INTELLIGENCE SCHOOL, TRAINING MANUAL NUMBER 4, THE OFFICE OF ECONOMIC RESEARCH

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• Document Creation Date: December 15, 2016
• Document Release Date: September 24, 2002
• Sequence Number: 1
• Publication Date: May 1, 1969
• Content Type: BOOK

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INTELLIGENCE SCHOOL
TRAINING MANUAL NUMBER 4
THE OFFICE OF ECONOMIC RESEARCH
OFFICE OF TRAINING
MAY 1969
25X1
ILLEGIB
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NOTE: This document contains information affecting the national
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FOREWORD
This volume is designed as a training aid for use in the Intelligence
School, Office of Training; and it is intended principally for the
use of those Career Trainees whose initial employment will be in the
Deputy Directorate for Intelligence. In addition to the Career Trainees,
analysts currently engaged in economic research and other professionals
who have had occasion to speculate about the responsibilities of the
Office of Economic Research may find this manual of interest. It contains
a brief text on various aspects of the economic intelligence production
activity in this Agency and some thoughts about professionalism in
economic intelligence production; it also provides a collection of readings
on methodological and. philosophical problems. These readings have been
prepared by personnel (or former personnel) from the Office of Economic
Research. In all instances, the readings have appeared in Studies in
Intelligence.
Statistical data in this volume were provided by the Office of Economic
Research, and that Office also reviewed the draft of this manual. The
content, emphasis, and interpretations are, however, the responsibility
of the Intelligence School, Office of Training.
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TABLE OF CONTENTS
PAGE
NO.
"5X1A
PRODUCTION OF ECONOMIC INTELLIGENCE . . . . . . . . . . . . 5
Type and Volume of Reports . . . . . . . . . . . . . . . 5
Support Activity . . . . . . . . . . . . . . . . . . . . 6
Personnel . . . . . . . . . . . . . . . . . . . . . . . . 7
The Production and Review Cycle . . . . . . . . . . . . . 9
PROFESSIONALSIM IN OER . . . . . . . . . . . . . . . . . . . 13
Edward L. Allen, "The Validity of Soviet Economic
Statistics " . . . . . . . . . . . . . . . . . . . . . .
14
"Shepherding a Soviet Tour" 22
s or Butter Problems of the
................... 35
.
Conomic Observations as War
46
Aerial Photography for
................... 60
"Rubles Versus Dollars" . . . . . . . 66
The Estimation of Construction
................... 77
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'Costing Nuclear Programs" .
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NO.
85
1A
'Estimating the Soviet Gold
Position . . . . . . . . . . . . . . . . . . . . . . . 102
"Post Mortem: The Chinese
Edward L. Allen, "Chinese Growth Estimates Revisited:
A Critique"
. . . . . . . . . . . . . . . . . . . . . .
"Tonnage through
121 2 (1A
133 25X1 A
1. OER Published Production: Types of Reports by
Geographical Areas, Calendar 1968 . . . . . . . . . Follows page 5
2. OER Economic Intelligence Support Activity, 1967
and January - July 1968 . . . . . . . . . . .. . . . Follows page 6
3. Recruitment of Professional Personnel by OER,
FY 1966 - FY 1968 . . . . . . . . . . . . . . . . . Page 8
1. The Office of Economic Research (Organization
Chart) . . . . . . . . . . . . . . . . . . . . . . Follows page 4
2. OER Production by Geographic Areas, Calendar 1968 . . Follows page 6
3. Producing Economic Intelligence . . . . . . . . . . . Follows page 9
APPENDIXES
A. DCID No. 3/1 (New Series).. "Production and
Coordination of Foreign Economic Intelligence". . . 155
B. Missions and Functions of OER Components . . . . . . 159
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INTRODUCTION
"I have met dozens of men who are moved and motivated
by the highest and most patriotic and dedicated purposes --
men who are specialists in economics and political science
and history and geography and physics and many other fields
where logic and analysis are crucial to the decisions, that
the President of their country is called upon to make.
Through my experience with these men I have learned that
their most significant triumphs come not in the secrets
passed in the dark but in patient reading, hour after hour,
of highly technical periodicals.
