Director ofCentralIntelligence

Sccret

CIA HISTORICAL REWEW PROGRAMRELEASE AS SANITIZED--•••

Whither Gorbachev:Soviet Policy andPolitics in the 1990s (u)

National Intelligence Estimate

--SeeFet-N1E 11-18-87November 1987

Warning NoticeIntelligence Sources or Methods Invo ed

(WNINTEL)

THIS ESTIMATE IS ISSUED BY THE DIRECTOR OF CENTRAL

INTELLIGENCE.

THE NATIONAL FOREIGN INTELLIGENCE BOARD CONCURS,EXCEPT AS NOTED IN THE TEXT.

The following intelligence organizations participated in the preparation of theEstimate:

The Central Intelligence Agency, the Defense Inteltsgence Agency, the National SecurityAgency, and the intelligence organization of the Department of State.

Also Participating:The Deputy Chief of Staff for Intelligence, Department of the Army

The Director of Naval Intelligence, Department of the Navy

The Assistant Chief of Staff, Intelligence, Deportment of the Air Force

The Director of Intelligence, Headquarters, Marine Corps

NATIONAL SECURITY INFO TIONUnauthorized Disclosure Subject t Criminal Sanctions

DISSEMINATION CONTR • ABBREVIATIONS

NOFORN— Not R to foreign NationalsNOCONTRACT— Not R to Contractors or

Contr . or/ConsultantsPROPIN— C.avf roprietary Information InvolvedORCON— Dis nation and Extraction of Information

trolled by OriginatorREL is Information Has Been Authorized for

Release to ...

DERIVATIVE CL BYREVIEW ON OADRDERIVED FROM Multiple

A microfiche copy of this document is available from OIR/DLB2-7177); printed copies from CPAS/IMC (482-5203; or AIM request

o userid CPASIMC).

CONTENTS

Page

SCOPE NOTE 1

KEY JUDGMENTS 3

What Gorbachev Wants 13How He Plans To Get It 13

Gorbachev's Vision 14The Political System 15The Economy 17Defense Policy 21Foreign Policy 22

Support and Opposition for Gorbachev's Agenda 25The USSR Through the 1990s: Future Scenarios 27

Rejuvenation of the Existing System 29Systemic Reform 29Neo-Stalinism 31Indicators of Systemic Reform: How Will We Know ? 32

Implications for the West 34

Rejuvenation of the Existing System 34Systemic Reform 34Neo-Stalinism 36The Impact of US Policy 36

ANNEX B: Gorbachev as a Leader 43

ANNEX C: Gorbachev and Ideology 45

ANNEX D: Gorbachev and the Third World 47

SCCRCT

SCCRCT

SCOPE NOTE

This Estimate is the Intelligence Community's first overall assess-ment of the reforms Mikhail Gorbachev is attempting to introduce inthe Soviet Union and their implications for the United States and theWestern Alliance. It was stimulated by the accelerating pace of eventsinside the Soviet Union since the beginning of 1987 and by the evidenceof growing debate abroad about the threats and opportunities thatfundamental reforms in the USSR could present to the West.

The Estimate is designed to summarize our view of Gorbachev'spressures for change in Soviet politics and policies in the 1990s. Itpresents our judgments about how far that change might go in domestic,defense, and foreign policy arenas. It does not attempt an exhaustiveanal ysis of the future of economic reform, defense programs, or anyother specific policy area. The dimensions and prospects for Gorba-chev's economic strategy will be discussed in more depth in a NationalIntelligence Estimate on the Soviet economy to be published in thespring of 1988.0

Predicting Soviet policy in the 1990s and estimating the impact ofGorbachev's changes on Western interests is an inherently uncertainenterprise-and there are persisting differences of view on some of thekey questions within agencies, the Intelligence Community, and acade-mia. These differences are reflected in this Estimate.E

CECRET

KEY JUDGMENTS

Mikhail Gorbachev has staked his future on a bold effort torevitalize Soviet society, im prove Moscow's abilities to compete with theWest, and more effectively advance Soviet influence in the globalpower arena. The reforms he is pressing in pursuit of these objectiveshave the potential to produce the most significant changes in Sovietpolicies and institutions since Stalin's forced regimentation of thecountry in the late 1920s.

Gorbachev's Vision. We believe Gorbachev is now convinced thathe must make significant changes in the system, not just tinker at themargins, if he is to achieve his ambitious domestic and foreignobjectives. To revitalize the society and the economy he:

— Has launched a thorough-going turnover of party and govern-ment officials designed to consolidate his political power andprepare the ground for his ambitious policy agenda.

— Intends to revamp the main institutions of the Stalinist system.He wants to create a "halfway house" that preserves theessential features of the Leninist system (the primacy of theCommunist Party and strategic control of the main directions ofthe economy), while grafting onto it approaches not seen in theUSSR since the 1920s—a political atmosphere more tolerant ofdiversity and debate, a less repressive environment for Sovietcitizens, an expanded role for market forces in the economy,and a dose of economic competition.

On the national security front, Gorbachev adheres to traditionalobjectives: first and foremost enhancing the security of the Soviethomeland; expanding Soviet influence worldwide; and advancing Com-munism at the expense of capitalism around the globe. In order topursue these goals more effectively, however, and to create thenecessary conditions for his ambitious internal agenda, we believeGorbachev wants to introduce potentially profound changes in Sovietstrategy and tactics in the international arena. He believes that a morepragmatic approach to ideology, a more flexible and accommodatingdiplomacy toward the West, the Communist Bloc, China, and the ThirdWorld, and a corresponding deemphasis on military intimidation as aninstrument of foreign policy will help him achieve his objectives.Specifically, we believe he wants to:

— Constrain the growth of defense spending—and perhaps even toreduce spending somewhat—in order to concentrate resources

3• :".ECRET

SECRET

on the task of rebuilding the economy, im proving Soviettechnological competitiveness, and ensuring Moscow's ability tofulfill military requirements over the long haul.'

— Sustain a vigorous di plomatic effort to reduce East-West ten-sions in order to restrict the momentum of US arms programsand especially the Strategic Defense Initiative, which, besides itsstrategic implications, could impact adversely on his plans tocontrol defense spending.

— Move beyond past Soviet positions on arms control to achieve hisdomestic and foreign objectives. He will not accept steps thatreverse the relative gains Moscow has made, but he may bewilling to trade some military advantages for commensuratemilitary or political gains.

— Exploit the favorable image created by change at home andnew flexibility abroad to undercut foreign perceptions of aSoviet threat and better advance Moscow's influence abroad bypolitical means.

Can Ile Do It? Historically, change of this magnitude in Russiaand the Soviet Union has been successfully imposed only by extremelyautocratic leaders. Gorbachev does not have and is not likely to acquiresuch power. He faces a protracted struggle against long odds to bring hiscolleagues in the Politburo oligarchy along with him.

Gorbachev has succeeded in selling the notion that a muddling-through mentality must be discarded if the Soviet system is to remaincompetitive. But there are dear differences even within_Corbacheescoalition over how much change is needed and how fast it shouldcome.

He can count on close colleagues such as Party SecretaryYakovlev, Foreign Minister Shevardnadze, and Premier Ryzh-kov—as well as reform-minded elements within the elite as awhole—to back his program. But others, such as -SecondSecretary" Lika.chev and KGB Chairman Chebrikov, representforces within the ruling elite who want to slow the pace ofchange and emphasize more traditional approaches. Betweenthese two poles remain others whose preferences vary from oneissue to another, making formation of a consensus on the agendaa day-to-day battle.

— Progress will be uneven at best and reverses along the way areprobable. While Gorbachev has scored some remarkable sue-

The Director, Defense Intelligence Agency, believes that Gorbachev will not be in a position tomake an overall reduction in defense spending during the period of this Estimate.

4:SECRET

cesses, the struggle in the Politburo over the pace of change inthe country has lately become more intense. The cautious toneof Gorbachev's speech to the October Revolution anniversarycelebrations and the removal of Boris Yeltsin as Moscow partychief indicate that for now Gorbachev has been forced totemper his call for change. He will be under pressure to find away to impart new momentum to his reform agenda in themonths ahead.

Beyond the battle in the Kremlin, Gorbachev will have to traversea variety of other shoals that could block his path and ultimately sinkhim as well as his agenda:

— Other than overt political opposition, Gorbachev's greatestobstacle may be sheer inertia. Centuries of centralized decision-making have produced a society used to avoiding initiative andnot sure how to assume it.

— His effort to encourage a degree of spontaneity in the politicalsystem promises a protracted period of heightened politicaltensions that will test the limits of party control.

— There is a risk that some of the reforms will set loose centrifugalforces in the Soviet empire, triggering unrest among nationalminorities or other disgruntled social groups. We see littlechance of nationality unrest sufficiently serious to threaten theregime, but a good chance of tensions that cast doubt onGorbachev's program and slom', the pace of change.

— We believe there is an even greater chance that reform inMoscow will add to the potential for instability in EasternEurope, forcing the USSR to crack down once more, andproducing pressures for retrenchment at home.

— Efforts to undertake a radical reform of economic planning andmanagement over the next several years may disrupt economicperformance and fuel doubts in the leadership and the societyabout the viability of Gorbachev's program. It is by no meanscertain that the returns will be sufficiently impressive to allowhim to continue with his long-term program.

— Failure to effectively manage relations with the West could alsocomplicate Gorbachev's position, giving support to those whooppose his more flexible diplomacy and his national securitypolicies.

We judge that his removal is very unlikely for at least the next two tothree years. But, given the risks inherent in his program, Gorbachev willremain vulnerable to a political challenge despite the further progresswe expect him to make in moving more supporters into the leadership.

5

f.:E CRC T

His political survival will de pend on a combination of political skill,effective management of the difficulties reform will inevitably cause,and luck.

The USSR in the 1990s. We believe that current political andeconomic conditions in the Soviet Union have created an environmentin which substantial change is possible over the next decade. Given theobstacles, the likely ebbs and flows of the reform process, and thesusceptibility of the outcome to unforeseen events, we cannot predictwith confidence how much change will occur:

— We believe the most likely outcome is a rejuvenation of theexisting system. In this scenario we would see a continuation ofthe less controversial elements of Gorbachev's program: morecompetent leadership, a priority for industrial modernization,increased emphasis on discipline and anticorruption, im plemen-tation of limited reforms, and a more adroit foreign policy.There would, however, be no substantial expansion of theboundaries of political debate or the role of market forces in theeconomy. This scenario would bring important changes to somesectors of Soviet political and economic life, but we do notbelieve it would produce the decisive improvements in Mos-cow's competitive position that Gorbachev seeks.

— Given the obstacles, the chances that Gorbachev will succeed ingoing beyond rejuvenation to implement what we call systemicreform are small (perhaps less than one in three). Nevertheless,given what we believe to be the potentially significant conse-quences, . we assess in detaii_whAt such fundam_ental changescould look like and how we would detect progress in thisdirection. In this scenario the party's controlling role wouldremain unquestioned. But Soviet authorities would condone ameasure of political diversity and dissent and expanded partici-pation at the lower levels of the system. The economy would befar more responsive to market forces, mainly in the consumerand agricultural sectors. Such changes are largely unchartedwater for any Communist system and would be inherently risky.The process of implementing such reforms could be severelydisruptive in the near term, producing political tensions, height-ened nationality frictions, and dislocations in the economy. As inCzechoslovakia and to some extent China, these problems couldbecome serious enough to threaten the reform process itself. Butif the regime managed to successfully negotiate these shoals, webelieve that by the end of the century this scenario could beginto produce some progress toward the ambitious economic andsocial goals Gorbachev has set.

6SECRET

SECRET

— Even less likely than successful s ystemic reform, in our view, is areturn to a more authoritarian neo-Stalinism scenario thatwould feature recentralization rather than decentralization ofpolitical and economic decision making. There remains acertain reservoir of support in the elite and society for such acourse, and its prospects could increase if Gorbadwv's effort topush for fundamental reform fails dramatically, triggeringsignificant unrest at home or in Eastern Europe or severedisruptions in the economy.,But we believe the odds will remainremote.

— At the other end of the spectrum, we believe the odds of a turntoward democratic socialism, featuring a more radical push fora market economy and a pluralistic society than systemicreform, will remain virtually nil under any circumstances.

We believe Gorbachev will press ahead persistently with theimplementation of his program, making tactical adjustments andaccepting delays when necessary. As long as he stays at the helm, we be-lieve the prospect of significant progress toward systemic reformremains. If he dies in office or is removed, we believe the odds that theleadership will stop short of fundamental change increase substantially.

How Will We Know? We believe that progress toward trulyfundamental change—the scenario we call systemic reform—can bemeasured by the extent to which:

— The proportion of enterprise output dictated by centraltries declines substantially.

— The regime follows up on its promise to deregulate prices by al-lowing enterprises to engage freely in buying and selling atnegotiated prices any production beyond that allotted to thestate.

— We see a growing role for private entrepeneurs and cooperativeenterprises operating relatively independently of the state.

— Glasnost—the more open debate of problems and unorthodoxideas—continues to expand into new areas and is effectivelyinstitutionalized.

Failure to see continuing movement along these fronts—not tomention retreat—would be a sure sign that the push for reform was introuble.

Implications for the West. Given its superpower ambitions,military power, and ideological predilections, the USSR will remain theWest's principal adversary whether or not Gorbachev is successful in

7f.CCRET

rejuvenating the system or introducing systemic reforms. But we believethe impact on Western interests and on the nature of the Sovietchallenge would differ in important respects.

Rejuvenation of the Existing System. In this scenario, the natureof the Soviet challenge to Western interests would not significantlychange. While the USSR would remain a formidable military threat, wedo not believe the expected modest improvements in economic perfor-mance would give Moscow the wherewithal to significantly improve itsability to compete with the West in the economic and military arenasover the longer term. We would continue to see a more adroit foreignpolicy, but conservative pressures forcing a retreat at home would alsobe likely to limit bold innovations in diplomacy, undercutting theSoviets' efforts to improve the image of their intentions and lesseningthe political challenge to Western interests.

At the same time, rejuvenation would be likely to bring lesschange in traditional Soviet policies and institutions than systemicreform.

— We would expect little change in internal repression or in theboundaries of political dissent.

