Yesterday President Obama received his first
Economic Intelligence Briefing report from the
CIA. The report will become a regular item in
the daily intelligence briefing at the White
House; it comes in the wake of the new intelligence
tsar’s testimony to the congressional
intelligence committees that placed international
economic uncertainty at the top of the list
of security threats to the United States. Since
the president, the tsar, and CIA director Leon
Panetta have been in their jobs for five weeks
or less, they should be aware of the CIA’s
shortcomings in the field of economic intelligence.
The United States obviously needs economic
intelligence worldwide. Nearly all of this intelligence
is openly available and it is gathered effectively
by the Treasury, State, Commerce, and Agriculture
departments. The CIA has engaged in industrial
espionage from time to time, but it is has rarely
added to the collection needs of economic intelligence.
More importantly, it has registered major intelligence
failures in the economic arena, particularly
in failing to track the economic decline of
the Soviet Union from 1977 to 1991. The economic
failure was the key element in the CIA’s
failure to track the decline and fall of the
Soviet Union itself.
In the 1970s, the Pentagon and the CIA shared
a belief in a major military spending gap as
an indicator of the alleged relentless Soviet
military buildup. The actual facts were that
there was no spending gap and no relentless
Soviet military buildup. But in his final report
to the congress in January 1977, Secretary of
Defense Donald Rumsfeld (!) charged the Kremlin
with an “acceleration in the growth of
Soviet defense outlays” and referred to
an annual rate of increase in Soviet military
spending of 5% during the first half of the
1970s and even higher growth in the latter years.
In his first report to the congress in February
1978, Secretary of Defense Harold Brown reported
that the “present disparity in defense
spending between the U.S. and the Soviet Union
is disquieting as an index of both Soviet capabilities
and intentions.” Both Rumsfeld and Brown
were relying on CIA economic intelligence and
both were wrong, but these estimates became
the justification for the unprecedentedly high
defense spending of the Reagan administration
from 1981-1986.
In the early 1980s, CIA economic analysts determined
their analysis had been wrong about the Soviet
economy and Soviet defense spending, now believing
that defense spending was only growing at less
than 2% a year and, more importantly, that there
had been a leveling off of spending on investment
and procurement. Thus, the earlier CIA estimates
about the “relentless” Soviet buildup
were flat-out wrong, and the so-called spending
gap was no more accurate than earlier “gaps”
concerning bombers, missiles, antiballistic
missile defense, civil defense and—the
favorite of neoconservative Harvard professor
Richard Pipes and the Committee on the Present
Danger—the so-called intentions gap. For
several years, CIA director William Casey and
his deputy director for intelligence, Robert
Gates (!), blocked all efforts to correct the
record at the Pentagon or on the Hill.
The CIA totally missed the Soviet economic
collapse because it overstated the value of
the ruble, the volume of Soviet investment relative
to the United States, and the rate of growth
of the Soviet economy. The CIA made major errors
in estimating Soviet investment in fixed capital,
particularly machinery and equipment, which
contributed to alarming accounts of the size
and capability of Moscow’s military-industrial
complex.
CIA analysts totally missed the qualitative
disparities between the two countries, arguing
that the rate of growth of personal consumption
in the Soviet Union from 1951 to 1988 exceeded
growth rates in the United States. Moscow’s
economic problems contributed to its policies
of strategic retreat and its interest in arms
control and disarmament with the United States.
The CIA missed these trends and policies as
well, including its total misunderstanding of
the defense burden on the economy, the critical
need for reform, and the imminent economic crisis.
In general, the economic intelligence of the
CIA has been inadequate, and hopefully the new
intelligence tsar, Dennis Blair, and the new
CIA director will address the need for reform.
Unfortunately, the CIA’s directorate of
intelligence is spread too thin over political,
economic, military, and technical areas, which
may explain in part the intelligence failures
in recent years on the Soviet Union, 9/11, and
Iraqi weapons of mass destruction.
CIA economic analysts simply cannot compete
with either government or private institutions
that do their own economic analysis. Since economic
analysis is not dependent on classified sources,
it would be far more useful to establish an
economic think-tank within the government that
would attract the best talent available and
have access to open-source material at home
and abroad. Open- source materials identified
the economic problems in Mexico in the mid-1990s
and in Asia in the late 1990s, when the CIA
did not. In view of the economic problems confronting
the United States, the Obama administration
needs to understand the best methods for leveraging
the information gleaned from open sources.
Melvin A. Goodman, a regular contributor
to The Public Record, is senior fellow at the
Center for International Policy and adjunct
professor of government at Johns Hopkins University.
He was a senior analyst at the CIA for 24 years
and his most recent book is “Failure of
Intelligence: The Decline and Fall of the CIA.”
Copyright 2009 The Public
Record
