THE USSR: PROBLEMS POLICIES AND PROSPECTS 1967-1968

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP08S01350R000100070001-9
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 26
• Document Creation Date: December 21, 2016
• Document Release Date: September 15, 2008
• Sequence Number: 1
• Publication Date: January 9, 1968
• Content Type: REPORT

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Secret
The USSR: Problems, Policies, and Prospects
1967-1968
-- Secret
113
9 January 1968
No. 0577/68
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THE USSR: PROBLEMS, POLICIES, AND PROSPECTS 1967-1968
General Perspective
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1. History may ultimately record that the Soviet
Union of Brezhnev, Kosygin, and company was not much
different in its essentials from the Soviet Union of
Nikita Khrushchev. There are, of course, notable dif-
erences in temperament and style between the present
careful collective and the impulsive and impatient Mr.
Khrushchev. But--in contrast with the impressive
series of changes which occurred in the aftermath of
the death of Stalin--the main lines of Soviet doctrine
and policy have remained substantially unaltered in
the roughly three years since the fall of Khrushchev.
2. It is true, nevertheless, that under a collective
leadership there have been important changes in the
way that national policy is formulated and in the
way that it is carried out. If the present leaders
have not been inclined to find new paths or to seek
new purposes, they have nonetheless repudiated Khru-
shchev's excesses of style and extremes of policy. They
have chosen to reign as a largely colorless committee
and to govern primarily through compromise and con-
sensus. They seem to recognize--as Khrushchev often
did not--that many of the problems facing them are
very complex and that their ability to act on these
problems is limited. Another domestic undertaking
comparable to Khrushchev's vast program to transform
the Virgin Lands, for example, would seem to be beyond
the courage and the capacities of the collective.
Similarly, abroad, another move analogous to Khru-
shchev's brash (and disastrous) missile venture in the
Western Hemisphere would seem to be completely out of
character for the wary group of men now in the Kremlin.
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3. Thus the spirit of the collective is cautious.
Perhaps as important, the machinery of the collective
is cumbersome. It is certainly an oversimplification
to say that, if Khrushchev controlled the bureaucracy,
the bureaucracy controls his successors. There is,
however, some truth to this notion. Brezhnev, for
example, often seems to speak for the professional
party apparatus; Khrushchev usually spoke to it. In
any case, with a variety of views and interests rep-
resented within the Politburo, it cannot always be
easy to arrive at decisions and may often then be
difficult to execute them. Moreover, it is clear
that there are strong disagreements among the top
leaders over such diverse matters as the pace and
character of economic reform, the proper allocation
of the nation's economic resources, and what some
regard as the declining momentum of Soviet foreign
policy.
4. The shortcomings of committee rule, together
with the political appetites of the leaders who operate
within it, are matters of common knowledge and concern
within the Soviet establishment. And certainly the
inadequacies of accomplishment and the failures of
policy serve to give the discontented and the ambitious
both a pretext and a reason for seeking change. But
no one can say--and perhaps least of all themselves--
how many specific failures (such as their inability
to foresee or forestall the Arab collapse in the June
war) the present leaders can suffer, or how many
chronic issues (such as their constant struggle over
economic priorities) they can endure.
5. Nevertheless, if the present Soviet leadership,
standing on the brink of a new year, is of a mind to
congratulate itself, it could do so on several grounds.
First, it has, after all, managed to survive for
more than three years without major changes in its
composition or in the way that it functions, and--
whatever happens in the future--this in itself is
no small accomplishment. Second, even if they should
not claim the lion's share of credit for themselves,
the top leaders have at least helped to put some
momentum back into an economy which, under Khrushchev,
was showing signs of foundering. Third, they have
some reason for satisfaction in a number of lesser
gains, including a measure of progress in the imple-
mentation of the limited economic reform program, and
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some apparent improvement in relations with the general
public as a result of the increased availability of
consumer goods during the 50th Anniversary year.
In the international sphere, they can feel some
pleasure about the way events are moving in Western
Europe and about the trend of their relations with
Turkey, Iran and India. They have preserved their foot-
hold in the Middle East and probably think their chances
of expanding it are good. They can also derive some
comfort from the distress the United States is suffer-
ing from the war in Vietnam. Concerning the Communist
movement, they can feel substantial relief at the way
Peking has damaged its own position.