The military establishment would be better insulated fromchange than under a systemic reform scenario. The intrusion ofglasnost into militar y affairs would be sharply limited. Theeconomy would generate sufficient resources to fund growth inmilitary programs, albeit not without forcing the leadership tomake difficult choices that could undermine the effort toincrease investment in the economy_or provide improvements inthe standard of living.

— In the Third World we believe the Soviets would continue torely on military power as their primary means of influence. Wewould see little change in the nature of East-West competitionin the region.

— Traditional approaches to East-West issues would remain large-ly intact. We would be less likely to see major departures inarms control diplomacy or negotiations leading to significantreductions in Soviet conventional or strategic forces than undera systemic reform scenario. Soviet economic ties to the Westcould expand somewhat in this scenario, but there would be nosignificant change in the barriers that seal off the Sovieteconomy from the world market.

Systemic Reform. The impact of this scenario on Soviet capabili-ties, policies, and behavior could be much more substantial, and wehave therefore examined its implications for the West in considerable

CCRET

8;;CCRCT

SECRET

detail. We believe this scenario would pose new threats as well asopportunities.

On the one hand, expected technological and productivity gainswould enhance the Soviets' long-run competitive position and broadenthe base of the challenge to the West:

— Given the slow rate at which we expect change to occur, we be-lieve that successful systemic reform would produce onlymodest improvements in Moscow's ability to compete in theeconomic arena in this century. Although we do not believe theSoviets would make much progress in improving their ability toinnovate and assimilate advanced technologies, Soviet defenseindustries would nevertheless benefit more than under anyother scenario and the military competition would continue.

— The political challenge could grow substantially. Overturningimportant features of the Stalinist system—systemic change—would provide a more credible backdrop for Soviet diplomacyand propaganda than a rejuvenation scenario alone could offer,forcing the United States and the West to reexamine traditionalstrategies for containing Soviet influence. Relations %%•ithin theNATO Alliance would be complicated as shifting perceptions ofSoviet intentions weaken the glue that has held its memberstogether.

On the other hand, we believe changes in Soviet policies and institutionsin this scenario would also open up new opportunities for Westerndiplomacy:

— The more open political climate would make it easier for theWest to get its message across directly to a wider cross section ofthe elite and the population.

— The ultimate direction of defense spending in this scenario willdepend on leadership's future decisions on weapon programs aswell as on factors—such as the state of the East-West relation-ship—not completely within their control. Soviet leaders wouldfund a robust military R&D program and push ahead tomodernize their strategic and conventional forces. But theywould have an incentive to constrain the growth of defensespending through the 1990s.'

Soviet leaders certainly would not end the East-West competi-tion, accept an inferior strategic position, or draw back from

The Director, Defense Intelligence Agency, believes that under the systemic reform scenarioimprovements in economic performan re would be likely to provide enough resources by the late 1990s formililary expenditures to grow without the constraints likely ,:uring the next five-year igen.

9;;CCRET

CCCRET

pursuit of a global superpower status. But we believe systemicreform would be more likely than rejuvenation to createconditions for meaningful arms control ne gotiations, leading topotentially sizable reductions in Soviet conventional and strate-gic forces opposite NATO and China. There could be significantchanges in Moscow's foreign economic strategy, including more -rapid development of trade with the West.

— While there would be no retreat from Moscow's determinationto expand its influence in the Third World, we believe areform leadership would place more emphasis on political anddiplomatic approaches to regional issues and in some areas, suchas the Middle East, pursue more cooperative approaches as theyseek to expand their political role and legitimize their presence.

— We believe systemic reform in the USSR would be contagiousin the Eastern Bloc, producing a measure of increased plural-ism, more indigenous approaches to political and economicreform, and new opportunities for US diplomacy.

The Impact of US Policy. We believe that the fate of reform willbe sensitive to the state of East-West relations. The proponents ofreforms that attempt to introduce market forces and political diversityinto the Soviet system are more likely to be able to advance their causein a climate of reduced tensions. We also believe that Gorbachev's effortto direct a larger proportion of resources into industrial modernizationdepends in part on his ability to mabage perceptions of the foreignthreat, and hence on his ability to achieve arms control arrangementsthat constrain Western defense programs., .

— While the push for reform is not immune to outside influence,we cannot confidently predict the impact in Moscow of West-ern policies specifically designed to affect the process.

We believe Gorbachev's success, and the fate of reform, will largely reston the outcome of power struggles, political debates, and economic andsocial developments inside the USSR and Eastern Europe that aresubject only indirectly to influence from outside.

Alternative View

The Director of NSA holds a different view on the generalinterpretation of Gorbachev's -vision" and the primary purposes of hisdomestic policies. Gorbachev has staked his future not on revitalizationof Soviet society, but on revitalization of the party and its ability toovercome localism and deviant behavior vis-a-vis central control,behavior that became so widespread during Brezhnev's rule. Thisrevitalization of thc party actually began with Andropov, and the

10

CECRET

ECRET

stimulation for it may have come as much from the decay of party con-trol in Poland as from concern about modernity in the Soviet economy.Such a decay in the USSR would probably bring the prospect of majordisorders and serious questions about the ability of the regime tosurvive. Glasnost and perestroika (restructuring), ostensibly aimed at aneconomic and social revitalization, are primarily instruments devised byGorbachev to weld a coalition of intelligentsia that can break partyresistance to an administrative purge and the restoration of strongLeninist standards of democratic centralism. Put in the historicalcontext of previous reforms in the USSR and Eastern Europe, Corba-chetis economic and social reforms do not appear to be the primaryaim. Rather, they seem to be the "means" for a de facto party andstate purge, the traditional vehicle for restoring the party's vitality.

Certainly, he would like improved economic performance, but thatis less critical than improved political control. Historically, economicreforms both in the USSR and the Warsaw Pact states have been linkedto leadership struggles and purges. The correlation in this regard isperfect. Such reforms only occasionally have coincided with pooreconomic performance, and just as often their result has not beeneconomic improvement. Moreover, the Gorbachev reforms, as they canbe inferred from laws and decrees, are hardly -bold- in comparisonwith reforms and policy actions during the Khrushchev years. They donot, therefore, as the text asserts, Thave the potential to produce themost significant changes in Soviet policies and institutions sinceStalin's forced regimentation of the country in the late 1920s." On thecontrary, the actions inspired thus far by glasnost and perestroika arerather modest when compared with those of the 1956-62 period in theUSSR.

Concerning future scenarios, "rejuvenation," as it is described inthe text, amounts to a traditional party and state purge of cadres,greater cadre discipline, and a reduction of localism and deviantbehavior by officials. "Neo-Stalinism" is a better name for this scenario."Systemic reform," in order to have meaning, needs specific definition,economic and political. If it does not include a fundamental shift tomarket pricing in the majority of the economy's activities, particularlyin the industrial sectors, it can hardly be called "systemic." There is nosign of such an intention in either the recent new laws on the economyor in Gorbachev's pronouncements on his "vision" of the future. A"systemic" shift of the locus of political power through law or electionswould destroy the centralization of political power Gorbachev needs tocarry through any kind of reform. This scenario, therefore, is mostunlikely.

11:XCRET

CCRCT

"Democratic socialism" is no scenario for change. The -socialdemocratic" parties of Western Europe rule over market economies, notsocialist economies. In the logical sense of -democratic socialism,"Lenin and the Third International inherited the banner of -democraticsocialism,." not the Western parties of the Second International. Stalinput substance under the banner by state control of virtually all propertyand capital. The text's use of the term "democratic socialism," there-fore, is confusing.

As an alternative answer to the NIE question, "whither Gorba-chev," there are two conceivable scenarios. First, he will succeed inpurging the party, and in the process he will unleash many social forceswhich he will later have to bring back under control through KGB andparty means. This is the best possible outcome for Gorbachev, and itmay or may not be accompanied by moderate economic improvements.Second, he will fail in his effort to revitalize, or purge, the party andgovernment ranks. He may be overthrown as he fails or he maycompromise sufficiently to survive as the leader of a new era of"Brezhnevism," that is, internal immobilism coupled with externalmobilism. The latter seems the most probable.

The first scenario would strengthen the Soviet political system,although it could easily lead to major disorders in Eastern Europe as theSoviet political struggle is mirrored there. The second scenario shouldcreate a stable but slightly weakened political system. In both scenarios,Soviet external policy is likely to remain mobile, more adept andflexible than in the latter Brezhnev years, and a greater challenge to USinterests both in the Third World and in the advanced industrial statesof gus rope- and East Asia.

125CCRCT

DISCUSSION

the Soviet population are important goals for Gorba-chev. But we believe he is driven in particular by adetermination to create a system which can innovatemore successfully and produce advanced technologymore efficiently than the Soviets have ever been ableto accomplish.

What Gorbachev Wants

1. By Gorbachev's own admission, the USSR isconfronting a systemic crisis. The failure of his prede-cessors to grapple effectively with growing decay athome and declining credibility abroad have under-mined the credibility of the Soviet model, leadingforeigners as well as the domestic population to doubtthat the system is capable of meaningful Improve-ment. Gorbachev and his allies have made clear thatthey see the party's leading role, the USSR's super-power status, and the future of the Communist systemat stake.

2. Gorbachev's effort to engineer a decisive im-provement in Soviet performance is driven both bydomestic and international considerations. At home,he believes economic stagnation and societal malaisehave potentially dangerous consequences for the sta-bility of the system. Internationally, Gorbachev sees agrowing threat to the Soviet Union's long-term com-petitive position. He believes that Moscow's decliningeconomic position vis-a-vis the West (see figure 1)could ultimately undermine the global gains thatMoscow has achieved over the last two decadesthrough a steady military buildup. He is committed toimproving Moscow's abilities to compete with theWest, while convinced of the decisive importance ofeconomic power and political factors in achieving thatobjective; he is less inclined than his predecessors tomeasure Moscow's progress in primarily militaryterms.

3. Last year Gorbachev told a gathering of theforeign mizlistry ate that -economics is the decidingfactor, the field of action where we face our enemies.-He sees economic revival as a means for achieving notonly the USSR's domestic but also its national securityobjectives. In the view of the current Soviet leadership,the ability of the USSR to compete militarily with theWest will depend increasingly on its ability to stayabreast of the global technological revolution. Gorba-chev believes that the Soviet economy's inability toinnovate poses an increasingly grave threat to its globalPosition and, ultimately, to the military gains theUSSR has made over the last two decades. Highergrowth rates and an increased standard of living for

How He Plans To Get It

4. Gorbachev stands out clearly from his predeces-sors in his willingness to adopt unorthodox methods toachieve his objectives. He is determined to proceedand impatient with rigid interpretations of traditionalIdeology or precedents that may stand in the way. (Seeannex B, "Gorbachev as a Leader.")

5. The new leadership inherited a system that,despite tampering by both Khrusliche y and Brezhnev,closely resembled the essential political and economicInstitutions that Stalin forged in the late 1920s and1930s. While Gorbachev came into office with anagenda for change, it was by no means clear at first,that his intentions or impact would be any different:

— On the political front, Gorbachev's first yearfeatured an emphasis on cadre renewal, while hissocial policies featured an attack on corruption,alcohol abuse, and workplace indiscipline.

— His greatest energies on the economic front wentinto manipulation of traditional policy instru-ments such as resource allocation. He engineereda sharp Jump in funding for retooling the USSR'santiquated industrial base.

6. These policies address real problems in the Sovietsystem and were long overdue. Some have already hada positive impact on economic performance, and webelieve they will remain central tenets of the newleadership's approach. But Gorbachev and his spokes-men have been increasingly frank in expressing theirview that such measures won't be enough. Their visionof the remedies that will be necessary has grownincreasingly radical as they have come face to facewith the challenge of reforming a system that repelsreform. In our judgment Gorbachev and his allies arenow well aware that if they hope to achieve theirobjectives they must make fundamental change's inthe Stalinist system that they inherited.

13SECRET

Billion US 1986 $

Ia. US and Soviet GNP, 196046 Lb. Technological Development:Stock of Large Computers •Thousand computers at jwar end

4.500 400

1960 61 62 63 64 65 66 67 6S 69 70 71 72 73 74 73 76 77 711 79 SO 81 82 83 84 SS 86

Figure 1USSR—US: Comparative Levels of Economic Development

Note scale change

En USSRIN Western EtuopeEl us

'Large computers include all general-purpose machines larger than miaccomputets.b Estimated.

During the rest of the 1980s and well beyond,the domestic affairs of the USSR will be domi-nated by the efforts of the regime to grapplewith these manifold problems, which will alsohave an influence on Soviet foreign and nation-al security behavior.

NIE 11-18-85, assessing the inter-nal maladies facing the Gorbachevregime

Gorbachev's Vision

7. Gorbachev has no carefully drawn master planfor the system he wants to create. His vision of changewill continue to evolve if—as we believe—the reme-dies they are now putting in place fail to achieve thenew leadership's ambitious objectives. But the generaldirection is clear.

8. By his own admission, Gorbachev believes thatexcessive centralization, by stifling individual initiative,lies at the heart of his problem. He wants to remove thedead hand of bureaucracy and decentralize sufficientoperational authority to regional officials, local econom-ic enterprises, and Individual citizens to fuel a burst ofinitiative and creativity. To do this he is prepared toattack aspects of the system that Soviet citizens andforeigners alike have come to identify as its essentialfeatures—a political culture that demands conformityand denies diversity, an economy that ensures control atthe expense of innovation, and a social contract with theSoviet citizen that offers security and stability at theexpense of dynamism and efficiency.'

'Ironically, Gotimehev must reassert central control over region-al institutions of the patty and state apparatus—which won increas-ing autonomy under Brezhnev—in order to effectivel y implementhis plans for decentralization of operational authority.'

14

SCCRCT

SECRET

9. Gorbachev and his colleagues claim that whatthey want to do is -reveal the full potential ofsocialism--a posture dictated by political necessity.But they understand and appreciate some benefits ofWestern-style systems—especially their ability to nur-ture individual initiative, innovation, and efficiency.In pursuit of those benefits this leadership wants tocreate a -halfway house" that would preserve theprimacy of the Communist Party and strategic con-trol of the main directions of the economy, whileadopting a political and bureaucratic environmentmore tolerant of political and policy debate, marketforces in the economy, competition among economicenterprises and individual citizens, checks on thepower of central authorities, and expanded rights forindividuals. In some respects, Gorbachev wants toreject Stalinism in favor of Leninism.

