FORTUNE — As chairman of the Joint Chiefs, Admiral Mike Mullen was particularly active and vocal. Far more than previous chairmen, he emphasized the importance of diplomacy and economics in U.S. defense. His Senate testimony that canceling the military’s don’t-ask, don’t-tell policy was “the right thing to do” played a large role in ending the policy. In retirement he’s focusing on helping veterans and their families, teaching, and working in the world of diplomacy.
Q: At your retirement you said the world “still is very, very dangerous.” What are the greatest dangers now?
A: There are two existential threats to the United States of America. One is the nuclear weapons that the Russians have. I think we’ve got that very well under control. There’s a new START treaty that certainly addressed that, and I think the probability [of the weapons being used] is as close to zero as it could be. The other existential threat is cyber. The challenge for me and many other leaders is to really understand it. No longer can we delegate this to some part of our organization. Leaders have to understand it because leaders make decisions about investment, about policies and regulations. We are vulnerable in the military and in our governments, but I think we’re most vulnerable to cyber attacks commercially. This challenge is going to significantly increase. It’s not going to go away.
A lot of people don’t feel the intensity of that threat because it seems so abstract. They don’t understand what a cyber attack would do.
The potential is to shut down our transportation system, shut down our banking system, shut down other infrastructure in our country, and essentially bring us to parade rest. Now it’s a two-way street. It’s a threat, but we’re not completely unprepared in that regard. Both President Bush and President Obama have invested heavily in this, and we’ll need to continue to do that.
At one time you said in a different context that the national debt was a threat to national security. What was your thinking?
Actually the way I said it was — and I still believe this — that it’s the single biggest threat to our national security. Obviously it’s complex, but the way I looked at it, if we didn’t get control of our debt, there would be continued loss of confidence in America.
I was in the military for over 40 years, and one of the principles I kept with me was that there’s an expectation globally that the U.S. will lead. Questions about that expectation have certainly risen in recent years. The fact that there’s even a question about that is worrisome to me, and I think needs to be for a lot of people.
You were the first chairman of the Joint Chiefs to talk explicitly about the importance of the economy in the defense of the country.
This goes back a long, long way for me. As a Naval officer, I’ve been all over the world, and one of the foundational lessons I learned was that parents everywhere would like to raise their children to a higher standard of living in a peaceful environment. That’s a universal goal for families. And a healthy, growing economic situation generates much more positive outcomes for people all over the world. In the past 10 or 15 years, the economic linkage we have is probably more than we really understand.
Is China the next superpower? You’ve said that its military development genuinely concerns you.
We have to think about them continuously. They are building a military to defend themselves, and it will not be one that’s just offshore, locally. They have every right to build a navy and an air force that protects their freedom of navigation and the sea lanes that support the commerce they depend on. I have no problem with that. What I am concerned about is the lack of transparency. I’m concerned that we don’t have a relationship from our military to their military that’s very robust at all. When I was chairman, we started those visitations. My counterpart from China visited the U.S., and I went back there. As our countries are linked by these economic bonds, it’s critical that the military constantly be in touch.
Other areas the Chinese are developing are very concerning to me in terms of their missile technology, which is very specifically focused on our U.S. aircraft carriers. You don’t shoot a satellite out of the sky, which they did a few years ago, without being very capable. They would argue they’re way behind us. In some areas that is the case; in other areas they’re very competitive, and we need to be mindful of that. They’re building a very robust navy. It’s got a long way to go, but they’re building numbers of ships, numbers of submarines. The strategic intent China has with this military is the question. It’s a question that we in the United States military have, and we need to pay a lot of attention to the answers we get and the answers we don’t get.
The Army says today’s soldier must be a warrior, diplomat, statesman, communicator, creative thinker, and business manager. The other services have reached similar conclusions. How on earth can you train people to be all those things?
The skills they have are truly exceptional. Whether it’s in medicine or infrastructure or transportation or logistics or IT or high-end technological systems as demanding as any in the country, in space, under the sea, on the ground, they’ve met that calling.
We have invested a tremendous amount in training. Our training is world-class across all the services. We spend an awful lot on every soldier, sailor, airman, Marine, Coast Guardsman that comes in, and we ask them to do an awful lot, sometimes more than we expect of ourselves, and they do that. In Iraq and Afghanistan, it’s one thing to be a combat warrior with the weapons that go along with that. It’s another thing to enter a small area in these countries and teach people how to run a city, to get involved in city management or building infrastructure or making things work. We haven’t had extensive training in that, save a lot of on-the-job training, and our people have just been magnificent.
That gets to an issue that I know is close to your heart. The unemployment rate among veterans is much higher than that in the general population. [For a success story, see “How Amazon Learned to Love Veterans.”] What’s going on?
Some 70% to 80% of all who join the military will return to the civilian workforce. They’ll return to communities, and one of the things I’ve worried about is the increasing disconnect between the American people and our men and women in uniform. We come from fewer and fewer places. We’re less than 1% of the population. I’ve had conversations with community leaders who want to help, but they don’t necessarily know how. They’re not very familiar with a soldier who’s been through five or six deployments, or a family who over the course of 10 years has seen their spouse or mother or father — mostly fathers — gone for literally half that time. In some of our special operations units, their deployments are 15 and 20 different times. So we’ve seen stress on the family. We talk about post-traumatic stress for men and women in uniform, but we see what I would call secondary post-traumatic stress going on in families.
We have many veterans who have the skills I talked about, extraordinary young men and women in their twenties, and they will lead for generations to come in this country. They’re wired to serve; they want to make a difference. So what I’m focusing on is community leadership connecting a sea of goodwill to these young men and women who are so extraordinary. If we can make that connection, they’ll take off by themselves.
What should employers know about veterans that maybe they don’t?
That they are tremendously dedicated, loyal, disciplined young people. They have life experiences under pressure that are very difficult to describe. They’re great in a team. They have exceptional skills that translate directly to the civilian workforce. I have seen employers struggle with how to connect with them. One of the best ways is to hire a veteran or two in your organization who understands veterans. Those individuals will be able to make those connections and could really make a difference in the ability to hire more vets.
You went through the Advanced Management Program at the Harvard Business School, the first chairman of the Joint Chiefs to do anything like that. How was it valuable to you?
It was an 11-week program in 1991, and I was a Navy captain. I found it incredibly stimulating. The professors were the best I had ever been in class with. Our automobile industry back then was running the world, yet it struck me that it certainly didn’t have the adaptability and flexibility that I saw in some of the then-smaller companies, such as Toyota (TM).
It was the first time I ever saw balance sheets. So I actually understand a little bit about what a balance sheet is. I learned a lot there, and one of the things I learned is that there are always ideas out there that you don’t know anything about. The more senior I got over time, the more I tried to seek those areas of diverse opinion to incorporate into my own thinking in making decisions. So I actually learned more there than I thought I did when I went through it.
This story is from the May 21, 2012 issue of Fortune.