6. Despite accomplishments such as these, the So-
viet leaders, looking back on the year just past, have
little reason for jubilation. Indeed, they have reason
devoutly to hope that next year will be better than
last, for 1967 brought them woe as well as blessings.
Thus, at home, 1967 brought them:
--in the economy, the slighting of investment,
the key to future growth;
--within the leadership, an apparent intensifi-
cation of controversy over the question of resource
allocations;
--and, in the area of popular and party morale,
waning ideological fervor, unrelieved discontent among
many writers and artists, and continuing restiveness
among the young.
And thus, abroad, 1967 also brought the leaders:
--surprise and pain at the Arab military
debacle in the six-day war in the Middle East;
--some reason for increasing concern over
the possibility that the US would take actions which
would enlarge the war in Vietnam, raising the question
of more direct Soviet involvement;
--anxiety over the potential dangers of Mao's
cultural revolution, frustration over the antics of
the Cubans and the Rumanians, and dismay over their
inability to restore discipline among the Communist
parties of the world.
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7. What of the new year 1968? Will it bring a
similar mixture of profit and loss, pleasure and pain?
Probably so. Domestic prospects are not especially
bright. The question of resource allocation, for ex-
ample, will almost certainly remain at issue, and con-
tention between the regime and some of its unhappy
subjects is not likely to be dealt with in any effec-
tive and lasting way. Much the same can be said about
the USSR's prospects abroad. The urge to compete
with, to outdo, and indeed to undo the United States
in most areas of the world and in most areas of in-
ternational policy will no doubt remain one of the
strongest impulses behind Soviet policy. At the same
time, this urge is likely to some extent to be curbed
by the Soviets' appreciation of the limitations of.
their own capacities and by their awareness that nu-
clear conflict between the two great powers would be
mutually suicidal. Thus, the quandary the Soviets
find themselves in vis-a-vis the United States will
almost certainly remain precisely that during 1968.
8. Moscow, however, will certainly see opportuni-
ties for gain in 1968 which it may be all the more
eager to exploit because of the strategic standoff
with the US. Though essentially cautious, the Soviet
leadership is conscious of its "superpower"-role and
of a steadily growing capacity to make its political,
economic and military weight felt.in areas outside
its traditional orbit. There is every reason to ex-
pect that Moscow will be especially alert to extract
advantage from the position it has established in the
Arab world. and in the Mediterranean Basin generally.
Here, as elsewhere in the Third World, military aid
will continue to provide a handy opening wedge,
though there will be both trials and errors and the
Soviets will find it impossible to impose a single
pattern on relations with these countries. In Eu-
rope, there will be further losses in the East, somae,
progress in the West. Toward China, there is..a
chance of a modest improvement in relations only if
Mao should die or be replaced.
9. The ambivalence involved in seeking to compete
with the US without confrontation will lead to uncer-
tainties and, at times, arguments within the leadership.
Even should the leadership change appreciably (and this
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is always possible), its collective nature will prob-
ably endure over the short term. To many of the So-
viet leaders, the power relationship with the US,
though improving, will continue to appear unsatis-
factory; some will wish to devote priority attention
to all manner of efforts to eliminate the imbalance.
Others, however, will see less need of this, will be
content to settle for an adequate level of deterrence;
any other course, they would fear, would simply pro-
voke the US to an even greater military effort and
force the USSR into arms expenditures which could
only cripple the Soviet economy as a whole.
10. Although disagreements as fundamental as this are
not likely to be resolved totally next year, there are
few grounds for the West to be encouraged about the
general trend of Soviet thinking. The pattern of
recent developments--the tenor of public discourse,
the disbursement of funds, the completion of missile
silos, the reluctance of the Soviets to discuss US of-
fers concerning arms control, the Soviet posture in the
Middle East, and even the increasing eminence of Brezh-
nev--all these signs. suggest that the leadership has
concluded that it must continue to seek major improve-
ments in the Soviet strategic position, even at the
risk of jeopardizing economic growth.
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1. The celebration of the 50th Anniversary of
the Bolshevik Revolution bore the marks of the mood
and style of the collective personality which has
fashioned Soviet policy during the past three years.
While the ordinary citizen--stimulated by vodka,
parades and a week-long break from his normal routine--
had reason to be festive, the official oratory which
droned on around him was anything but exuberant.