It is notable that all current proposals drawinspiration from Western practice or from'market socialism.' The direction of currentthought suggests that the Soviets, like the EastEuropeans before them, are perceiving the limi-tations of Communist doctrine as applied to amodern economy and that, at least in this field,they recognize the need for change.

NIE 11-5-65, assessing the Brezh-nev regime's economic vision in itsfirst months

10. Accomplishments. Gorbachev has made astrong start on implementing this ambitious vision forchange:

— His bold political and economic Initiatives andradical rhetoric have thoroughly shaken Sovietelites and disrupted the status (1110. He hassucceeded in moving further and faster to con-solidate power and articulate a new policy agen-da than virtually any foreign or Soviet observerwould have anticipated in the spring of 1985. In30 months, Gorbachev has gone a long waytoward challenging the viability of the StalinistPolitical and economic institutions and creating aclimate more hospitable to significant structuralchange.

— But Gorbachev is still only at the beginning of along process: due to political opposition and thecomplexity of the issues, the regime's actualreform initiatives have been carefully circum-scribed to ensure that they do not depart tooboldly from existing approaches. The ultimatefate of Gorbachev's radical agenda—articulatedmost clearly in his speeches at the January and

There is no democracy without openness. Atthe same time, democracy without limits meansanarchy.

Gorbachev, speaking to a group ofSoviet writers in June 1986

12. Ideology. Gorbachev is frustrated with thestraightjacket of inherited doctrine that o pponents of

.change have.sought..to inclose on him. He seeks to.expandhis maneuvering room by increasingly attack-ing the directions of theoretical thought in the SovietUnion in the last 50 years and by depicting his ownproposals as an effort to return to Lenin's originalintent. The effort by Gorbachev and some of his alliesto invoke the spirit of Lenin's so-called New EconomicPolicy (NEP) (an era in which the new Soviet regimescaled back its early pretensions to domination of thecountry's political, economic, and cultural life) aims tolegitimize their policies and break with those inheritedfrom Stalin and his successors. (See annex C, "Gorba-chev and Ideology.")

13. Glasnost. Tight controls over the flow of ideasand information are central to the Soviet system. Thetraditional penchant for secrecy has stifled debate,establishing the party as the sole dispenser of truth andcreating an environment in which winners of politicalarguments have anathematized the losers and soughtto rewrite history to conform to their . views. C

June 1987 plenums—will depend on how suc-cessful he is in pushing ahead with its imple-mentation over the next decade.

The Political System

11. Gorbachev's plans for the political system re-main less well defined than his economic agenda. Buthe and his colleagues have shown a growing convictionthat the revitalization of society and the economy thatthey want to achieve can succeed only if there aresignificant changes in the political arena as well. Theyare trying to pull back the tentacles of state control toencourage a controlled expansion of local initiativeand participation in political institutions. They want tomove far enough to undercut popular cynicism aboutthe leadership and enhance the credibility of the Partyapparatus, but not so far as to threaten a loss ofcontrol. The regime appears to be moving on at leastthree fronts to create the new political climate it seeks:introducing a more flexible a pproach to ideology,easing traditional controls on public debate aboutsensitive issues, and restructuring political institutions.

15

Z;ECRET

lindicates that the new leadershipbelieves that the tritional approach is incompatible

. with an increasingl y well-educated society, complexeconomy, and the political needs of the moment.

14. Gorbachev's campaign for glasnost (openness)began as an expose of past failures and abuses, a meansfor enhancing the regime's credibility at home andabroad, and a powerful instrument for pressuring andpurging officials resisting his reform program. Butglasnost has begun to take on a more fundamentaldimension as Gorbachev's assessment of the scope ofthe problem he faces has grown. Gorbachev and hisassociates' recent statements suggest they see glasnostas an essential clement of their reform program, aconcept designed to rationalize an expansion of theboundaries of legitimate public debate of controversialissues:

— Glasnost is not a new conce pt. Lenin and Stalinendorsed it in a more limited context. Morerecentl y , the need for glasnost in the discussion ofSoviet problems predated Gorbachev's rise topower in March 1985. But Gorbachev has takenthe concept much further, making it the center-piece of his drive for change. For Gorbachev,glasnost is a necessary step to achieve his longerrange goals.

— The regime does not intend to allow a freepress—they will place limits on how far glasnostwill be allowed to proceed. But just where thoselimits are to be drawn is not yet clear, and fornow the boundaries on public debate are con-tinuing to expand, to the predictable and increas-ingly public dismay of some conservative ele-ments in the leadership and the society.

It is necessary to master a democratic way ofthinking and acting, making it possible to treatpeople holding a different viewpoint as worthyopponents, as mterested allies in the strugglefor restructuring.

Politburo member Alelcsandr Ya-kovlev, speaking to a plenum ofthe Taiikistan party Central Com-mittee

15. Democratization. Gorbachev's campaign for"democratization" is designed to revitalize—not re-place—the country's political institutions. By movingto sanction multiple candidates for local and regionalelections in the part y and state apparatus, and requir-ing secret ballots, Gorbachev hopes to dislodge conser-vative officials who are resisting his reforms. But these

The Role of the Party in Gorbachev's Reforms

I listen to you yet I can't understand: Do youreally reflect the line? Do people in Moscowreally think like this? Self-management, you say,and independence—what are we (local partychiefs) going to do then?

A veteran party leader speaking to aproponent of Gorbachev's reforms(from an imaginary dialogue Publishedin the Soviet weekly Literary Gazettein October 1986 by Journalist FedorBurlatskiy)

The traditional role of the party apparatus in theSoviet system 1ll be Profoundly effected if Gorbachevis successful in implementing the reforms he has pro-posed. The functions from which local party leadershave traditionally drawn their power will be redefinedand redistributed:

— Multicandidate elections and an ex pansion ofgrassroots participation in local party organiza-tions will dilute their ability to control personnelappointments.

— An environment of more open political commen-tary and public debate will restrict their ability tocontrol who should be criticized by the Sovietmedia, and will bring their own record under'greater scrutiny.

— The emphasis on the independence of local enter-' prises and an expanded role for market forces will

reduce the decisive role the natty has Playedhistorically in local and regional economic man-agement.

Gorbachev has yet to lay out in any definitive waythe role he expects the apparatus to play in the newsystem he is attempting to create. Judging from some ofhis own comments as well as those of prominentreformers, Gorbachev evidently expects the party tomove away from Its extensive involvement in day-to-day management to a greater emphasis on broad strate-gic guidance—overseeing the implementation of Mos-cow's policies and serving as the eyes and ears of thecentral leadership. This view is not new but its seriouspursuit would force the party a pparatus into a verydifferent political environment.

Most veteran party leaders are ill-equipped by train-ing or experience to perform in such a role. Many haveresponded with skepticism and resistance. Gorbachevfaces a protracted struggle to overcome that resistanceand transform the party into an effective instrument formanaging the revitalized society that he seeks.

measures are also intended to sanction a measure of •diversity and debate in order to give Soviet citizens

"LECRET

and the party rank and file a sense of greater partici-pation in and commitment to the political system.Even though carefully controlled by Moscow (theparty can still manipulate the nomination process)effective implementation of multicandidate electionsin the party apparatus could have a major impact,weakening the ability of regional party chiefs tocontrol personnel appointments and the politicalagenda.

16. Human Rights. We do not believe Gorbachevvalues the expansion of the boundaries of individualexpression as a goal in its own right In our view,however, he recognizes that more freedom to questionauthority, more tolerance of open dissent, better pro-tection against arbitrary justice, and relaxed restraintson travel, among others, are necessary to achieve arevitalized society. He wants to bring dissenters intothe political debate, adding their criticisms to the clashof ideas that he hopes will produce a new consensus.He is less concerned than his predecessors about thethreat of political instability created by a relaxation ofstrictures in this area.

17. Gorbachev appreciates the international impactof the apparent relaxation of internal repression. For-eign policy considerations played an important role inthe initiatives to resolve divided family cases, releasesome political prisoners, and allow a modest expansionof emigration. Some of these gestures also respond todomestic imperatives, such as building su pport withinthe intelligentsia, that are critical to his success. Weexpect the Gorbachev regime's performance on hu-man rights to continue to fall far short of Westernconcepts of individual liberties. But our reportingindicates that more significant steps are on the way toadjust the Soviet legal code and ease some of the morerepressive aspects of the system.

18. Accomplishments. Glasnost is Gorbachev'smost substantial accomplishment so far; only here doactions match his radical rhetoric. Glasnost alreadygoes well beyond anything attempted since the rela-tively open debate of the first years of the Sovietregime. Senior leaders are still immune from criticism,and many issues (such as the party's leading role)remain off limits. But Gorbachev's glasnost has al-ready moved into areas—such as social policy andinternational affairs—that remained untouched un-der previous leaders. The spread of glasnost has gone along way toward creating the conditions for morefundamental changes in the economic and social sys-tem in the years ahead. Glasnost remains at risk toconservative elements in Soviet society, represented byleaders such as "Second Secretary" Ligachev and KGB

Chief Chebrikov, who fear disorder more than repres-sion. But we judge that its impact at home and abroadhas been sufficiently dramatic that any attempt toreturn to the status quo ante will be politically costly.

19. Glasnost aside, Gorbachev's accomplishmentson the political front are modest. Adjustments to thelegal code have provided new channels for citizens tolodge protests against abuses of power by local authori-ties. But secret-ballot, multiple-candidate elections forregional party and state offices and other potentiallyradical political reforms aired at the January 1987plenum are so far being tried only on an experimentalbasis. It remains unclear just how much control overthe process central authorities are prepared to relin-quish. While there have been some gestures on thehuman rights front (Sakharov's release, modest im-provement in emigration trends, and rumors of moresubstantial measures) (see figure 2) the legal frame-work that provides the basis for repression of politicaldissent remains so far largely untouched.

The Economy

20. Gorbachev's major challenge is to create aneconomic system that can generate progress throughtechnological change, more efficient use of resources,and individual initiative. The leadership's strategy hasthree key elements: 1) placement of better managersand enforcement of greater work discipline at alllevels ((lie -human factors- campaign), 2) substantialnew investments in the civilian machine-building sec-tor and a new quality-control bureaucracy designed toaccelerate modernization of the USSR's productionbase, and 3) fundamental reform of the economy'splanning and management mechanisms.

21. The first two elements represent changes ineconomic policy that Soviet and Western economistsalike believe are long overdue. Success in these effortswill be critical to Gorbachev's goals of acceleratingeconomic growth and improving the quality of pro-duction. They are necessary but not sufficient condi-tions for achieving his objectives. Gorbachev agreeswith Western economists who judge that the lastinggains in productivity, efficiency, and the pace oftechnological change he seeks will demand a compre-hensive reform of the planning and managementmechanism as well.

Pulling our economy out of the precrisissituation in which it has found itself dictatesthe need for profound and genuinely revolu-tionary transformations.

Gorbachev at the June 1987 pie-num

17SECRET

SECRET

Figure 2Emigration From the USSR

Note scale change

Jews

GermansArmenians

1972-87Thousands departing60

'For Jews, figure shows number departing from Januarythrough October. For Germans and Armenians. data are forJanuary through September. German figure is estimated.

1987Number departing

1,600

1.400

I.200

1.000

800

600

400

200LL- 1 1[11111.1 FM A M J Jb Abs Shs 0Month

b Because of US Embassy personnel constraints, number ofArmenians processed each month beginning in July for exit tothe United States is considerably lower than the numberreceiving exit permission from the SovisGovernment.'Estimated.

22. Like Brezhnev and others before him, Gorba-chev knows that to decentralize the system he mustreorient central ministries toward strategic planningand overall guidance of the main directions of theeconomy, and shift to local authorities and individualenterprises more responsibility for running their ownaffairs. Where Gorbachev and his associates stand outfrom their predecessors is in their approach to achiev-ing this objective. They are more aware of the com-prehensive scope of change that will be required inpolitical and social as well as economic institutions,and more determined to push change upon the system,despite the economic obstacles and political resistancethey are certain to face.

If ... opportunity emerges for realizing in-come not through Moscow, not by means ofbowing and scraping to the highest bodies, but

In the market, freely, easily, and quietly, moneywill once again begin to turn into somethingweighty, significant, highly desirable.

Soviet economist tlikolay Shnzelev,writing in the June 1987 issue ofNooiy Mir (New World)

23. We believe that Gorbachev and his closestadvisers appreciate that moving from "administrative"(detailed planned targets) to "economic" (manipula-tion of pricing, financing, and credit) methods will infact require the introduction of market forces (supplyand demand) as a more decisive guiding ingredient inthe economy. Gorbachev and his lieutenants havesignaled their intentions in this regard by increasingly,favorable references to the NEP; the need for a new,more flexible price-setting mechanism; the benefits of

18SECR6T

Lenin's New Economic Policy

People--euen those who were dedicated to ourcause—did not immediately comprehend the newconditions, the new tads, the need for new ap-proaches... during the NEP period, when Vladi-mir Ihich Lenin had to make great efforts to proveboth the need for a new economic policy and thefact that it was not a return to capitalism, but ameans of transition to socialist construction ....We can, and must, make use of Lenin's lessons inorganizing the restructuring we have started.

Gorbachev 1986 speech to Krasnodarparty officials

The New Economic Policy (1921-28) was an earlier,largely successful, attempt to establish a mixed econo-my. Under War Communism (1917-21), the govern-ment had nationalized all industry and instituted grainrequisitioning in the countryside. By 1920, the excessesof War Communism and the ravages of a four-yearCivil War had taken their toll: peasants produced atsubsistence levels, starvation was pervasive, scores ofindustries closed, consumer trade was reduced to barter,and political discontent intensified. The NEP injected avariety of market mechanisms into the collapsing com-manded economy:

— Introducing an agricultural tax-in-kind where in-dividual peasants were free to market their ownproduction after paying the tax.

— Allowing many light Industries to engage in pri-vate trade and control their own production, withlimited supervision from regional organs.

— Legalizing private business by individuals andcooperatives in the consumer sector, selling alimited number of small factories to private entre-preneurs, and tolerating, until the mid-1920s, pri-vate traders known as NEPmen.