In a real sense they are America's professional
students; they are unsung just as they are invaluable."*
These words of praise from President Johnson for the professional
research activities of Agency officers probably were noted with as
much pride by members of the Office of Economic Research (OER)** as
by those of any other Agency component. From its struggles early in
the 1950's for recognition of its developing competence in intelligence
research on economic-industrial activities in the Communist countries
through increasing requests in the late 1950's and early 1960's for
assessments on the non-Communist nations, the Office of Economic
Research (OER) has now firmly established its "credibility" both within
and without the intelligence community. Today OER can be expected to
produce not only such items as "Czechoslovakia: The Economic Meaning
of Enforced Soviet Control" and "Implications of Moscow-New York Air
Service," but also such broad-scale reports as The World Gold Market,"
*From remarks made by President Lyndon B. Johnson at the
swearing-in ceremony for Mr. Richard Helms as Director of the Central
Intelligence Agency. CIA, Headquarters Employee Bulletin, 1 July 1966,
p. 2. U.
**The designation as the Office of Economic Research dates back
to 1 July 1967. From the early 1950's to that date it was called the
Office of Research and Reports.
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"Invasion of the European Capital Market by US Firms," and `Road
Construction and Wet Weather Logistics in the Leotian Panhandle."*
The formal directives under which OER has developed these ever
broadening responsibilities in the production of economic intelligence,
its place in the USIB structure, its interest in "professionalism,"
and a detailed study of same of the problems encountered and methodologies
employed in solving such problems should give one a better understanding
of this particular component of the Directorate of Intelligence.
AUTHORIZATION
Authority for the production of economic intelligence in the USIB
community is provided by Paragraphs 7a - 7c of NSCID No. 3 (New
Series)** which state that:
a. "The Department of State shall produce political and
sociological intelligence on all countries, and economic
intelligence on countries outside the Sino-Soviet Bloc."
b. "The Department of Defense shall produce military
intelligence. This production shall include scientific,
technical, and economic intelligence directly pertinent to
the missions of the various components of the Department of
Defense."
c. "The Central Intelligence Agency shall produce economic
intelligence on the Sino-Soviet Bloc and scientific and technical
intelligence as a service of common concern. Further, the Central
Intelligence Agency may produce such other intelligence as may be
necessary to discharge the statutory responsibilities of the
director of Central Intelligence."
*Respectively, ER IM 68-107, August 1968 (C), ER IM 68-88,
July 1968 (C), ER IM 68-86, July 1968 (S), ER IM 68-89, July 1968 (C),
and ER IM 68-74+, June 1968 (s).
**Revised, 18 January 1968. (S)
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Also NSCID No. 1 implies that among his other duties the Director
of Central Intelligence (DCI) is responsible for the coordination
of economic intelligence.*
More explicit on both the production and coordination aspects of
economic intelligence than either of the NSCID's is DCID No. 3/1
(New Series), particularly in its stress on the importance of the
Economic Intelligence Committee (EIC) of the USIB.** It should
be noted in passing that, as with most of the other USIB Committees,
the EIC Chairman and Secretariat are to be CIA personnel; and the
Director of OER is the Chairman of the EIC.
FUNCTIONS
In addition to the broad guidance provided by the referenced
NSCID's and DCID No. 3/1, specific guidance for OER on a Branch-
by-Branch basis is set forth in a recent OER regulation. The
functions of the Director of OER, as given in this regulation,
make it apparent how broad a charter is held by this production
component. The Director of OER has the responsibility to:***
a. Produce and issue all-source economic analyses
of the internal structure, recent development, future
prospects, external economic relations, and strengths
and weaknesses of all Communist countries and of all
non-Communist countries of significance to national policy.
b. Provide economic intelligence contributions and
other support to the national estimates production program
of ONE, to current intelligence publications of OCI, and
to the National Intelligence Survey program of OBGI.
*NSCID No. 1 (New Series), Revised 4 March 1964. (s)
**DCID No. 3/1 appears as Appendix A to this training manual.
"The Economic Intelligence Committee (EIC) was established by the
Intelligence Advisory Committee (IAC) on 29 May 1951 (IAC-D-22/1
Revised). Its terms of reference were revised and reissued as
Paragraph 3 of DCID 3/1.... Since 15 September 1958, the EIC has
functioned as a Committee of the United States Intelligence Board
(USIB)." USIB/EIC. Annual Report to the USIB of the Economic
Intelligence Committee, July 1967-June 1968. EIC-D- 7 .