Looking back over the five decades of its existence,
the Soviet government had more to be grateful for
than mere survival, but as it contemplated the state
of the nation and its place in the world, it also
had reason to take a sober view.
2. The anniversary happened to just about co-
incide with the third anniversary of Khrushchev's
overthrow. Despite some internal shifts of power,
the committee that took over from him has since re-
mained intact and its way of doing business has
changed hardly at all. Some of this stability has
been imparted to the national economy and to Soviet
behavior abroad. Not much yeast has been put into
either, however, largely because committee rule has
entailed compromise, caution, and the choice, in most
cases, of the safe middle way. The collective has
not.suffered any serious setbacks, either at home
or abroad, but neither has it turned any major profits.
As it begins its fourth year a number of important
issues--some old, some new--are becoming more insistent.
3. For a regime whose overriding domestic pre-
occupation is economic performance, the need to find
material incentives to stimulate labor output grows
as ideological fervor declines. Accompanying the
decline in fervor is a creeping social indiscipline,
especially among the youth, and alienation among
the educated elite. The regime has been unable to
find any answer but repression, often harsh, to the
rebelliousness of some of the leading lights of
the cultural intelligentsia who are impatient for
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liberating reforms. The regime finds its economic
goals further hampered by the lethargy and resistance
to change of its massive bureaucracy.
4. None of these underlying difficulties seems
as likely, however, to provoke controversy over domestic
policy as does the issue of economic allocations.
This problem, though a recurrent one, seems now to
be reappearing in sharpened form, partly under the
pressure of rising defense expenditures, and has
produced discord within the Politburo itself.
5. Signs of tensions in the Soviet leadership
over both foreign and domestic policies have become
more evident recently. There is no reason to expect
that these tensions will diminish. Yet even if the
complexion of the collective personality should be
altered, it is not likely that collective rule will
suddenly collapse or that the collective style will
change sharply. Moreover, no matter who the architects
of Soviet policy might be, they would have to work
with much the same materials now at hand. Thus,
the Soviet leadership's prescription for dealing
with its problems in the immediate future will probably
be more compromise and more caution.
6. No single figure has been able to dominate
the political scene as Khrushchev once did, and the
country has had to function without the kind of forceful,
though often eccentric, direction of policy that
he provided. The precedence given to the general
secretary of the party, Brezhnev, during the jubilee
ceremonies confirmed him-in his place as the leading
figure in the regime. It seems, however, that he
is still only preeminent rather than predominant.
He, Kosygin, Podgorny, and Suslov have become the
inner circle of the Politburo whose views probably
count for more than those of the other seven members.
It is probable, that on most, if not all, of the
chief issues of Soviet policy that have arisen during
the past three years, a majority of these top four
have stood on common ground.
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7. There is no doubt, however, that consensus
has sometimes come hard--the economic reform program
announced in 1965 seems to have been an assortment
of painful compromises--and that at other times the
dominant view has been challenged by leaders of the
second rank.
8. The collective leadership has survived so
long largely because none of the leaders has as yet
displayed the power, fortitude, or the desire to
upset existing arrangements. (Shelepin, one of the
younger men in the Politburo, seems to have had serious
designs on Brezhnev's position, but his claws have
now been pulled). Moreover, since Khrushchev's overthrow,
the collective has been governed by a ruling of the
Central Committee which decrees that the premier
posts in the party and government should never again
be held by one man. Apart from this check on the
re-establishment of one-man rule, and the traditional
primacy of the party chief, there are no known institutional
sanctions or safeguards regulating political interplay
within the leadership.
9. The present political equilibrium seems
therefore to be intrinsically fragile. Of the four
top leaders, the largest question mark hangs over
the future of Kosygin, who from time to time is rumored
to be ready to step down, either because he is tired
and ill or because his economic policies are being
frustrated. With his departure would go a voice
which seems generally to have been on the side of
moderation. By and large, he has displayed this
quality more consistently than Brezhnev. The party
chief, though he too seems to have taken a middle
of the road position on most major issues, gives
signs of being more orthodox in basic instinct as
well as more inclined to defer to military interests..
10. This is not to say, however, that changes
in the internal balance of the Politburo would nec-
essarily be reflected in a re-orientation of Soviet
foreign policies. Although differences in outlook
exist, distinct cleavages have not been apparent.