In 1921, Lenin publicly justified the NErs -petty-bourgeois- policies as a means of forging an alliancebetween the peasant and factory workers. But manyParty conservatives opposed the NEP as a "capitalistic"retreat from War Communism's socialist policies.

By injecting market mechanisms into the collapsingeconomy, the NEP spurred economic growth. UnderWar Communism, agricultural production had droppedto approximately two-thirds of 1913 levels and industri-al output had fallen to one-fifth of 1913 levels, afterseven years of NEP both agricultural and industrialproduction had surpassed their pre-war levels, accord-ing to official Soviet statistics.

The recovering economy suffered from inflation andhigh unemployment, however, triggering governmentIntervention and fueling a debate over the advisabilityof continuing the reform. The debate over NEP escalat-ed after Lenin's death in 1924, with some leaders(Nikolay Bukharin) pushing for an extension of NEPpolicies and others (Trotsky's Left Opposition) pressinginstead for an end to NEP and a shift to forced-paceIndustrialization. Stalin used the debate to consolidatepower, and then abandoned NEP policies in favor ofrapid industrialization and collectivization,

limited competition among individuals and enter-prises; and (in Gorbachev's terms) the goal of forging a"harmonious combination of the plan and the mar-ket."

24. The Industrial Sector. The results of the June1987 Central Committee Plenum are the clearestindication yet that Gorbachev is determined to pro-ceed with a radical overhaul of the command econo-my. Ttte blueprint for reform approved by the plenumindicates that Gorbachev has now gained approval fora shift from piecemeal approaches to a comprehen-sive, integrated economic reform program. The blue-print is evidently the result of a compromise betweenthose who want to move now to significantl y decen-tralize economic decision making and those who wantto move more cautiously. It does not by itself go farenough in restricting the role of central institutionsto constitute a decisive break with the commandeconomy. But it contains the outlines of a new, moremarket-based mechanism for running the economy

that we believe Gorbachev will continue to pushfurther in the months and years ahead: , •• • • • • -• •

— Central planning agencies and economic minis-tries would be sharply scaled back in size andfunction.

- Enterprises would have radically expanded rightsand responsibilities. They would be required tonegotiate contracts directly with each other,choosing their own suppliers and competing withone another for customers.

— The enterprise would compile its own annualplan, to be based on contract orders placed bystate organizations and other enterprises. Thestate would ensure its needs by sending orders tothe enterprises.

— Many prices would be partially deregulated—set bynegotiation between consumers and suppliers, albeitunder close supervision by state agencies.

25. The Private Sector. In its search for ways tounleash individual initiative, the regime has embarkedon a cautious expansion of the private sector as well as

19SECRET

SECRET

Gorbochev's Family Contract

The concept of family contracting, which attractedscant leadership attention onl y a year ago, has become acentral focus of the leadership as it searches for solu-tions to the troubled state of Soviet agriculture. Mien-tion to family contracts, like recentl y adopted measurespromoting individual and cooperative activity in theconsumer sector, reflects Corbachev's long-establishedpreference for small-scale organizations that encouragea "proprietary" attitude. A family-focused variant ofthe collective contract system in which the farm man-agement subcontracts some aspects of farm productionto individual groups of workers, the family contract isbeing introduced in a wide variety of farming, fromlivestock to crops. In a typical contract, the family"pays" for all materials and services provided to thefarm and gets to keep any profit left after all expensesare accounted for. The wages of family contractingunits are generally three to five times that of theaverage state farm worker.

While many of the families under contract a ppear tobe little more than field hands, some family contracts,Including those singled out by Gorbachev, obviouslyinvolve large-scale operations. One Estonian familylivestock operation is reported to have a farmhouse,fenced pasture, and a fully mechanized barn, completewith milking machines, an automatic feed conveyor,and refrigeration—in outward Features seemingly indis-tinguishable from a Western family farm.

At the extreme, if state and collective farms arcdivided into parcels managed relatively independentlyby small groups or families working on contract, thefarm itself could turn into a relatively powerless, formal

.,...,Iciallectiv,e7„body.,5ttbstantial movement intion could have a powerful impact on local incentivesand, potentially, on the quantity and quality of agricul-tural production. Opposition to change of this scope,with echoes of a return to private farming, would besubstantiaL Apart from ideological concerns, the devo-lution of decisionmaking would eliminate many admin-istrative jobs and take power away from a wide varietyof officials—not only farm-level officials but local andcentral ministry officials and regional party secretariesand apparatchiks.

The future of the famil y contract in the Soviet Unionwill ultimately depend on the prospects for reform ofthe economy as a whole. Soviet collective and state farmmanagers will themselves have to gain the kind ofindependence that their Hungarian counterparts havewon if the family farm venture is to flourish.

a limited decentralization of the state sector itself. Inpart this effort represents a belated official recognitionof the burgeoning semilegal "second economy" thatalready exists, especially in the service sector, and adetermination to bring it under tighter state regula-tion. But the architects of this policy also hone that itwill bring a significant and relatively quick expansionin the availability of consumer goods and serviceswithout an expansion of centrally allocated investmentthat the state can ill afford. A quick improvement inthe lot of the consumer could be critical to Gorbachev,fueling a growth in labor productivity (giving theSoviet worker something worthwhile to spend hismoney on) and exhibiting the a pparent benefits of"restructuring" more quickly than the plannedchanges in the industrial economy.

26. Agriculture. Unlike the Hungarians and theChinese, the brunt of Gorbachev's early reform effortshave been directed at the industrial sector, not agricul-ture. Changes approved during his first year stream-lined the agro-industrial apparatus and gave farms theright to sell slightly more of their produce at marketprices. We believe Gorbachev's early focus on industryreflects his preeminent goal—closing the technologicalgap—as well as his close identification with agricultur-al policies that he inherited.

27. Gorbachev's plans for reform in agriculture areevidently still evolving and more fundamental changemay be on the way. He and some of his associates havebegun to talk about the need for a "turnaround" inagriculture within the next two to three years and totout more openly the benefits of private initiativeunder the guise of the.-so=ealled family contract. Thefamily contract, if pushed far enough, could providethe basis for the most significant overhaul of the farmeconomy since collectivization in the 1920s, replacingthe collective farm with the family as the key manage-rial unit in fact, if not in name.

28. Foreign Economic Relations. We believeGorbachev will move cautiously to expand foreigntrade and open the Soviet market to foreign competi-tion. He is concerned about excessive technologicaldependence on the West and believes domestic eco-nomic reform will play the dominant role in thesuccess of his effort to rejuvenate the economy. Heand his advisers, however, see long-term benefits in asubstantial expansion of trade and economic ties to theWest. They have launched some sharp departures inforeign economic policy (breaking the monopoly of theMinistry of Foreign Trade, and approving joint ven-tures that allow foreign partners substantial equity)that could eventuall y have a significant impact on the

domestic economy, the role of foreign trade, and theway the Soviets interact with Western commercial,interests.

206ECIIET

29. Accomplishments. While we believe Gorba-chev intends to radically overhaul the command econ-omy, be is just beginning the process and recognizesthat it will take years, if not decades:

— The June plenum has imparted new momentumto radical reform. The promised decrees fleshingout the plenum's decisions were approved onschedule, and our reporting indicates that thestaff and structures of many ministries and statecommittees will be significantly reduced.

— Nevertheless, the decrees are too general to serveas more than guidelines. It remains to be seenhow the leadership will address apparent designflaws and reconcile potentially conflicting provi-sions. Plans for changing the price-setting mecha-nism remain particularly ill defined.

— A series of obstacles, from political resistance toeconomic constraints, have forced Gorbachev tosettle for more cautious steps than he wants totake.

Over the next few years, the regime will have tochoose between steps that expand on the more radicalelements of the economic vision Gorbachev has articu-lated or, on the other hand, steps that dilute the thrustof the reforms and maintain the dominance of centralplanning..

There are changes, but they are insignificantand not radical. The main work to form anintegral system of managing the economy liesahead.

Gorbachev's report to June 1987 •plenum

Defense Policy

30. Gorbachev is committed to improving Sovietmilitary capabilities and maintaining a global presencein an era of increasingly sophisticated high-technologyweaponry. He believes his economic policies are thekey to strengthening the' industrial base that willensure Moscow's ability to continue to fulfill militaryrequirements as well as produce higher quality goodsin the civilian sector. But modernization of the econo-my will place sharply increased demands on the SovietUnion's limited supply of investment resources, mana-gerial talent, and technology and production potentialin the 1990s, increasing competition with traditionalmilitary claims on those same resources.

31. We do not believe Gorbachev wants or expectsto extract significant savings from the defense sector in

the short term. But we do believe he has a strongincentive over the longer term to constrain the growthof defense spending, force greater efficiency out of theSoviet military-industrial complex, and avoid an esca-lating arms race with the Unites States. Gorbadwv isnot likely to achieve his economic objectives withoutconstraining the growth of resources allocated to themilitary establishment.

32. Drawing on an infusion of new plant andequipment in the 1970s, Soviet defense industries arein relatively good sha pe to produce what the militarywill need into the early and mid-1990s. But economicreform and modernization will be a lengthy process,and Soviet industrial performance will probably slowbefore it improves. The need to make decisions in thenext few years on weapon programs for the late 1990swill force the leadership to face politically difficultchoices on resource allocation.

33. Gorbachev has taken a series of steps to improvethe ability of the political leadership to oversee de-fense decision making:

— By firing the minister of defense, replacing othertop defense officials, and reducing the military'sprotocol role in affairs of state, Gorbachev hasstrengthened his control over the military estab-lishment and the process by which nationalsecurity priorities are established.

— Gorbachev and his allies have placed new em-phasis on the political and economic dimensionsof national security issues, providing a strategicrationale for giving greater importance than inthe past to diplomatic initiatives and to thehealth of the domestic economy, and less- promi-nence to military power as the symbol of Sovietstrength.

— The new leadership has put forth the concept of"sufficiency" as a principle to guide its defenseprogram. This concept is subject to differinginterpretations in the USSR. In addition to itsforeign propaganda value, it has been used toexact greater efficiency from the military and tojustify arms control reductions. It could be usedto rationalize far-reaching changes in the sizeand composition of Soviet forces.

— At a minimum, the military is being required touse resources more efficiently.

34. Accomplishments. We are not likely to be ableto assess Gorbachev's impact on defense spending forsome time. The future direction of defense programswill depend in part on factors not completely underhis control. But we believe he has made significant

21CECRET

— Like his predecessors, Gorbachev hopes that adetente environment will produce political pres-sures in the West that limit defense budgets,restrict military modernization, and contribute tofrictions within the NATO Alliance over strategytoward the Communist world.

progress in establishing the control and political ratio-nale necessary to constrain growth in defense spendingover the years ahead—if not actually reduce spend-ing—if he can at the same time create an internationalenvironment that diminishes internal perceptions ofthe foreign threat.'

Foreign Policy

35. Gorbachev adheres to traditional foreign policyobjectives: first and foremost enhancing the security ofthe Soviet homeland, expanding Soviet influenceworldwide, and advancing Communism at the expenseof capitalism around the globe. He has acknowledgedthat what he has called the "precrisis situation" in theSoviet Union threatens Moscow's strategic position inthe world. His domestic reform agenda is intended ingood part to reverse the trend and preserve and

expand the USSR's superpower role.

36. In order to pursue these goals more effectively,however, we believe Gorbachev wants to introduce

potentially profound changes in Soviet strategy andtactics in the international arena. He believes that amore pragmatic approach to ideology, a more flexibleand accommodating diplomacy toward the West, theCommunist Bloc, China, and the Third World, and a

corresponding deemphasis on military intimidation asan instrument of foreign policy will hel p him achievehis objectives.

37. Moving quickly to recreate a detente relation-ship with the United States helps him achieve domes-

tic as well as foreign objectives—disarming latentdomestic critics of his national security policies and

protecting his ability to concentrate on the task of

reform at home:

— Measures that his opponents are already attempt-ing to paint as departures from socialism, such as'advancing glasnost and expanding the role ofmarket forces in the economy, will be moredifficult in an environment of East-West hostil-ity. Increased tensions with the United Stateswould pose a clear risk to his economic gameplan, undermining his ability to constrain de-fense spending and devote scarce resources toindustrial modernization.

— We do not believe that trade with the West willplay a major role in the revitalization effort, atleast for the foreseeable future, nor do we believeGorbachev expects it to. But the Soviets do hopethat increased trade and technology transfer In amore relaxed international environment will givetheir plans an added boost.

Without an awareness that diplomacy niustcreate a favorable foreign policy environmentfor domestic restructuring, we do not have andcannot have today a Qualified, competent diplo-mat or a competent diplomatic service.

Foreign Minister Slievardnadze,speaking to a conference of foreignministry officials in May 1987

38. The US-Soviet relationship poses substantialrisks and opportunities to Gorbachev's plans for do-mestic reform, and we believe that reshaping thatrelationship remains his first priority in foreign affairs.His ultimate goal remains constraining SDI andslowing the overall momentum of US military pro-grams. He Is much more willing and able than hispredecessors to-m-Ovebtyand'irast positions on strate-gic arms control issues in pursuit of this objective.Already evident in his approach to INF and START,we think it likely that this new flexibility will eventu-ally promote initiatives that could offer a significantreduction in the size and composition of Warsaw Pactconventional forces facing NATO—in return for com-pensating military or political gains for the USSR.

'The Director, Defense intelligence Agency believes that Gorba-chev will not be In a position to make an overall reduction indefense spending during the period of this Estimate.

More innovations in Soviet arms control posi-tions of the sort Gorbachev has already intro-duced are likely if he believes they can help himachieve constraints on SDI and other US de-

fense programs.

SNIE 11-9-86, assessing Gorba-chev's approach toward the UnitedStates for the remainder of theReagan administration

22;;ECRET

39. Gorbachev wants to revitalize Soviet diplomacyacross the board:

By advertising his domestic reforms and adopt-ing a more flexible posture on arms control,Gorbachev is attempting to undercut negativeimages of Soviet intentions in Western Europeand improve Moscow's ability to exploit differ-ences within the Western Alliance.

— He has given new priority to regions such as EastAsia and Latin America that the Soviets Previ-ously neglected. He wants to play a more user-rive political role in regional trouble spots, espe-cially in the Middle East, where the USSR hastraditionally been odd man out.