August 19, 1. (s)
***OER, Office Regulation 1-13, Statements of Mission and
Functions, 1 July 1968, p. 2. (S)
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c. Produce such additional all-source economic intelli-
gence as directed.
d. Initiate collection requirements for his Office and
provide evaluation and guidance in support of collection
activity.
e. Serve as Chairman of the Economic Intelligence Committee
of the USIB and provide its secretariat.
f. Represent the Agency on the Economic Defense Advisory
Committee and the Advisory Committee on Export Policy.
Note in particular that the production efforts of the Office are
the result of research on an all-source basis and that the research
focuses not only on the Communist nations, but also on all non-
Communist countries of significance to national policy.` The
continuing economic difficulties of newly independent nations and
the continual emergence of new crisis situations would seem to
insure steady employment for OER personnel.
ORGANIZATION
To meet its obligations, OER is organized as noted in Chart 1.*
Research activities are carried on under two broad areas, the Communist
Research Area and the International Research Area. Each area
has an amalgam of functional and regional Branches. Even so, there
are many economic intelligence problems that call for a high degree
of intra- and inter-area cooperation and coordination. The responsibil-
ities of the Areas, Divisions and Branches which appear on the OER
chart are expressed in OE'R Office Regulation 1-13, Statement of
Missions and Functions, 1 July 1968, and these responsibilities appear
as Appendix B in this manual.
*Chart 1 follows p. 4.
**Appendix B, page 159.
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f ! l l I t I 1 M t 11 1
CHART 1
USSR/Eastern
Europe Division
Systems Development
Staff
North Vietnam
South Vietnam
Thailand, Laos,
and Cambodia
L Logistics
USSR China/North Korea Africa
Eastern Europe Industries Near East
Industries Resources Western Europe
Resources Western Hemisphere
Strategic Impact Orient
Trade and Transportation
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International
Services Division
Trade and Aid
Communications
Construction
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PRODUCTION OF ECONOMIC INTELLIGENCE
Type and Volume of Reports
Prior to the early 1960's, CIA's economic intelligence analysis
had focused principally on developments in the Soviet Union and
the other Communist nations. Such research as was done on non-
Communist areas during the Late 1950's and early 1960's was
usually predicated on some direct relationships between a "free"
or ''neutralist?' country and the Soviet Union or other Communist
countries--trade and aid activities had traditionally been high
on the list of economic intelligence priorities. As Soviet efforts
to trade petroleum, other r:aw materials, and finished products
(including military hardware and advanced weapons systems) increased,
so too did the time and effort devoted to intelligence production on
the economies of the newly independent and/or less developed areas
which were among the chief Communist targets.
Interestingly, the economic intelligence estimators of OER appear
to have at least kept abreast of -- and in some instances have been
well in advance of -- the requests of the policy makers. Considering
the concern of US policy officers with foreign announcements of
budget revisions (including defense budgets), economic plans, or
new industrial developments, the need for a "nose for news" is no
longer the exclusive province of current intelligence analysts.
OER reporting is in tune with the times. The in-depth, long-term,
book-length, grimly detailed, and deadly dull report--albeit "good
intelligence"--which was characteristic of the Intelligence Report
(IR) series in the days when OER was still establishing its
"credibility"* is no longer acceptable.
The most characteristic, formal publication of the OER presently
is in the format of the Intelligence Memorandum (IM) -- a sharply
focused, free-flowing, usually current report averaging 10 to 12
pages. As noted in Table 1,wk the IM series made up almost 50 per cent
*For some excellent thoughts on the need for a good
"credibility" record in the intelligence business, see Sherman
Kent, "Estimates and Influence," Studies in Intelligence, Vol. 12,
25X1 No. 3, Summer 1968, pp. 11-21. C
**Table 1 follows p. 5.
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TABLE 1
OER Published Production: Types of Reports by
Geographical Areas, Calendar 1968 a
Type of
World
Publication
Wide
Serially Numbered
Report
Memorandum
8
Handbook
1
Biweekly
Other EIC
Unnumbered
NIS
Special Vietnam
Miscellaneous
It
Total 13
General
USSR
Eastern
Europe
China
North
Korea
Cuba
2
1
1
1
5
9
12
10
2
5
1
1
2
3
2
1
1
3
2
it
it
1
5
18
17
18
7
8
Type of Middle Western Latin Less Developed
Publication Asia Africa East Europe America Countries (general) Total
Serially Numbered
Report 1 1
Memorandum 20 18 13 10 9
Handbook
Biweekly
Other EIC
Unnumbered
NIS 5 7 5 3 8
Special Vietnam
Miscellaneous 1 1 3
25 27 20 16 17
W Data provided by OER.