It seems to be true that in Soviet politics now there
are those who normally respond to issues as tradi-
tionalists, i.e., with ideological rigor and
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bureaucratic conservatism, and others who are willing
to stretch doctrine and entertain certain unortho-
dox departures in policy. What cannot be said is
that all Soviet leaders can be placed in one or
another category or that such a division reflects
so simple a matter as a split between militants and
moderates.
Foreign Policy
11. The present leaders would like to see So-
viet power and ideology become dominant on a world
scale. As a real prospect, however, the notion
of a world-wide Soviet triumph has long since lost
much of its substance and virtually all its immediacy.
Too many things have happened in recent years--too
much trouble with the economy, too many rows with
the Chinese and within the international movement,
and too few gains against the West--to permit any re-
sponsible Soviet leaders to view the future with
the kind of simplistic optimism once expressed by
Khrushchev.
12. But if the Soviets now understand that there
are definite limits to their ability to shape and
exploit the course of events abroad, they have not
as yet shown signs of accepting this appreciation
gracefully. They sometimes seem most reluctant
to match their ambitions to. their means. Conse-
quently, Soviet foreign policies now seem to reflect
both a new sophistication (a more realistic and
flexible awareness of national interests) and an old
simplicity (the dogmatic insistence that the world
conform to the Soviet image of it). This ambivalence
can be expected to persist for some time and to be
evident in the way Moscow deals with the most press-
ing international issues now facing it.
13. In no aspect of Soviet foreign policy is
this ambivalence more conspicuous than in relations
with the US. The attitudes of the Soviet leaders
are conditioned by persistent, underlying suspicion
of the purposes of the foremost "imperialist" state,
on the one hand, and, on the other, by an awareness
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of the dangers in the nuclear age of uncontrolled
antagonism between the two great powers. The second
of these conflicting impulses has, in general, pre-
vailed under the collective leadership, as indeed
it did under Khrushchev,?but not without creating
tensions in the policy-making process. In particular
instances, where decisions affecting relations with
the US were concerned, hesitancy, ambiguities and
the attraction of a harder anti-imperialist line
have been apparent. From time to time, episodes
occur, such as the recent drugging of the US mili-
tary attache and his British colleague and similar
KGB-engineered incidents, which are hardly contrived
to improve the state of US-Soviet relations.
14. The Soviet leaders have publicly asserted
that no resolution of basic differences with the
US is conceivable so long as the US is involved in
the war in Vietnam. But they have also indicated
(and, during the Middle East crisis, demonstrated)
a strong desire to keep the lines open to Washington.
And though they have at times insisted that US-Soviet
relations must remain frozen for the duration, they
have been willing to conclude specific agreements
(e.g., on the peaceful uses of outer space) and to
negotiate about others (e.g., nuclear proliferation)
when they saw larger advantage to Soviet policy.
In formulating its policies toward the US, the leadership
has been unable to resolve.the contradictory demands
of a policy which seeks, on the one hand, gains against
the US in Europe, the Middle East and elsewhere and,
on the other, a tacit understanding with the US to
avoid measures and countermeasures which would seriously
risk international crises.
Arms Control
15. The USSR does not view arms control as
a problem of great urgency. Moscow does see, however,
some political profit in disarmament negotiations
and in US-Soviet agreement on certain limited forms
of control, such as a nuclear nonproliferation treaty,
especially when it can be used as a means of promoting
the political and military containment of West Germany.
There is no reason to believe that the desirability
of a treaty has been at issue within the Soviet
leadership.
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16. Other arms control proposals now pending
hold little interest for Moscow. Thus, for example,
proposals to restrain the world arms trade are not
likely to appeal to the Soviets since such trade
and aid is clearly regarded in Moscow as its primary
political tool in the Third World. And concerning
measures of greater scope, such as the control of
strategic weapons, the Soviets are likely to proceed
with great caution and suspicion. In this instance,
the collective leadership's characteristic hesitancy
when faced with questions of considerable import is
probably compounded by the apprehensions of the So-
viet military, by the baneful influence of Vietnam
on US-Soviet relations, and possibly by differences
of opinion within the leadership as well. It is
possible that the Soviet leaders will, after consider-
able agonizing among themselves, decide to enter into
exploratory discussions with the US on the ABM ques-
tion, but for the present the prospects appear to be
slight that they would be willing to agree to any
comprehensive program of strategic arms control.