— He is broadening Moscow's priorities in theThird World, placing greater em phasis on ex-panded ties to Western-oriented states that couldpotentially provide more assistance to Moscow'sdiplomatic or economic goals than its traditionalclients. We believe Moscow will place morepressure on its clients to use Soviet aid Judicious-ly, in the hope the burden can be reduced. Forboth political and economic reasons we believeGorbachev will be careful about taking on newcommitments without the expectation of clearstrategic benefits for Soviet interests. But we seeno retreat from the geo political gains of the1970s. We expect Gorbachev to continue com-muting substantial resources to key clients, andIndeed to "up the ante" if these regimes arebeing challenged. (See figures 3 and 4 and annexD, "Gorbachev and the Third World.")

40. Implications of "New Thinking." Under Gor-bachev, the Soviet leadership has begun to advancenew ideas to guide foreign policy. This "new thinking"has several components'

— Greater emphasis on political approaches and lessreliance on military power in achieving nationalsecurity goals.

— The need to show more flexibility in negotiationswith the West, particularly on arms control.

— The increasing "interdependence" of nations andthe importance of solving global problems (suchas the prevention of nuclear war, environmentalPollution, and economic development) that de-mand international cooperation.

41. "New thinking" has a substantial propagandacomponent. It is intended to enhance the image of the

Most of the specific components of -new thinking- have theirorigins in the 1960-70 writings of prominent scholars in Moscow'sforeign policy think tanks

Figure 3USSR: Economic Aid Disbursements toSelected LDCs, 1970-86

Note male change

Communist LDCs and Third World AlliesBillion US $

NO Marxist clients11111 Other Communist LDCsIN VietnamNI Cuba

Third World AlliesMillion US S

,IIII Other MarxistIN EthiopiaNI NicaraguaIN Afghanistan

•-roonCidosigni.

23

CCOICT

ECCRET

Figure 4Soviet Arms Deliveries to ClientsFighting Insurgencies, 1977-87

Billion US 1986

lieves are needed to break out of foreign policy deadends, reshape foreign impressions of Soviet intentions,and advance Soviet influence abroad. The "new thin-king" concepts:

_ Ready Soviet elites and the public for potentiallycontroversial agreements in arms control or othernational security issues.

— Justify a restructuring and restaffing of nationalsecurity organizations to reduce resistance to newapproaches.

— Provide support for a widening pattern of coop-eration with international and regional economicorganizations and for an attempt to play a largerrole in the global economy.

— Sanction new approaches to countries, such asIsrael and Egypt, that will advance Moscow'sinfluence in the Third World.

_ Facilitate new gestures toward traditional rivalsand independent actors in the Communist world,such as China or Yugoslavia.

It is necessary to take a more realistic ap-proach to international affairs. When planningforeign policy we must make a more sober andbroader evaluation of the specific facts, ratherthan viewing everything only from the point ofview of one's own interests. Because if everycountry pursues only its own interests and isIncapable of meeting its partner halfway, ofseeking points of contact, and of cooperatingwith that partner, then it will be difficult toachieve any improvement in international relations.

USSR in the eyes of foreign elites and assist the effortto recreate a detente environment Gorbachev wantsto further the impression that his leadership is em-barked on fundamental new directions in forei gn aswell as domestic affairs.

42. But we believe the proponents of "new think-ing" also have an internal audience in mind. Theseconcepts have been echoed in reports of privateremarks by Gorbachev and Foreign Minister Shevard-nadze to Foreign Ministry officials touting the needfor more flexibility in Soviet negotiating positions.They are designed to dilute the "two camp" mentalitythat has characterized Soviet ideology in the interna-tional arena. They do not remove the East-Westideological conflict, but by describing a less polarizedinternational arena they rationalize the sharp depar-tures from past Soviet positions that Gorbachev be-

Gorbachev, speaking to ForeignMinistry officials in Moscow inMay 1986.

The 27th CPSU Congress of course did notdisaffirm the evaluation of imperialism and itspolicy, the reality of the historical confronta-`iion between the two systems, or the ideologicalirreconcilability between socialism and capital-ism. But what has now come to the fore in ourpolicy is not so much the ascertaining of diver-gences as the search for points of contact in theworld that actually exists. There is no otherpath to the salvation of mankind in the nuclearand space age.

Foreign Minister Shevardnadze,speaking at a conference of SovietForeign Ministry officials in May1987

24ECRI

mi others aIn Nicaragua

▪ Anea▪ Indodina

r"

9777878 79 80 81 82 83 84 85 86 87b

3Tx, • t N.A■1

43. Accomp lishments. By most conventional mea-sures, Gorbachev has few tangible accomplishments toshow for his invigorated efforts on the foreign policyfront. The implications of "new thinking" remain amatter of debate among Soviet officials and foreignobservers. Gorbachev has imparted new flexibility tosome arms control positions inherited from Brezhnev,Andropov, and Chernenko—to the point of adoptingmost US positions on INF. But on other issues thepromise of new flexibility has yet to be fulfilled.

44. In our view, Gorbachev's major accomplish-ment lies elsewhere, in the progress he has made inimproving the Soviet image abroad—creating condi-tions for more tangible progress toward Soviet objec-tives in the years ahead. He has already betterpositioned the Soviet Union to put Western diploma-cy on the defensive and to increase Soviet influencein areas where their role has long been minimal.Gorbachev's vigorous and flexible diplomacy is in partresponsible for his success in this regard. But hisdramatic moves on the reform front at home have alsohad a substantial impact. Opinion polls show substan-tial shifts in public sentiment on the USSR in WesternEurope, and views among European elites have beenchanging too as Corbachev's moves on the reformfront have become more radical. While the Chineseremain cautious about Soviet foreign policy, Corba-chev's domestic initiatives have led them to take moreseriously the possibility that significant ste ps willultimately be forthcoming in the bilateral relationshipas well.

Support and Opposition for Gorbachev'sAgenda .••••• ,•••• .... •

45. The Politics of Change. Historically, change ofthe magnitude Gorbachev appears to want has beensuccessfully imposed—in Russia as well as the SovietUnion—only by extremely autocratic leaders. Gorba-chev does not have such power nor Is he like' to get it.He faces a protracted struggle against long odds tobring his colleagues in the Politburo oligarchy withhim.

46. Gorbachev has succeeded in selling the notionthat some change is necessary if the Soviet system is toremain competitive in the long run. Old Guard leadersof the Brezhnev era who were content to muddlethrough have been swept aside. But there are cleardifferences even within the Gorbachev coalition overhow much change is needed and how fast it shouldcome. Gorbachev and some of his closest colleagues(Party Secretary Yakovlev, Foreign Minister Shevard-nadze, and Premier Ryzhkov) are pushing a programof broad political and economic change. They believe

a more modest approach will not effectively deal withthe precrisis situation inherited from the Brezhnev era.This agenda appeals to the intelli gentsia, youngerofficials who stand to gain from the new opportunitiesthat change will bring, and those who see such changeas the only way to make the USSR competitive overthe long run.

47. A -second group of leaders—w ;h I—col we believeincludes Party Secretary Ligachev, KGB ChairmanChebrikov, and Brezhnev-era holdover Shcherbits-kiy—want to slow the pace of change and restrict itsscope. They believe Gorbachev's reforms will unleashdecisionmaking processes and social forces that couldget out of hand and even threaten the party's hold onpower. They favor more traditional efforts to increasepolitical and social discipline and improve economicperformance through modest chan ges in the Stalinistmodel. They are supported by older generation elitesin most of the major bureaucracies who believe suchradical reforms endanger them and their institutions.

48. Between these poles are the rest of the Politburoand much of the Soviet elite. Gorbachev has had somestriking successes in getting this middle group to signon to the broad principles of his agenda. On specificissues of implementation, however, this group splits—with some more tolerant of political reform thanradical economic change, for instance, and othersfavoring the opposite. The lack of consensus on theparticulars makes final resolution difficult.

49. Can lie Do It? The measures that have beenapproved ha oply _begun a process of reform thatwill take years if not decades. Progress will be unevenat best and reverses along the way are probable. Thestruggle in the Politburo over the pace of change hasbecome increasingly intense. Beginning in July, Liu-chev and Chebrikov have become more outspoken indefining limits to glasnost. Gorbachev's own recentefforts to define limits to glasnost, as well as the morebalanced tone evident in his speech at the OctoberRevolution anniversary celebrations, suggest that hehas been forced to temper his call for change. Thedemise of Moscow Party chief Yeltsin represents afurther setback to the reform effort. Conservativeopponents will be more emboldened in speaking outagainst reform and fence sitters will be more inclinedto stay put. While these events do not endangerGorbachev's position, they are a threat to his agenda.Gorbachev will be under pressure to find a way toimpart new momentum to his reform agenda; theleadup to the party conference next June will providean opportunity to do so.

25

f..-CCRET

Sources of Support and Opposition to Gorbachev's Agenda

Gorbachev has made substantial headway in over-coming opposition from his colleagues on the Politburo.Following major gains at the June 1987 plenum, heshould be able to count on a solid working majority formost of his program. But he still . faces powerful col-leagues—such as "Second Seeretary" Ligachev andKGB Chairman Chebrikov—who want to slow the paceof change.

The senior levels of the economic bureaucracy standto lose the most if. Gorbachev moves forcefully todecentralize the system; many senior bureaucrats arelikely to impede the implementation of his program.Even if sympathetic to the reforms, many of them aregoody equipped—by training, ex perience, or psycho-logical makeup—to function under the new conditions.Gorbachev has made remarkable strides in removingfootdraggers, but he still has a long way to go to turn thebureaucracy into an obedient instrument.

We believe opposition from the senior levels of theparty apparatus is a critical problem for Gorbachev.Regional part y chiefs, who make up the core of theCentral Committee, have traditionally been the guard-ians of orthodoxy in the Soviet system, and we suspectthat they are the source of the ideological oppositionthat the Soviet leader has frequently alluded to. Manyregard his proposed reforms as a threat to their positionand the party's hold on power.

The national security bureaucracies are ambivalentabout Gorbachey's agenda. We believe most militaryofficials appreciate the close connection between astrong defense and a healthy economy and in principlesupport the revitalization program. But some fear thathis policies ma y lead to constraints on defense spendingand are unhappy-with Gorbachev's arms control initia-tives. They are almost certainly skeptical they will seeall the promised benefits in the long run. The KGB'sbureaucrats support Gorbachev's efforts to fight corru p

-tion and indiscipline, and their access to more accurateinformation than most Soviet officials have about thetrue state of affairs at home and abroad may makethem sympathetic to economic reform as well. But we

believe they are concerned about the potential forinstability at home and in Eastern Europe created byGorbachev's efforts to relax official strictures on politi-cal debate and individual freedoms in the USSR. In theevent of serious domestic instability or escalating Last-West tensions, latent opponents of Gorivcheris pro-grams in the KGB and the military could join forceswith sympathetic officials in the party apparatus,presenting a powerful new threat to Gorbachev.

Our reporting suggests that Corbachev's leadershipgenerally draws passive approval from the Soviet popu-lation. Yet, Soviet citizens have seen previous cam-paigns for change come and go, and many remaindeeply skeptical that Gorbacliev's campaign will pro-duce more lasting results. Moreover, Gorbachev's a p

-parent willingness to tamper (by increasing the disparityin wage rates between more and less productive work-ers, and by reducing subsidies for basic necessities) withthe social contract they have come to expect gives largesegments of society good reason to be concerned aboutthe impact of Gorbachev's plans on their position,especially when they have seen few tangible benefits.Although he has made substantial headway in thePoliantro, persuading an essentially conservative andapathetic population to get on board with the programwill be an even more formidable (ask.

The intelligentsia are probabl y the only group thatcomes close to giving Gorbachev wholehearted support.Their support is critical to his effort to rejuvenate thesociety and explore a wider range of options for solvingdomestic problems, but they lack the political clout togive Gorbachev much help if the tides begin to turnagainst him.

Generational differences are important in under-standing Corbachev's position. Some reporting suggeststhat the post-war generation is significantly more sup-portive of change in the USSR than its elders. Morejunior members of the party and state apparatus,frustrated by years of stagnation under Brezhnev, arekey sources of Gorbachev's support.

50. Beyond the battle in the Kremlin, Gorbachevwill have to traverse numerous other shoals that couldblock his path and ultimately sink him as well as hisagenda:

— Beyond overt political opposition, Gorbachev's

greatest obstacle is sheer inertia. The old ways ofoperating are deeply ingrained. Centuries ofcentralized decisionmaking have produced a so-ciety used to avoiding initiative and not sure howto assume it. Most Soviets have yet to see the

impact of perestroika, and doubts persist that it ishere to stay.

— Gorbachev's effort to encourage a degree ofspontaneity in the political system promises aprotracted period of heightened political tensionsthat will test the limits of party control.

— There is a risk that decentralizing reforms will setloose centrifugal forces in the Soviet empire,triggering unrest among national minorities orother disgruntled social groups serious enough toundercut Genbachev's push for reform.

26SECRET

6CCRET

— We see a significant chance for instability inEastern Europe that appears to threaten theSoviet hold and hence undermines support forGorbachev at home.

- Implementing Gorbachev's economic program islikely to bring some economic disruption beforeit begins to show any significant positive effects.It is by no means certain that the near-termreturns will be sufficiently impressive to allowhim to claim success or provide enough momen-tum to continue with his long-term program.

— Failure to effectively manage relations with theWest could also complicate Gorbachev's position.giving support to those who oppose his moreflexible diplomacy and national security policies.

51. We fudge that his removal is very unlikely forthe next two to three years. But, given the risksinherent in his program, Gorbachev will remain vul-nerable to a political challenge in the years aheaddespite the further progress we expect him to make inthe near term in moving more supporters into theleadership. His political survival will depend on acombination of political skill (not getting too far out infront of his colleagues), effective management of thedifficulties reform will inevitably cause, and luck.

