest
in overseas accounts, rather than being at work fueling Russia's
recovery, as supposedly intended.

We have also been doing constructive work in service of American and
Russian interests through such programs as Nunn-Lugar and efforts to
safeguard nuclear materials. So far, congressional funding of these
programs has not suffered from the deepening Russian crisis; but this
is not guaranteed for the future. Correcting failures, protecting
successes, and keeping open opportunities for our policy toward Russia
require a thorough stock taking. Now is the time for it.


1Remarks by Igor Malashenko at the Carnegie Endowment for International
Peace, Washington DC, November 4, 1998.

2Remarks by Grigory Yavlinksky at the Center for Strategic and
International Studies, Washington, DC, December 17, 1998. See also
interview with Charlie Rose, PBS, December 16, 1998.

3Clifford G. Gaddy and Barry w. Ickes, "Russia's Virtual Economy",
<italic>Foreign Affairs</italic> (September/October 1998).

4See, for example, David Satter's "The Rise of the Russian Criminal
State", <italic>Prism</italic>, September 4, 1998; and Vladimir
Shlapentokh, "Russia: Privatization and Illegalization of Social and
Political Life", <italic>Washington Quarterly </italic>(Winter 1996).

5Speech at Stanford University, November 6, 1998, expanded in a guest
contribution to <italic>The Economist</italic>, pp. 54-6.

6William Webster et al., "Russian Organized Crime", Global Organized
Crime Project, CSIS Task Force Report, Washington, DC, <bold>199??

</bold>7James Risen, "Gore Rejected CIA Evidence of Russian
Corruption", <italic>New York Times</italic>, November 23, 1998. See
also John Diamond, "CIA Denies Watering Down Reports", Associated
Press, November 23, 1998.

8National Intelligence Estimate (NIE) 11-18-85, "Domestic Stresses on
the Soviet System", November 1985.

9Konstantin Simis, <italic>USSR: The Corrupt Society</italic> (New
York: Simon & Schuster, 1982); Arkadiy <bold>[check spelling]</bold>
Vaksberg, <italic>The Soviet Mafia</italic> (New York:<bold> </bold>St.
Martin's Press, 1992). See also Stephen Handelman, <italic>Comrade
Criminal: Russia's New Mafia</italic> (New Haven, CT: Yale University
Press, 1995).

10The most extensive analysis of this widely reported phenomenon I have
found in an unpublished manuscript by Richard Palmer in collaboration
with Vladimir Brovkin, <italic>The New Russian Oligarchy: The
Nomenklatura, the KGB, and the Mafiya </italic><bold>[check
spelling]</bold>. It contains unique documentation of high-level CPSU
sponsorship of this operation as well as new details about its
execution in the field.

11Sluzhba vneshnoi rasvedki is the Foreign Intelligence Service, the
successor of the First Chief (foreign intelligence) Directorate of the

12Chubais makes clear that this function is an undesirable by-product
of the state's failure to protect property. Interview by Yelizaveta
Osetinskaya in <italic>Segodnya</italic>, Moscow, December 1, 1998.

13Janine R. Wedel, <italic>Collision and Collusion: The Strange Case of
Western Aid to Eastern Europe</italic> (New York: St. Martin's Press,
1998), chapter four. See also Stephen Kurkjian, "Officials of Harvard
Program That Aided Russia Probed", <italic>Boston Globe</italic>,
January 15, 1999.

14George Soros, <italic>The Crisis of Global Capitalism</italic>,
Public Affairs, 1998, pp. 152-68. See also Timothy L. O'Brien, "He's
Seen the Enemy and It Looks Like Him", <italic>New York Times</italic>,
December 6, 1998.

15Interview with Anatoly Chubais in <italic>Kommersant Daily</italic>,
September 8, 1998.



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