Vietnam
17. The Soviet leaders have seen in US involve-
ment in the war in Vietnam an opportunity for diplo-
matic and political profit, and they have been quick to try
to exploit this opportunity wherever possible (as for
example, in Western -Europe). They are also concerned,
however, that through their own involvement in the war
they might become embroiled in situations which they
could not control. Neither the US nor North Vietnam,
the principal actors in the conflict, is very sus-
ceptible to Soviet influence; either of them could
behave independently in a way which could test the
USSR's resolve, strain its resources, and risk its
direct involvement. But, if uncomfortable about the
degree of their commitment to an ally which has a
will of its own and which pursues a cause (control of
the South) which is not of vital concern to the USSR,
the Soviets nonetheless see no acceptable alternative.
Almost certainly, they hope Hanoi or Washington, or
both, will some day make a political solution to the
war possible. In the meantime, they will seek to
persuade the US not to escalate the conflict any
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further and to agree to terms for a settlement which
would be acceptable to North Vietnam.
18. The USSR's delight at the way China was able
to dissipate its resources in the Communist world
by behaving bizarrely at home seems to have been tem-
pered by concern over China's rabid hostility, be-
wilderment over the course of events inside China,
and apprehension over what might happen next. Over
the last few years, the Soviets have strengthened
their armed forces along the Sino-Soviet frontier
and in Mongolia and--though probably fearing only
border skirmishing--are probably preparing for more
serious contingencies. In the political and propa-
ganda arena, the Soviets have won handsome dividends
by striking an attitude of cool restraint toward
the Chinese. Although it is conceivable that there
are varying estimates within the Soviet leadership
of the long-term outlook for Sino-Soviet relations,
it is most unlikely that Moscow will consider an al-
ternative to its present course as long as the Mao
faction remains in power in Peking.
The Communist Movement
19. By and large, the trend toward declining
Soviet authority in the Communist world has not been
arrested. Among the Eastern European states, Rumania
has been the most vocal and demonstrative in claiming
the right to pursue its national interests largely
according to its own lights, but such tendencies
are growing, though more quietly, elsewhere in the
region. And the USSR's problems with Castro's Cuba--
particularly over whether Latin America is ripe for
revolutionary upheaval or not--make the emotional
gulf between the two Communist states ever wider.
20. At the same time the Soviets have some
successes to their credit. They have managed to
slow down the movement in Eastern Europe toward broader
contacts with West Germany and other West European
states. They have also finally, thanks again in
no small part to Chinese extremism, made a step toward
the convening of a unity conference of the international
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movement. Nevertheless, it is evident that the kind
of international Communist cohesion that Moscow longs
for is a forlorn hope. Most of the Communist parties
which will gather in Budapest in February to "consult"
on an international conference want no part of a
Soviet-imposed policy consensus.
Europe
21. The Soviet leaders appear to be convinced
that their generally conciliatory approach to West-
ern Europe is a promising one and seem to recognize
that they would have much to lose and little to gain
by reverting to a harsher policy. They will probably
continue for some time their present line of trying
to persuade the West Europeans that the US is beginning
to disengage from Europe and that detente with a
benevolent Soviet Union is an ever growing possibility.
The Soviets will almost certainly continue publicly
to treat West Germany as a pariah, but will privately
seek to explore the possibility of movement in Bonn
toward acceptance of the status quo in Germany.
22. The Soviet decision in the midst of the
Arab-Israeli conflict to start some replacement of
military equipment in friendly Arab countries was
probably provisional, intended primarily as a political
holding action and not as an encouragement to continued
Arab militancy. But the Soviets must recognize that,
if they wish to enlarge their influence in the area,
an aim they are very unlikely to abandon, they have
no alternative to continuing to work with the radical
Arabs. The speed with which the Soviets moved into
the military vacuum opened up by the Egyptians in
the Yemen and their incipient courtship of Jordan
are proof that Moscow will not be backward in exploring
avenues of new influence.. But it is still unlikely
that they will wish to do this by entering into actual
military alliances with any of the Arab states, for
the USSR has no desire to give these states a hold
over its policies. The establishment of Soviet bases
in the area would contain some of the same hazards
and would, in addition, seriously undercut the USSR's
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"anti-imperialist" stance. Short of this, however,
Moscow is likely to see both political and military
advantage in expanding its military presence in the
area.