The USSR Through the 1990s: Future Scenarios

52. We believe that current political and economicconditions in the Soviet Union have created an envi-ronment' in which substantial change is possible overthe next decade. Given the formidable political andeconomic obstacles that will have to be overcome, thelikely ebbs and flows of the reform process, and thesusceptibility to the outcome of unforeseen events, wecannot predict with confidence just how much changewill occur. But we believe we understand the optionsbeing debated and the trade-offs the leadership islikely to face well enough to predict the probable'direction of change and possible scenarios:

— We believe the most likely outcome is a selectiverejuvenation of the existing system. In thisscenario we would see more competent leader-ship and some new policy directions that couldbring about important changes in some sectors ofSoviet political and economic life. But Gorba-chev's effort to go beyond this to significantlyreform the Soviet system would dissipate wellshort of his objectives. We believe Corbachev'sconservative opponents would like to limitchange to essentially this scenario.

— The chances of more fundamental change are farmore debatable. We believe there is only a smallchance (perhaps less than one in three) thatGorbachev will succeed in going beyond rejuve-nation to institutionalize glasnost and alter thefundamentals of the Stalinist command economy,producing what we call systemic reform. Thisscenario would also include the policy changesassociated with rejuvenation. This scenario couldhave a significant impact over the long term onSoviet capabilities, policies, and behavior—and onthe interests of the United States and the West.Given its potential implications, we assess in detailwhat such a scenario could look like, the risksinherent in it for the USSR, and how we woulddetect progress in this direction.

— Even less likely than systemic reform, in ourview, is a return to a more authoritarian neo-Stalinism scenario that would feature recentral-ization rather than decentralization of politicaland economic decision making. There remains acertain reservoir of support in the elite andsociety for such a course and its prospects couldincrease if Gorbachev's effort to push for system-ic reform fails dramatically, producing severedisruptions in the economy or triggering signifi-cant unrest at home or in Eastern Europe. Butwe believe the odds will remain remote.

— At the other end of the spectrum, we believe theodds of a turn toward democratic socialism,Featuring a more radical push for a marketeconomy and a pluralistic society than systemic

, reform, will. remain . virtually nil under any,circumstances.

It is far from certain that the Soviet citizencan be educated to a higher level, urged toexercise his own initiative, given increasingopportunities for comparisons with other coun-tries, and encouraged to expect a significantimprovement In 'his living standard, and at thesame time submit without question to a leader-ship which incessantly proclaims, and frequent-ly exercises, the right to make all importantdecisions for him. Eventually it may turn outthat the benevolent totalitarianism which Sta-lin's successors seek to achieve is an impossiblecontradiction and that the forces released in thesearch for it will require the leadership to revertto earlier patterns of control or to permit anevolution in some new direction.

ME 11-4-57, assessing the longerterm outlook for change in the Soviet .Union following Khrushchev's con- -solidation of power

27gECIICT

Most likelyoutcome

Rejuvenation of theexisting system

Important changes In some sectors of Sovietpolitical and economic life, but would notproduce the decisive Improvements In Mos-cow's competitive position that Corvachevseeks.

The less controversial elements of Corbachev's pro-gram—rejuvenating the leadership, modernizing indus-try, eliminating corruption—would advance, but therewould be no significant change in the political system orex panded role for market forces in the economy.

Failure of the push for systemic reformwould bring a more conservative for-eign policy approach. Although re-source allocation decisions would be-come more difficult, economic growthwould be sufficient to fund a continu-ing military Imildutp. Unlikely to pro-duce any lasting change In internation-al behavior, arms control strategy orapproach to regional

Would include the rejuvenation agenda plus significantchange In the political and economic system—s looseningof state controls over Information, more open politicaldebate, reduction In role of central Plannin g, a larger rolefor market forces, and expanded channels for politicaldissent.

Relatively smallchance (perhapsless than one inthree) that changewill proceed thisfar

Heightened political tensions and economicdislocations in the near term. Significant im-provements in agriculture and consumer sectorprobable by early l990x more modest Im-provements in industrial performance later inthe decade.

Systemic reform

The USSR in the 1990s: Alternative Scenarios

The Extent of Change Probability Impact in the USSR Implications for the %Vest

Moscow's competitive position wouldbegin to itturrove, and the West wouldface a more complex and formidableadversary as a result of changing Per-ceptions of Soviet intentions. But Sovietleaders would have an Incentivethrough 1990s to constrain growth ofdefense spending. • This scenario couldalso bring chan ges in Soviet approachto arms control, regional Issues, ntulother matters tlinl open tin new oppor-tunities for Western diplomacy.

Neo-Stalinism ‘'ery remote, butchances increaseIf reform effortfails catastrophi-cally

A rigid recentralistatioo of political and economic coi)-trols, greater ideological orthodoxy, encouragement DIRussian nationalism, and more aggressive suppression Ofdissent.

Very short-term economic gains resulting frommuch more stringent discipline, but longerterm decline In productivit y, quality, andtechnological glosition. Potential for increase Insocial and nationality tensions.

Could bring to :power a tettnnhobleleadership pushing a more shrilly anti-Western foreign policy. Technologicalbackwardness and defense burdencould grow, but military would be Pro-tected from impact of economicstagnation.

' The Director, Defense Intelligence Agency, believes that underthe systemic reform scenario, Improvements In economic perfor-mance would be likely to crowds enough resource* by the fate1990s for military expenditures to grow without the constraintslikely during the next five-year plan.

--T1,4.401114,49.‘serselenii.1-

Rejuvenation of the Existing System

53. Under a rejuvenation scenario, we would notexpect to see any significant decentralization of eco-nomic decision making or change in the character ofthe political system. But the more orthodox elementsof Gorbachev's drive to improve the system wouldprobably be continued. Thus, this scenario would notfeature any fundamental institutional changes, butneither would it be a complete return to Brezhnevism:

— Politically, we would expect to see a continuingrejuvenation of the party-and government elite.An ongoing turnover of the leadership wouldproduce a relatively pragmatic policyorientation.

— Elements of "democratization" and glasnostwould remain in place. The regime would speakmore openly of Soviet problems and continue toexperiment with multicandidate elections andother political reforms Gorbachev has begun topress. But we believe in this scenario the leader-ship would stop well short of the potentially riskysteps that would be required to give these re-forms real content. The public discussion ofcontroversial issues—such as Stalin's purges, col-lectivization of agriculture, and market social-ism—would remain carefully controlled. Theparty would block any significant expansion ofpolitical participation and its role in the systemwould remain essentially unchanged.

— Economically, we would probably see some im-portant policy initiatives. A modest -cutback in-the bloated central bureaucracy, a reduction instate subsidies for basic necessities such as foodand housing, and efforts to increase differentia-tion in wages between workers who perform welland those who don't would be possible. There iswidespread leadership support for increased in-vestment, the quality control program and otherpolicies associated with the industrial moderniza-tion program, and these policies are plubablyhere to stay. But the leadership would block aradical overhaul of the planning and manage-ment mechanism. There would be no decentral-ization of price-setting authority and resourceswould continue to be allocated mainly by com-mand, through central plans. While the JunePlenum blueprint for reform would remain onthe books, the dominance of the central minis-tries in running the economy would be largelyunaffected. In this scenario, ideological opposi-tion and bureaucratic redtape would probablyprevent any significant expansion of private and

cooperative enterprises in agriculture and theconsumer sector.

We do not believe that in this scenario therewould be any significant change in the way theregime now handles political dissent or humanrights. While there could well be some dramaticgestures designed to serve foreign policy goals,the repressive apparatus would remain in place.

54. The near-term impact of a rejuvenation scenar-io might well be economically more favorable, andpolitically more advantageous for Gorbachev, than theresults of an assertive push for systemic reform. Someof the disruptive consequences of efforts to loosen thereins of central control or introduce market elementsinto the economy could be avoided. We would expectMoscow to be able to sustain modest growth rates andperhaps to achieve some im provements in the qualityof industrial production.

55. While sufficient to avert a near-term crisis,however, we do not believe that a strategy of rejuve-nation would meet the political, social, and economicobjectives that Gorbachev has set for himself:

— There could be some improvement in the econo-my's ability to innovate, but the overall techno-logical gap between the Soviet Union and theWest would continue to widen.

— The economic and social policies associated withthis scenario would not .address the growingsocietal tensions in the USSR that he inherited.

— Economic growth would be insufficient to signif-icantly ease the defense burden, making it diffi-cult to simultaneously meet the demands of themilitary, investment, and consumption.

Systemic Reform

56. There are clear limits to how far the process ofchange will go, even in a successful systemic reformscenario. We see no support in the Gorbachev leader-ship for a truly pluralistic political system or a marketeconomy. The basic feature of the Soviet regime—theCommunist Party's monopoly on the levers of politicaland economic power—would remain Unchallenged.But we believe that in this scenario we could see asubstantially different system by the end of the 1990s,one that would radically scale back the center's in-volvement in the micromanagement of daily politicaland economic life while preserving its strategic .con-trol. The effort to introduce change of this scale could

295CCRET

3CCRET

produce' serious economic dislocations and the pros-pect of political instability at home and in EasternEurope. But if the regime could successfully managethese risks, this scenario could produce significantprogress toward Gorbachev's ambitious goals b y theend of the century.

57. Political System. The effort to loosen thetentacles of state control is the leading edge of Gorba-chev's reform effort. It is a necessary condition for anyfundamental change in other areas, and we believethat reform in this arena is likely to be the mostprofound. In this scenario, we believe we would see apolitical culture more tolerant of diversity, an expand-ed arena of political debate, and a measure of in-creased popular participation in political institutions.A further, but still limited, relaxation of controls overinformation and debate would be a necessary ingredi-ent, and in this sense we believe glasnost wouldbecome a permanent feature of the Soviet politicallandscape. We could see a significant expansion ofparticipation in the regional and central Soviets, butwe would expect any such change in the party appara-tus (the real focus of power) to be limited primarily tothe lower levels. Legal reform is a central componentof the reform agenda, and the Soviet citizen would belikely to benefit from a less repressive and less arbi-trary system of justice. Nevertheless, the state wouldcontinue to limit political dissent

58. In the near term, Gorbachev's efforts to createan expanded arena of political participation would belikely to heighten tensions in the system, as the leadersand the led both test the new boundaries of legitimatedissent. Chinese authorities, who have been pushingreform longer and proceeded further than the USSR,have already slowed the Pace of change in the face ofpolitical instability fueled by the process. Acceleratedactivity in the USSR by a variety of independentenvironmental, nationality, and historical preserva-tion groups suggests that Soviet authorities will in-creasingly face the song dilemma. The regime twillfind it increasingly difficult to reconcile the limits ithas placed on dissenting views with the more openclimate it is trying to create. Ultimately, however, ifthe regime can successfully negotiate these shoals, wejudge that the reforms Gorbachev has spawned couldmake substantial inroads into political alienation in theSoviet Union, expanding the average citizen's sense ofparticipation in the system, diverting some dissentback into official channels, and reducing the flow ofemigres and defectors to the West.

59. The Economy. Given the complexities in-volved, the ultimate shape of the hybrid plan-and-

market arrangements that Gorbachev is pushing isuncertain. Radical decentralization would in our viewbe most evident in agriculture and the consumersector, where reform could have a relatively rapidimpact and where the experimental ground has al-ready been plowed in other Communist countries. Webelieve that in this scenario there could be a substan-tial expansion of private enter prise or, more likely, therole played by small, member-run cooperative organi-zations operating relatively independently of the state.Price setting in this sector could be substantiallyderegulated, local entrepreneurs allowed to deal di-rectly with consumers and suppliers, and the involve-ment of central planning organs sharply curtailed tothe management of overall economic indicators. Thesupply of food and basic consumer goods could showmarked improvement early in the 1990s, if the re-forms in this sector are pursued vigorously and weath-er conditions permit.

60. Fundamental reforms in the industrial economywill be more difficult to achieve and therefore notlikely to proceed as far as in the consumer sector, withresults slower to materialize as well. Nevertheless.changes here are essential to Gorbachev's fundamentalgoal (accelerating the pace of technological innovation)and we believe he will aggressively push the moreradical elements of the June plenum reform blueprintover the next several years. The leadership couldc'reate by the late 1990s a management mechanism inthe industrial sector that substantially curtails the roleof central organs, provides a more flexible price-setting structure, and- responds more-effectively -4-cr-^.•-• - —

customer demands.

61. We and the Soviets are uncertain of the impactof the new management mechanism planned for theindustrial sector. Some of the measures called for bythe June 1987 plenum—such as partially decentraliz-ing the pricing and supply system, paring back thecentral ministries, forcing enterprises to compete forcustomers, and allowing unsuccessful enterprises tofail—could create serious bottlenecks and disruptionsin the near term. In our view, industrial performancecould deteriorate rather than improve for at least thenext several years. Nevertheless, we believe there is agood chance that these reforms could by the mid-1990s begin to make progress toward the goals Gorba-chev has set. While the growth rates that Gorbachevhas called for are unattainable, in our view, someacceleration would be likely. More important than animprovement in growth rates per se, the mix ofnational output would probably consist of higherquality and higher technology products. We see littleprospect for substantial progress in this century

30CCRET

LECRCT

toward Gorbachev's ultimate goal of closing thetechnological gap with the West. At best, the Sovietsmight narrow the gap in selected areas. But thisscenario, in our judgment, provides the best chancefor the Soviets to strengthen their industrial base andimprove their abilities to compete in the economicand military arenas over the long term.

62_ Soviet Society. The social policies associatedwith Gorbachev's reforms attack what many Sovietofficials and citizens consider to be the main accom-plishments of the Soviet regime. They would increasethe disparity in incomes among different elements ofthe work force and fuel unemployment and jobinsecurity. Movement in this direction may be just asdisruptive to the social fabric as Gorbachev's economicreforms would be to economic performance. Gorba-chev's reforms would probably intensify social tensionsand encourage more frequent acts of open defiance:

— The loosening of political controls and decentral-ization of the economy could also aggravatelatent centrifugal forces in the Soviet empire,encouraging the USSR's national minorities topress their grievances more aggressively. We seelittle chance that there would be national unrestsufficiently serious to threaten the regime, but agood chance that there could be tensions thatcast doubt on Gorbachev's program and slow thepush for change.

lithe reform program produced substantial improve-ments in the lot of the Soviet consumer and ineconomic performance, however,. the ultimate effectover time could be a stronger social fabric and apopulation more accepting of the system.

