In the aftermath of Watergate, voters rejected four years of Gerald Ford and voted for Jimmy Carter instead. His administration was beset with scandal, dumb luck, and some bad decisions. Perhaps the defining moment of the Carter administration was the seizure of the US embassy in Tehran, Iran. After an Islamic revolution that swept into power the exiled Ayatollah Khomeini, student demonstrators took over the embassy and held 52 Americans hostages for 444 days. It came as no surprise that in 1980 Americans voted Carter out of office.
Reagan entered office as a conservative free market advocate and a staunch anti-Communist Cold Warrior. Towards those ends, Reagan often referred to the Soviet Union as an empire of evil. This led the Reagan administration into three glaring confrontations with the Soviet Union in classic Cold War fashion. One ended in scandal, one ended with unintended bad consequences, and one was successful.
As for the one with unintended consequences, that was Operation Cyclone. Although it started in late 1979 under Carter, Reagan took it to new levels eventually costing $3 billion. After a coup toppled the government in Afghanistan, a Communist regime came into being. A resulting internal civil war was greeted with Russian tanks to prop up the Communist government in Kabul. The United States, through the CIA, initially trained and then supplied Islamic rebels, called the mujahadeen, with Stinger anti-aircraft missiles. Their success was well-documented as body bags from Afghanistan started coming home to Russia. Many of these mujahadeen would later go on to form a terrorist group called al-Qaeda.
The scandal involved what came to be called the Iran-Contra affair. In a nutshell, the Reagan administration was arming, funding and training a small army in Nicaragua to combat the Communist leadership of Manuel Noriega. In order to fund the contras, the Reagan administration was prohibited from using direct aid under the Boland Amendment to a Defense Department appropriations bill. To obtain money, the US sold arms to Iran, which was under an embargo in the aftermath of the embassy takeover and was involved in a war against neighboring Iraq, then used the proceeds of those arm sales and directed them to the contras.
The proceeds of the arm sales were passed through several banks in Virginia, mainly the Palmer National Bank which was then primarily owned by the former Deputy Secretary of State for Political-Military Affairs in Reagan’s first term, Stephan Halper. Halper was known to have ties to the CIA and his father-in-law was an ex-CIA Deputy Director, Ray S. Cline. It should also be noted that Halper had no banking experience. He was the foreign policy adviser to George H.W. Bush’s failed 1980 presidential campaign. Bush had formerly been CIA director also. Palmer Bank was the bank identified as the one through which Oliver North funneled money and arms to the anti-Sandinista rebels. The scandal was exposed in 1986 after a member of Iran’s parliament leaked information to a Lebanese newspaper.
Reagan’s shining achievement was the Strategic Defense Initiative (SDI), or as it became called, “star wars.” It was sold as a space-based missile defense system that would destroy Russian ballistic missiles before they could impact the United States. Reagan was long a critic of the concept of mutually assured destruction (or, MAD) and wanted to make the use of nuclear weapons obsolete. Hence, he announced the idea of SDI in March, 2003. The idea was mocked relentlessly by some at the time, but most importantly, the Russians took it seriously although they did not quite know what to do about it. They viewed it as a serious threat to their military planning and very existence, but it also created an opportunity to drive a wedge between the United States and its Western European allies who were already on edge as they considered Reagan a loose cannon with a nuclear arsenal at his fingertips.
Subsequent Russian analysis of Soviet-era responses are all over the place. Some within the Kremlin and the Soviet military viewed Reagan’s SDI as unattainable. Yet others saw it as Reagan war-mongering and his blind hatred of anything Communist. Most importantly, policy planners in the US government were all-too-aware that the Russians were ill-equipped financially and militarily to fight the technological battle. Already, they were suffering terrible defeats in Afghanistan as many were speaking out that it had become the “Soviet Union’s Vietnam.”
It was later revealed that policy and planners within the Reagan administration had their doubts about the technological efficacy of the SDI program, but they definitely knew that the Soviet Union could not economically keep up with the United States in a space-age arms race. By the time Mikhail Gorbachev became the General Secretary of the Communist Party in 1985, the Soviet economy had been stagnant for 20 years and was in need of reform. By 1985, grocery store shelves were empty and food lines were long. Historically, the Soviet economy relied very little on foreign trade because of the country’s base of raw materials and land. Imports and exports accounted for just 4% of the Soviet GDP in 1985. Any trading they did involved either Third World countries, or neighboring Communist satellites. Trade with Western industrialized countries involved currency or Soviet oil, as well as trading one manufactured good for another such as vodka for Pepsi.
Faced with the economic reality at home and the dismal defeat of Russian troops in Afghanistan in 1989, Gorbachev’s loosening of controls created a domino effect. The Eastern European alliances started to crumble as first the Baltic states- Latvia, Lithuania, and Estonia- declared their independence. On November 9, 1989, the impossible happened when the Berlin Wall fell and the two Germanys reunited less than a year later. Once the Wall fell, people in Czechoslovakia, Bulgaria and Romania staged protests against their Communist governments hastening the collapse of the Soviet bloc. Between 1989 and 1991 the collective GDP of the Soviet Union and its former allies in Eastern Europe decreased 20%.
Gorbachev’s idea of glasnost unleashed long-suppressed nationalist feelings in the Soviet republics. One of the major areas in need of reform was the hierarchy in Moscow and to clean it up, Gorbachev brought in Boris Yeltsin, an eager reformer. In September 1990, Gorbachev rejected the 500 Day economic reform plan of economist Grigory Yavlinsky. As a result, Yavlinsky lost many allies and the nation was left with the Gorbachev plan to overhaul the Soviet economy instead of making a series of incremental reforms. For example, he tried to stop the production and sale of alcohol which only created an underground economy. State-owned land was leased to farmers and he cut military spending. His promises were not coming true enough for the people, or not fast enough. By August 1991, the hard-liners had enough. With Gorbachev on vacation in the Crimea, he was placed under house arrest in an attempted coup.
Back in Moscow, Boris Yeltsin climbed aboard a tank and that image epitomized the resistance to the coup attempt. After almost six years, Gorbachev’s stock and popularity had taken a hit and Yeltsin was the beneficiary. On December 8, the presidents of Russia (Yeltsin), Belarus and Ukraine signed the Belavezha Accords creating the Commonwealth of Independent States (CIS). At that point, the Soviet Union was a relic of the past. On December 25, 1991, Gorbachev resigned and two days later Yeltsin moved into his office. Yelstin came to power amid a wave of optimism and promise of democracy and economic freedom.
The radical market reforms and privatization shook the country that was used to state control. The result was massive poverty for many and incredible wealth for a few. The crippling economic depression was a breeding ground for crime and government corruption. After savings were wiped out, people became beggars. The Russian mafia, long held in check by the Communists, stepped in to fill a power void. Government infrastructure from basic public utilities to police forces almost evaporated overnight. When government payroll services disappeared, former members of the Soviet military, KGB, and police officers filled the ranks of the mafia in the hopes of a paycheck. Many mafia leaders seized state-owned assets and enterprises throughout Russia while extorting the public for providing services the government could or would not provide.
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