23. Moscow will continue to exploit anti-Western
attitudes in Arab countries, but it will not run
the military risks or accept the political costs
of identifying itself with Arab aspirations to destroy
Israel. It follows also, however, that--barring
a major change in Arab attitudes--the Soviets will
not give very much help to diplomatic efforts to
move toward a basic settlement of the Arab-Israeli
conflict.
24. Partly as a result of its experiences in
recent years in such places as the Congo, Ghana and
Indonesia, the Soviet Union's confidence that it
possesses a reliable formula for dealing with the
Third World has diminished. Khrushchev's simplis-
tic assumption that the underdeveloped nations were
animated by a single economic and social impulse
which could be exploited in a uniform way has been
confounded by events. The USSR has made steady
progress in increasing its influence in the states
on its southern periphery, such as Iran and Turkey,
and will continue to give careful attention to its
relations with them. Elsewhere in the Third World,
it is questionable whether the USSR's political
profits have been commensurate with its expendi-
tures of cash and diplomatic energy. In any case,
recent history has demonstrated that military and
economic aid and the appeal of common socialist as-
pirations cannot guarantee the Soviet Union a stable
political foothold in the midst of nationalist tur-
bulence.
25. In Latin America, Moscow, seeing little
prospect that the Communists can achieve power in
the present circumstances by insurrectionary methods,
has counseled the parties of the area to pursue
united front tactics wherever possible. Meanwhile,
the Soviets themselves, despite Castro's angry
protests, are trying to build for the future on the
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basis of expanded commercial, consular and diplo-
matic ties with governments of varying political
coloration. Much the same approach is taken toward
Africa and the non-Communist nations of Southeast
Asia and the Far East.
26. Despite its disappointments, the USSR will
almost certainly maintain sizable aid programs for
the less developed countries. Economic aid patterns
may change; there are signs of a more discriminating
approach and a shift to greater emphasis on military
aid. But, while new extensions of economic assistance
have been declining, total drawings by recipient
states next year are likely to be about the same as
in recent years, about $300-350 million.
27. The lessons of the Middle East war have
obviously not made the Russians any the less ready
to use military aid as an instrument of political
influence. To this end, the USSR is evidently
fully prepared, where opportunity arises and where
geography permits, as in the case of Nigeria and
the Yemen, to call on its capacity to provide mili-
tary aid promptly and in-quantity. Despite their
reluctance to make extended commitments, the Soviet
leaders are almost certainly convinced that, as a
great power, the USSR has a legitimate interest in
practically all areas of the world and a political
need to assert that interest.
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1. The collective leadership has reason to be
pleased with the performance of the economy during
the first two years of the current Five Year Plan.
Economic growth, which had slowed under Khrushchev,
accelerated in 1966-67. (See table on page II-2).
Agricultural production was at a record level in 1966
and remained high in 1967. Above average weather--
especially in 1966--played a vital role in this
increase, but new monetary incentives and more
fertilizer also had a beneficial effect. The
growth of industrial output increased significantly,
in part as a result of greater raw material supplies
from agriculture. Most of the production goals of
the Five Year Plan are being fulfilled. With large
emergency wheat imports no longer needed, gold
reserves increased and the hard currency deficit
dropped. Implementation of the major economic reform
launched in late 1965 has proceeded relatively
smoothly, and the reforms appear to be yielding some
small improvements in efficiency.
2. This does not mean, however, that the
leadership is without serious economic problems.
Quite the contrary. In the distribution of
resources, defense and consumption have been favored
and investment goals have been greatly underfulfilled.
Defense spending rose sharply in 1966-67, and the
annual rate of improvement in per capita consumption
more than doubled. The rate of growth of industrial
investment, however, which was already low, dropped
even further, and in the key machinery sector the
output of investment goods grew much more slowly than
did military equipment and consumer durables. Invest-
ment in agriculture increased at only about half
the annual rate originally scheduled for 1966-70
in the many-faceted program launched by Brezhnev
in 1965 to get agriculture moving again. In sum, these
two fat years for the marshals and consumers were
achieved in part at the expense of industrial and
agricultural investment, the key to the future growth
of the economy.