63. Impact on Eastern Europe and the SovietEmpire. Systemic reforms in our view are almostcertain to add to the potential for instability in theSoviet empire. Whether Gorbachev intends it or not,domestic opponents of traditional regimes will be(indeed, to some extent already are) emboldened bythe relaxed restraints on political expression to pushtheir agendas more forcefully. Proponents of changewill attempt to press for more political pluralism,economic decentralization, cultural autonomy, andindividual freedoms than the party will be inclined toallow. Reporting on the impact of Gorbachev's re-forms in Eastern Europe and among Moscow's ThirdWorld allies makes clear that tensions are already onthe rise, and that client leaders—from Cuba's Castroto East Germany's Honecker—are worried and op-posed. Further complicating the picture are greaterSoviet demands on the East European countries to

contribute to Moscow's industrial modernization effortthrough CEMA programs that limit economic re-sources available for their own needs.

64. Unrest in Eastern Europe, in our view, posesthe greatest foreign threat to the reform impulse inthe Soviet Union and even to Gorbachev's position.We believe there is a significant risk that reform inMoscow will produce pressures for change in EasternEurope—already troubled by economic and societalProblems—that these regimes cannot handle. AnotherSoviet crackdown in the Bloc could strengthen thearguments of conservative opponents of change athome and create a political climate conducive toretrenchment.

65. Over the longer term, the Soviets in this scenar-io would provide more room for their allies to pursueInternal reforms suited to local conditions (a positionclearly staked out by Gorbachev in his November 1987speech to foreign Communist leaders in Moscow) andeven to expand relations with the West. But we believethe Soviets will place clear limits on the process and dowhat is necessary to maintain the integrity of the Bloc.

Neo-Stalinism

66. This scenario would feature a leadership thatemphasizes strong central institutions, greater disci-

' pline, and sim ple solutions—in effect a return to amore authoritarian leadership style that man y asso-ciate with the Stalin era. Such an approach wouldemphasize recentralizatiott of political-.snd -economiccontrols, greater ideological orthodoxy, and more ag-gressive suppression of dissent.

Any talk about how now everybody is a boss ispure demagogy. One person mutt answer foreverything. This is the only way you can de-mand what is necessary from him. Then therewill be order and discipline.

A secretary of the party organiza-tion at a Moscow factory, com-menting on Gorbachev's proposalthat workers elect their own fac-tory managers (2 September 1987Moskovskaya Pravda)

67. We believe this course would bring the USSRfew benefits in the long run:

— It would not solve any of the systemic problemsthat have led to a decline in economic growthand a low level of technological innovation.

31

SECRCT

Strong-arm methods worked when the goal wasto boost production regardless of cost in an era ofseemingly unlimited resources, but they will beof limited use when the objective is a sharp boostin efficiency in a resource-constrainedenvironment.

— To fund any military buildup, such a leadershipwould be compelled to resort to draconian tacticsat home, further raising the burden of defense.

— This scenario would be accompanied by anincrease in the influence of Russian nationalistelements In the elite Nationality tensions wouldcertainly grow.

68. The Gorbachev Factor. Gorbachev is not alonein pushing for far-reaching change: he serves as aspokesman for a range of elements in the elite andsociety determined to overcome the USSR's backward-ness. But Gorbachev himself is the catalyst in thecurrent ferment: he has tied his political fortunes to afundamental Improvement in the performance of theeconomy and society and the thorough-going reformslie believes must precede it. He will press aheadrelentlessl y with the implementation of his program,making tactical adjustments and accepting delayswhen necessary to preserve his ultimate objectives. IfGorbachev stays at the helm, the prospect of signifi-cant progress toward systemic reform must be takenseriously. If he dies in office or is removed, we believethe odds that the leadership will stop short of suchfundamental change increase substantially.

Indicators of Systemic Reform:How Will We Know?

69. Systemic reform, if it is to be successful, islikely to be a protracted, incremental process. Theformulation of a program of comprehensive reformshas only just begun. Implemention of those reforms islikely to take years, and even more time will benecessary to assess the results. While these factorsinhibit our abilit y to predict the outcome, there are anumber of specific political and policy indicators wewill be able to track to monitor the progress of theeffort. Failure to see continuing movement along thesefronts—not to mention retreat—would be a sure signthat the push for reform was in trouble.

70. Political Strength of the Reformers. Resis-tance to structural change has been aided by thecontinuing strength of conservatives in the Central

What if Gorbachev Goes?

The im pact of Gorbachev's departure from the scenewould depend on how and when it ha ppens. In anyforeseeable circumstances, however, we would expect ashowdown between proponents of radical change in thePolitburo and adherents to a more cautious course:

— If he dies in office. Although his power has beensignificantly eroded, "Second Secretary" Liga-chev remains for now the most likely choice.Gorbachev allies Lev Zaykov or Aleksandr Yoko.,lev would have an outside chance, especially iftheir mentor is martyred in a successful assassina-tion attempt. We believe Ligachev shares Gorba-chev:: determination to rejuvenate the system, butdoes not fully back the more radical elements ofhis program. A Ligacher-led leadership wouldscale back Gorbachev's assault on the commandeconomy and existing political institutions. Were aGorbachev ally to succeed him, the regime's com-mitment to reform would remain but the pace ofchange would still be likely to slow.

— If he is ousted. Ligachev would be the most likelychoice as a successor. In the near term the pace ofchange would slow sharply. But Gorbachev'sforced removal would be likel y to introduce anextended period of political instabilit y. We believethe chances of another change of leadership,bringing a reform-minded member of the Politbu-ro back to power, would remain substantial.

We believe the chances that a like-minded reformerwould replace Gorbachev will increase the longer he

..--stays-irtaffice. Ligachev is now 66; time will i ncreasing-ly diminish his prospects. Gorbachev is in a good

position to promote additional supporters to full votingmembership in the Politburo in the months and yearsahead and to remove remaining Brezhnev-era hold-overs, increasing the odds that a successor leaderihipwould push ahead aggressively with a program ofcomprehensive reforms.

Committee, the lingering presence of Brezhnev-eraholdovers in the Politburo, and Gorbachev's slowprogress in advancing the more outspoken advocates ofchange:

— If Gorbachev can advance other supporters tofull Politburo membership, it will substantiallyadvance the prospects for systemic reform. Hisfailure to make progress in this regard wouldindicate that his program has stalled.

— A critical indicator will be Gorbachev's ability toalter the political complexion of the Central

.... _

32

Committee—the core of his resistance, accordingto most accounts—at the extraordinary partyconference scheduled for next June. He was ableto turn over about 40 percent of the body at thelast party congress. If he can replace another 20percent or so at the conference (without waitingfor the next regularly scheduled congress in1991), a figure that seems to be in reach, Gorba-chev could ensure a body less inclined to waterdown his program..

71. Political Reform. Glasnost is a key componentof the reform process and a sensitive Indicator ofwhich way the political winds are blowing. If theopponents of glasnost, who have become more activein 1987, were to succeed in scaling back criticism ofcurrent shortcomings or the increasingly radical eco-nomic reform debate in the Soviet press, it would be asure sign that the momentum for change is flagging.On the other hand, if glasnost continues to move moreforcefully into heretofore sensitive areas (such as thetreatment of party history, the Stalin question, andSoviet foreign and defense policy) and to furtherexpand the flow of information (releasing more accu-rate and complete economic and census data, provid-ing a fuller account of defense activities, sanctioningprivate or cooperative publishers independent of thestate) it would be a good sign that reform is continuingto advance:

— An early tipoff might be the contents of a new"law on the press" that re portedly will be ap-proved soon.

— Another indicator would be a decision to movemore decisively to rehabilitate prominent victimsof Stalin's purges.

72. Other steps that would indicate institutionaliza-tion of a measure of diversity in the political systeminclude:

_ Legislation strengthening multicandidate elec-tions for party and state positions by ensuringthat candidates can be nominated from the floor(not just by the party bosses); this allows compet-ing candidates to articulate distinct policy plat-forms, and that institutionalizes secret balloting.

— Greater tolerance of grassroots political organiza-tions and the creation of official channels forgovernment action on initiatives issuing fromthose organizations.

— The regime's response to the already increasingfrequency of public demonstrations of dissentwill be a sensitive indicator of the momentum forreform. Indications of greater tolerance towardpublic demonstrations would indicate that Gor-bachev is able to protect his stake in keepingopen channels of debate and even dissent..

73. Economic Reform. How the regime imple-ments the reform blueprint approved by the June1987 plenum will be the acid test of how far decen-tralization has gone:

— A move from administered prices to some mech-anism for making prices responsive to supply anddemand is the key indicator. Significant steps toimplement the promises of the plenum to allowenterprises to engage freely in buying and sellingany production beyond that allotted to the stateand to negotiate their own prices would indicatethat such a shift is under wa y.. To be effective,the number of goods on which the state continuesto set prices will have to shrink substantially, andthe limits that the center is allowed to place onprices negotiated among enterprises will have tobe minimal.

— The rate at which the relative proportion of stateorders in enterprise output declines.

—Solid evidence that the economic authority of theministries and the regional party first secretarieshas been sharply curtailed.

— The extent to which state enterprises are forcedto compete with one another for business. To beeffective, the state will have to allow the leastefficient enterprises to fail.

— In agriculture, widespread introduction of thefamily and other group contracts, combined withmore substantial movement toward decentral-ized planning of production.

— Effective implementation of recent legislationsanctioning an expanded role for private entre-preneurs and cooperative enterprises operatingindependentl y of the state.

74. Human Rights. The Gorbachev regime hasreleased a number of prominent political prisoners andallowed a modest expansion of emigration, but so farthe legislative basis for political repression remainsintact. Any serious reform effort will entail action onreported plans for changes in the legislative code and

33--17E-C-44(4.

evidence that Soviet authorities are doing a better jobthan in the past of abiding by the code:

— Action on reported plans to repeal from theRussian Republic criminal code of Article 70("anti-Soviet agitation and propaganda") and Ar-ticle 190-1 ("circulation of knowingly false fabri-cations which defame the Soviet state and socialsystem"), provisions which have been used toincarcerate political prisoners.

— Eased limitations on emigration as well as domes-tic and foreign travel.

— Followthrough on rumored plans to substantiallycut back the political police function and staffingof the KGB, while more precisely delineating theagency's domestic role.

- An assertion of independence by the judiciaryand official recognition of such independence.One sign of authentic independence would beseeing a case go against the government—and thedecision carried out.

Implications for the West

75. Given its superpower ambitions, military pow-er, and ideological predilections, the USSR will re-main the West's principal adversary whether Gorba-chev is successful in introducing systemic reforms ornot. But we believe rejuvenation of the existingsystem and systemic reform would differ in importantrespects in their impact on Western interests over thelonger term and in the nature of the Soviet challenge.

Rejuvenation of the Existing System

76. If the reform process goes no further thanrejuvenation, Soviet policies toward the West willremain largely unaffected and the Soviet systemunchanged.

77. Competitive Capabilities. While the USSRwould remain a formidable military threat, we do notbelieve a rejuvenation scenario would provide Moscowthe wherewithal to significantly improve its competi-tive capabilities vis-a-vis in the West in the economicand military arenas over the longer term. We wouldcontinue to see a more adroit foreign policy, butconservative pressures forcing a retreat from systemicreform at home would also be likely to limit boldinnovations in diplomacy, undercutting Soviet effortsto improve the image of Soviet intentions and lessen-ing the diplomatic challenge to Western interests.

78. Prospects for Policy Change. Rejuvenationwould be likely to bring less change in traditionalSoviet foreign policies and internal institutions than asystemic reform scenario:

— We would expect little change in internal repres-sion or in the boundaries of political dissent.

— The military establishment would be better insu-lated from change than under a systemic reformscenario. The intrusion of glasnost into militaryaffairs would be sharply limited. The economywould generate sufficient resources to fund acontinuing growth in military programs, albeitnot without forcing the leadership to make diffi-cult choices that could undermine the effort toincrease investment in the economy or provideImprovements in the standard of living.

— Traditional approaches to East-West issues wouldremain largely intact. We would be less likely tosee major departures in arms control diplomacyor negotiations leading to significant reductionsin Soviet conventional or strategic forces thanunder a systemic reform scenario. Soviet eco-nomic ties to the West could expand somewhat inthis scenario, but there would be no significantchange in the barriers that seal off the Sovieteconomy from the world market.

— In the Third World we believe the Soviets would` continue to rely on military power as their

primary means of influence. We would see littlechange in the nature of East-West competition inthe region. - -

— We believe they would rely on traditional instru-ments of control in Eastern Europe, minimizingthe possibilities for the growth of pluralism andthe opportunities for US diplomacy.

Systemic Reform

79. Gorbachev's objective in pushing for systemicreform is to improve Moscow's abilities to competewith the West in the global power arena. A successfulsystemic reform effort, in our view, would in the longrun produce technological and productivity gains andallow him to make real progress toward that objec-tive. It is also the only scenario, however, that wouldbe likely to bring more than cosmetic changes in thesubstance of Soviet internal, defense, and foreignpolicies. The East-West relationship would remainstrongly adversarial. Military competition would con-tinue, but Moscow would be likely to rely more than inthe past on political instruments to achieve its objec-tives.

34ECRET

80. Competitive Capabilities. Given the slow rateat which we expect change to occur, we believe thatsuccessful systemic reform would produce only mod-est improvements in Moscow's ability to compete inthe economic arena in this century. Although we donot believe that the Soviets would make such progressin improving their abilities to innovate and assimilateadvanced technologies, Soviet defense industrieswould nevertheless benefit more under systemic re-form than under any other scenario.

81. On the political front, the perception abroad ofcontinuing movement in Moscow toward systemicchange at home and more flexible foreign policieswould combine to make Moscow an increasinglyformidable competitor:

—Systemic reform would provide a more crediblebackdrop for Soviet diplomacy, public relations,and propaganda than a rejuvenation scenarioalone could offer, forcing the United States andthe West to reexamine traditional strategies forcontaining Soviet influence. Management of theNATO Alliance would be complicated as shiftingperceptions of Soviet intentions weakened theglue that has held the Alliance together and putthe Soviets in a better position to capitalize ondifferences among its members. It would proba-bly encourage a leftward drift in West Europeanpolitics. It could also encourage the Chinese tomove toward a more equidistant strategic posturebetween the USSR and the United States.

— Reform could ultimately strengthen Moscow'shand in the Third World. It would be likely toprovoke new sources of strain in Moscow's rela-tions with some of its traditional, conservative-minded allies. But a reform-minded Soviet Unionwould have the inclination as well as enhancedcapabilities for expanding relations with non-aligned and pro-Western countries in regions thathave up to now been relatively immune to Sovietinfluence.

Militarist and anti-Soviet forces are clearlyconcerned lest the interest among the peopleand political quarters of the West in what ishappening in the Soviet Union today and thegrowing understanding of its foreign policyerase the artificially created "image of theenemy"—an image which they have been ex-ploiting unabashedly for scores of years.

Gorbachev, speaking during a tripto Murmansk in October 1987

82. Prospects for Policv Change. At the sametime, we believe that systemic reform would be likelyto induce controlled but significant movement inSoviet policies and institutions in a direction thatWestern policymakers have pressed for, creating newopportunities for Western diplomacy:

— The Internal Dimension. We believe thatmovement toward a more open political andeconomic system, expanded political participa-tion, and an easing of restrictions on politicaldissent and individual rights would be necessarycomponents of systemic reform. The West wouldhave improved opportunities for getting its mes-sage directly to a wider crow-section of the eliteand the population.

—The Defense Dimension. The more open andless regimented political system would open for-eign and defense issues to greater public scrutiny.In a systemic reform environment the leadershipwould have an incentive to constrain the growthof defense spending through the 1990s. Webelieve the leadership would take a harder lookthan in the past at proposed defense programs,requiring defense managers to make more effi-cient use of resources. Whether Soviet defensespending in fact goes up or down by the late1990s depends in part on leadership decisions onfuture weapons programs as well as on factorsnot completely under their control—such asWestern defense programs and the state of theEast-West relationship.' _

— Policy Toward the West. Proponents of system-ic reform in the Soviet leadership want to weak-en the hold of the "two-camp" mentalit y that hasfueled rigid anti-Western foreign policies, re-duced foreign policy flexibility, strengthenedanti-Soviet suspicions in the West, and inhibitedMoscow's ability to play a larger internationalrole. They would not end the competition, riskthe relative gains they have made over the past20 years, accept an inferior military position, ordraw back from pursuit of a global superpowerstatus. Soviet leaders would fund a robust mili-tary R & Es program and push ahead to modern-ize their strategic and conventional forces. Butwe believe they would be more likely than their

The Director, Defense Intelligence Agency, believes that underthe systemic reform scenario, improvements in economic perfor-mance would be likely to provide enough resources by the late1990: for military expenditures to grow without the constraintslikely during the next five-year plan.

35CCCR6T

V

LECRET

conservative counterparts to invigorate arms con-trol negotiations and expand economic inter-change with the outside world in the pursuit oftheir domestic and foreign policy goals. Webelieve systemic reform would create conditionsfor negotiations leading to potentially sizablereductions in Soviet conventional and strategicforces opposite NATO and China. There couldbe significant changes in Moscow's foreign eco-nomic strategy, including a more rapid expansionof trade with the West.

— Policy Toward the Third World. East-Westrelations in the Third World would remainstrongly competitive. There would be no retreatfrom Moscow's determination to expand itsinfluence. But we believe a reform leadershipwould place more emphasis on political anddiplomatic approaches to regional issues. TheSoviets might be more cooperative in some areas(such as the Middle East) as they seek to expandtheir political role and legitimize their presence.

— Policy Toward Eastern Europe. Even if Mos-cow does not attempt to impose it, we believesystemic reform in the USSR would be conta-gious in the Eastern Bloc. A measure of increasedpluralism would allow Bloc states to pursueindigenous approaches to political and economicreform and open up new opportunities for USdiplomacy.

Neo-Stalinism

83. We believe a neo-Stalinist leadership would bestrongly influenced by xenophobic Russian nationalistelements in the Sovet elite. They would introducemore repressive policies at home and assume a morerigidly anti-Western posture abroad. We do not be-lieve the policies of a neo-Stalinist leadership wouldproduce any real improvements in the economicperformance, the technological base, or the Soviet's

long-term competitive position vis-a-vis the West.

The Impact of US Policy

84. We believe that the fate of reform will besensitive to the state of East-West relations. Theproponents of reforms that attempt to introduce mar-ket forces and political diversity into the Soviet systemare more likely to be able to advance their cause in aclimate of reduced tensions. We believe that a sharpdeterioration of the international climate wouldstrengthen conservative elements in the regime andcould conceivably derail the reform process, especiallyif it coincided with severe disruption produced byfundamental reforms. We also believe that Gorba-chev's effort to direct a larger proportion of resourcesinto industrial modernization depends in part on hisability to manage perceptions of the foreign threat,and hence on his ability to achieve arms controlarrangements that constrain Western defense pro-grams. In this sense, we believe Corbachev's relativesuccess can be affected by the Western response to hispolicies.

85. Western policies can have an effect in a generalsense. We believe the prospect of Western assistancewas instrumental in expanding the flow of emigrationIn the 1970s. A resurgent US economic and militarybuildup, on the other hand, was a key ingredient inc'reating the sense of crisis in Moscow that brought areform-minded leadership to power in the 1980s.While the push for reform is not immune to outsideinfluence, we cannot confidently predict the impact inMoscow of Western policies specifically designed toaffect the process.

86. We believe Gorbachev's success, and the fate ofreform, will largely rest on the outcome of powerstruggles, political debates and economic and socialdevelopments inside the USSR and Eastern Europethat are subject only indirectly to influence fromoutside.

36SCCRET

I

37

-K-C-RENT-

or,...

38••66646.i.-

39

:TCR ET

40

--SEC-4E4..

I

I

41...6.6.64“.

ANNEX B

Gorbachev as a Leader

Mikhail Gorbachev is the most formidable Soviet Cleader the United States has faced since the death ofStalin. He is strongly committed to his vision ofradically improving the efficiency and productivity ofthe USSR and thus increasing Soviet influence world-wide. While his Prospects for success are uncertain, hisdetermination is not.

JLeadership. Gorbachev is determined to lead the

USSR, not simply serve as head of the Politburo.Unlike the consensus-building . Brezhnev, Gorbachevmoves out in front of Party colleagues in his efforts topromote change. He is willing to experinient .ifid takerisks to breathe new life into the Soviet system. Unlikeithruslichey, however, his willingness to take risks istempered by a careful calculation of the Potentialconsequences of his ads. He will push his goalsrelentlessly, while demonstrating extraordinary tacti-cal flexibility.

3View of the United Slates. Gorbachev's view of

the United States is more sophisticated than that ofPrevious Soviet leaders. lie is especially sensitive to theImportance of public opinion in democracies. Never-theless, he also harbors narrow perceptions about theUnited States, speaking simplistically of the power ofthe US -military-industrial complex- over the Presi-dent and Congress. We believe Gorbache y's under-standing of the United States is evolving beyond suchstereotypes, however, as he profits from repeatedpersonal interactions with US political and businessleaders.

Future Behavior. Gorbachev is highly confident ofthe USSR's potential and of his own ability to lead. Ifhe perceives that his restructuring program is notmeeting his expectations, -we believe he -will persistand indeed escalate his efforts. When his changes stircontroversy and political tumid!, Gorbachev will com-promise on what he sees as secondary issues and alterhis tactics but persist in pursuit of his goals. We believehe recognizes he is pursuing a potentially dangerouscourse but is determined to try—even at the risk offailure—rather than accept the status quo.

43

LCCRET

ANNEX C

Gorbachev and Ideology

tax-T.4...N., •

Soviet policymakers have always been careful tohave their actions solidly grounded in party ideology.Throughout Soviet history, fundamental changes indomestic and foreign policy have been accompaniedby corresponding ideological adjustments. This phe-nomenon can be seen in the struggle for reform inGorbachev's USSR. Opponents of the reforms claimthat they violate fundamental ideological principles.while Gorbachev and his allies are making a majoreffort to undermine those claims by redefining ideo-logical principles to lay the groundwork for theirreforms.

The rapid rise of an outspoken reformer and closeally, Alelcsandr Yakovlev, has been a key of Gorba-chev's effort to change the ideological climate. Inrecent months, Yakovlev has taken the lead in pushingfor a more flexible approach to ideological issues, andhis promotion in June to full membership in thePolitburo puts him in a position to replace the moreconventionally minded Yegor Ligachey as the regime'stop spokesman on ideology.

Overcoming the Ideology of Stagnation. Tosmooth the way for reform, Gorbachev and Yakovlevare proposing a more flexible "Leninist" view ofideology which niodifies and even disregards princi-ples which no longer conform to the nature of thetimes. In an article published in the May 1987 issue ofthe party's authoritative ideological journal, Kommun-ist, Yakovlev identified the absence of adequate ideo-logical support for the "nascent and upcoming- re-forms as one of the major obstacles to their success.

Gorbachev and Yakovlev‘ have thoroughly criticizedpast regimes for failing to update ideology to keeppace with the country's development and for allowingit to harden into rigid dogma. Gorbachev told the

January 1987 Central Committee Plenum that "thetheoretical concepts of socialism remained at the levelof the 1930s and 1940s, when society had beentackling entirely different tasks." This stagnation inideology, Gorbachev continued, Prevented past leadersfrom perceiving the need for change and the dangerpresented by the growth of "crisis phenomena" insociety.

Liberating Social Science Research. Remarks byGorbachev and Yakovlev suggest that the new ap-proach to ideology could have a major impact on thesocial sciences in the USSR, freeing them to delvemore deeply into the realities of Soviet life. Gorbachevcomplained to the January plenum that the ideologicaldogmatism of the past had left no room for objectivescientific research:

(The) motive forces and contradictions andthe actual condition of society did not becomethe subject of in -depth sctenitfic research .. .vigorous debates and creative ideas disappeared

, from theory and social sciences, while authori-tarian evaluations and opinions became un-questionable truths.

In his Kommunisi- article,- Yakovlev described theheavy toll he claims ideological dogmatism has takenon economic policy:

— The attitude that private plots and self-em ploy-ment are "alien" to socialism deprived the econ-

omy of significant potential resources.

— The mythologizing of the centralized form ofmanagement fettered enterpriss and initiativeand engendered bureaucratization.

— The views of "antimarket advocates" became abrake on economic growth.

:CCM

ANNEX 0

Gorbachev and the Third World

Public Pronouncements and Academic Debate.Gorbachev has devoted relatively little public attentionto the Third World, focusing primarily on arms control,East-West relations, and domestic concerns. ThirdWorld issues received less attention at the 27th CPSUCongress in 1986 than they did at the two preceedingcongresses and the new CPSU program has little of theoptimism—and promises of support for the "nationalliberation movement"—found in its 1961 predecessor.This lower level of public attention to Third Worldconcerns has led Fidel Castro and other Soviet allies toremind Moscow of its "internationalist duties" to itsThird World friends.

A lively debate on numerous Third World questionshas continued in the Soviet academic and politicalliterature under Gorbachev. Many Soviet scholars andpolitical figures have expressed relatively pessimisticviews of the prospects for Third World states to advanceto socialism and acknowledged that Soviet actions in theThird World over the past several years have complicat-ed relations with the United States. The Soviets recog-nize that changing conditions in the Third World—theend of the colonial era, the emergence of regionalmilitary powers, the complexity Of Third World politi-cal and economic problems—will make it more difficultfor them to expand their influence using the instrumentsthey have -relied on in the past, notably arms transfersand support for national liberation movements.

The Gorbachev Agenda. Moscow's more sober viewof the Third World under Gorbachev does not, in ourview, point toward a Soviet retreat, but toward a Policythat takes into account the realities of the developingworld as the Soviets understand them. These realitiesmay include limits on the prospects for pro-Sovietrevolutionary change but they also open a varietv ofnew political and economic opportunities for the USSR.Over the next few years, we see the USSR pursuing awide range of policies in the Third World using a variedand, in many cases, more sophisticated set of policyinstruments.

Some of these policies reflect continuity with pre-Gorbachev patterns:

— The Soviets will provide continued, and if neces-sary, increased support to embattled clients such asAngola, a situation Moscow probably sees as a testof its resolve in the face of "US neoglobalism."

— Moscow will promote leftist change in the ThirdWorld, though it will do so carefully, in order toavoid provoking the United States and damagingits effort to create the image of a responsiblesuperpower. The USSR will probably limit opensupport for revolutionary "armed struggle" torelatively safe situations such as Chile and SouthAfrica—where a direct superpower confronta-tion is unlikely—but it will keep its options openin other countries by maintaining covert contactswith antiregime groups both directly andthrough surrogates. Moscow will not forgo ex-ploiting opportunities in countries where a shifttoward the Soviet Bloc would significantly disad-vantage the West. Moscow will probably bereluctant, however, to take on new "basket cases"as clients.

But we also expect increasing emphasis on newapproaches:

— A more assertive effort to gain influence byplaying a role in the settlement of regionalconflicts. In pursuit of this objective the Gorba-chev regime will be more willing to go againstthe wishes of its traditional clients and to supportnegotiated solutions. But we do not believe theywill make concessions that would threaten thehold of their key clients.

— Trying to break out of the diplomatic rigidity ofthe late Brezhnev era by improving ties to keyregional players such as Egypt, Israel, Zimbabwe,and China.

— A more concerted effort to expand political andeconomic relations with neutral and pro-Westernstates, especially relatively wealthy` ones such asthe ASEAN countries and those in regions such asLatin America and the South Pacific whereMoscow has had little or no presence.

—A more tough-minded policy toward its tradi-tional clients. The Soviets will attem pt to main-tain good relations with countries such as Syria,Libya, Angola, Vietnam, Ethiopia, and Nicara-gua. But we will see stronger pressure fromMoscow for improved performance and greaterwillingness to cross swords on regional and inter-national issues when it serves Soviet interests.

47SECRET

LCCRET •

DISSEMINATION NOTICE

1. This document was disseminated by the Directorate of Intelligence. Because of thesensitive nature of some source material reflected herein, this copy is for the exclusiveinformation and use of the recipient only.

2. This document may be retained, or destroyed by burning in accordance with applicablesecurity regulations, or returned to the Directorate of intelligence.

3. When this document is disseminated overseas, the overseas recipients may retain it for aperiod not in excess of one year. At the end of this period, the document should be destroyedor returned to the forwarding agency, or permission should be requested of the forwardingagency to retain it in accordance with IAC-D-69/2, 22 June 1953.

4. The title of this document when used separately from the text is unclassified.

gECRET