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USSR: Indicators of Economic Growth
1961-67 and 1966-70 Plan
Average Annual Rate of Growth ($)
1966-70
1961-65 1966-67 Plan
Producing Sectors
Gross national product 5 6 6
Industry 6 1/2 8 8 to 8 1/2
Agriculture 3 4 1/2 4 3/4
Principal Claimants
Consumption (per capita) 2 1/2 5 1/2 5
Investment
Industry 7 5 to 5 1/2 8
Agriculture 11 1/2 7 1/2 to 8 15 to 16
Defense 2 8 NA
3. To give a better shake to consumers in
the jubilee year the Kremlin imported an unprece-
dented $100 million in clothing from the West,
paying with hard currency that could have been used
to import machinery and equipment. Also, because
of the large carryover of feed grains from the
good 1966 crop, the regime could assure plentiful
supplies of meat and milk. Money incomes were
permitted to rise sharply, in part as a consequence
of new monetary incentives introduced in agriculture
to spur deliveries to the government. As final
insurance that the pie would indeed be large, the
regime stepped up the pressure on workers and
managers alike.
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Plans and Problems
4. Encouraged by the economic successes of
1966-67, the leadership apparently sees no reason
to change the policy of favoring the military and
the consumer. Indeed, the military apparently are
being favored even more strongly. At the Supreme
Soviet session in early October, the regime
announced a 15 percent increase in the explicit
defense budget for 1968 and an 11 percent rise in
outlays for science, which are thought to include
a sizable amount of defense expenditures. The plan
for 1968 and general guidelines for 1969-70, while
essentially reaffirming the over-all goals for out-
put and consumption originally set for 1966-70,
indicated major cutbacks in investment for agricul-
ture and in output goals for key, nonmilitary
commodities. A military-related sector--steel--
however, is to get a 23 percent increase in invest-
ment in 1968.
5. The revised plans for 1968-70 also imply
continuation of the rapid rise in money incomes, to
be spurred in 1968 by the inauguration of a large
boost in the minimum wage, generous new benefits for
workers in northern regions, and improvements in
pensions and other benefits. For the first time
since 1953-54, the rate of growth planned for con-
sumer goods industries in 1968 exceeds that for
producers goods.
6. By continuing to favor the military and
the consumer the regime is taking some major risks--
more so than in the past 2 years. The continued
slighting of investment in favor of defense is bound
to weaken long-run prospects for economic growth.
Moreover, the regime will have great difficulty in
increasing the supply of consumer goods nearly enough
to match rising incomes and expectations. The re-
sult could be shortages and rising dissatisfaction.
7. By permitting the rate of growth of indus-
trial investment to drop in 1966-67 with no upturn
apparently in the cards for 1968, the regime is
sacrificing rapid improvement in the quality of
its industrial plant and risking a future slowdown
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in the growth of industrial output. The growth of
capital stock (plant and equipment) in industry
has slowed to 8-9 percent annually, compared with
11 percent in 1961-65.
8. Similarly, in agriculture, large cutbacks
in investment make sustained future gains in out-
put less likely. The revised plan for 1968-70 may
have reduced by as much as a third the original goal
for investment in agricultural machinery and equipment.
9. The consequences of the decision to skimp
on investment will not cause serious problems in
industry and agriculture for another year or two
because of the time required to build and use new
facilities and equipment. Whether the economy will
continue to grow in 1968 at the high rates of
1966-67 will depend mainly on earlier investment
and on such factors as the effects of the economic
reform on industry and of the weather on agriculture.
10. In agriculture the chances are poor for
a significant increase in production in 1968.
Rainfall was below normal this fall in the princi-
pal winter grain areas. Fertilizer deliveries in
1968 are scheduled to increase only at half the
rate achieved in 1966-67. Under these conditions,
crop production could rise substantially above last
year only if the weather next spring is exceptional.
Output of livestock products, such as meat and
milk, is likely to level off or decline somewhat
even if the 1968 harvest is good.
11. The poor prospects for increases in sup-
plies of quality foods and for a repetition of
the special efforts made in 1966-67 to improve the
quantity and quality of consumer goods make it
unlikely that per capita consumption will rise
nearly so rapidly in 1968 as in 1966-67. But the
regime has made commitments that will boost con-
sumer incomes by nearly 9 percent and thus faces a
serious risk of acute shortages and growing popular
discontent.
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12. All in all, the regime's position is not
enviable. There does not seem to be agreement in
the leadership, however, as to what precisely should
be done to improve the regime's position. There
is evidence, in fact, that the decisions in favor
of increased allocation of resources to the mili-
tary have had their detractors. The decision to
cut back so sharply on planned investment in agri-
culture surely was not reached without a battle at
the highest political level. Politburo member
Polyansky has already called this decision short-
sighted, and other special pleading has appeared in
the press in recent weeks. Thus, the allocation of
economic resources is still clearly a matter of ac-
tive controversy at the highest level.
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Controversy
1. Soviet defense policies are in part a func-
tion of Kremlin politics, which, like politics every-
where, concern the questions who decides and what
should be decided. While the first question may
rarely be asked directly in the Soviet Union, it
poses itself in a practical, political way every
time the Soviet leadership faces a major decision
and every time a major policy is brought up for re-
view. It is a matter of some significance that the
leadership's conduct of policy has been subjected to
question over the past year.
2. This situation has an important bearing on
military policy. Recent evidence suggests that
the military establishment would not be reluctant
to mix in the political arena to assert or defend
its interests. Special pleading in the military
press for higher allocations was apparent last sum-
mer and fall when the new Soviet budget was being
formulated and the proponents of higher defense
spending and the heavy industry interest seemed
frequently to make common cause. In part because
of the existence of this influential lobby, the
regime's present emphasis on military policy seems
set for some time to come.
Military Considerations
3. The world situation as seen from the Kremlin
seems likely to reinforce this disposition. The mili-
tary power and policies of the United States continue
to constitute, in the Soviet view, not only a potential
threat to Soviet security but also a principal obstacle
to the exercise of Soviet political influence in world
affairs. Despite the rapid progress in Soviet strate-
gic programs over the past two years, the power rela-
tionship with the United States must still appear
unsatisfactory. The Soviet leaders are aware that
development efforts in US forces are aimed at improv-
ing the accuracy and penetration ability of US mis-
siles and at greatly increasing the number of re-entry
vehicles.
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4. In assessing their military needs for the
future, the Soviet leaders will undoubtedly wish to
continue strengthening the Soviet deterrent, not
only for defensive reasons, but to reinforce the
image of the Soviet Union as a great power. Even
though they recognize that strategic power cannot be
employed in war without unacceptable risks--and that
this recognition is shared by the United States and
the rest of the world--they are likely to believe
that the mere possession of power will tend to ex-
tend their freedom of action in world affairs.
5. Beyond this, the Soviet leaders will continue
to seek practical ways to translate their military
power into effective political influence abroad. A
main concern in this context is to develop the kinds
of conventional capabilities that will enable them to
show the flag and demonstrate a Soviet military "pres-
ence" in areas of particular interest such as the
Mediterranean. And, despite the disappointments they
have suffered in using military aid to influence
"national liberation" movements, they almost certainly
will continue their effort.
and that SS-11 deployment may be extended;
to receive substantial emphasis. There is evidence
that the SS-9 and SS-11 ICBM programs are continuin
The Coming Year
6. The specific military programs to benefit
from the announced increases in spending for 1968
cannot be projected until direct evidence becomes
available. But, judging by the lines of development
reflected in the deployment programs of the past year
and the trends in Soviet doctrinal writing, it is pos-
sible to identify certain programs and forces likely
zia new Polaris-type sub-
e appearing in some numbers;
capabilities will almost certainly continue to be
expanded.
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7. Moreover, there is no indication that the
Soviets are ready to agree to a freeze on ABM deploy-
ment. There have been no tangible responses to US
overtures concerning this subject. The Soviets have
continued work on the deployment of the Moscow ABM
system and on the ABM research and development program.
And Washington's decision to proceed with a limited
ABM deployment in the United States seems likely to
lend weight to the arguments of those interests in
the USSR which press for larger military programs in
general and a more extensive ABM deployment in par-
ticular.
8. In general, the most important issues of So-
viet military policy will continue to center upon
the strategic relationship with the US. If the So-
viets hope to improve their relative strategic posi-
tion, or even to maintain it, they will feel impelled
to respond to planned improvements in US strategic
forces. Whatever the specific responses may be,
the Soviets appear determined to maintain a credible
deterrent. Beyond t'i?is, they evidently attach great
importance to the attainment of a military posture
which they can construe as rough parity with the US,
and which they can use to support their assertion
of equality with the US in international affairs.
These considerations together with the internal po-
litical situation would seem to assure that the
high priority given to military programs--particularly
to strategic forces--will persist and that defense
expenditures will continue to grow.
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