1 10
1 165
3
26 26
3 5
35
70
24
32 338
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of total OER published production in calendar year 1968. As
both Table 1 and Chart 2* show, the largest part of the IM and all
other OER publications -- in excess of 40 per cent of the total
number of items published in 1968 -- was on Free World areas. All
categories of reporting on the Vietnam war accounted for 33 per cent
of total published production in the same period.
In contract, little more than 20 per cent of OERR's published production
was on Communist countries; and on the USSR and Eastern Europe, less
than 10 per cent. Studies in world-wide economic intelligence
problems represented less than 5 per cent of the more than 300 items
produced.
Support Activity
It has already been mentioned that much of the OER production effort
is in response to the needs of policy makers or other non-CIA
requesters. Table 2,** showing the numbers of papers prepared in
response to internal and external requesters in 1967 and through
the first seven months of 1968 illustrates this point. Although
much of OER's production in response to internal intelligence
needs -- contributions to National Intelligence Estimates, chapters
for National Intelligence Surveys, and materials for the Office of
Current Intelligence involves highly significant intelligence
problems, there are often more critical issues involved in that
portion of OER's production which responds to external requests.
One or two specific instances will serve to illustrate the im-
portance of the questions being asked of OER. Largely as a result
of requests from the Department of Defense for various types of
estimates -- including some aspects of cost-effectiveness -- OER
found it necessary to devote special attention to the Vietnam war.
From tentative beginnings, including a Task Force approach, the
Office found it necessary to issue a series of reports of high
sensitivity for its policy-oriented requesters and more mundane
serial reports (e.g., the monthly Foreign Shipping to North Vietnam
series) for its intelligence customers. Eventually it was necessary
to organize a new Division -- the Indochina Division in the Inter-
national Research Area -- for the Vietnam research effort. Although
*Chart 2 follows p. 6.
**Table 2 follows p. 6.
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1.0
OER PUBLISHED PRODUCTION
BY
GEOGRAPHIC AREAS
CALENDER
1968
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TABLE 2
OER Economic Intelligence Support ictivity
1967 and January-July 1968x/
Papers Produced in Response to Specific Requests
External 1967
Jan-Jul 1968
White House 47
19
Congress 19
10
State 96
39
Defense 57
43
ACDA 6
1
Other Federal Agencies 15
6
ACEP-EDAC (Including COCOM List Review) 251
150
Other Interagency Groups 22
33
Foreign Governments 33
24
Non-government 3
1
Contributions to Intelligence Issuances of Other Offices
Office of National Estimates (NIE's)
41
17
Office of Basic and Geographic Intelligence
(NIS's)
38
21
Office of Current Intelligence
461
306
Weekly Watch Committee Report
337
167
aJ Data provided by OER.
bf Includes unpublished, typescript memoranda issued only to the requester.
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this Division has extensive internal capabilities and manpower,
it relies heavily on other OER components, particularly those
which specialize in transportation, shipping, and construction,
for help in meeting its obligations.
Similarly, the various stages of rapprochement with the Soviet
Union and the East European nations have traditionally involved
intelligence support for the study of a multitude of special
problems. The substantive expertise of OER personnel has been
called on extensively in such discussions as the Congressional
inquiries on the status of the Soviet and Communist Chinese
economies, on the significance of the proposed Fiat-USSR
automobile agreement, and on President Johnson's program for
"building bridges with the East European nations through the
expansion of trade.
Personnel
Of approximately professional intelligence officers in OER
ranks in mid-summer 1968, about 25 per cent had less than two
years of service in the office; about 20 per cent, two through
five years, 10 per cent, six through ten years; and nearly
1+5 per cent had more than ten years of service. In many of the
areas of substantive expertise, individuals with long service
records in OER also have continuity in specialty areas (e.g.,
fuels and power, transportation, construction, and communications
among others).
25X1A
Historically and traditionally, the professional complement in
economic intelligence has been a highly educated group who, by and
large, came into intelligence research primarily through the efforts
of OER or Agency recruiters rather than as reassignees from other
Agency components or as graduates of the Career Training program.
Table 3 shows how OER acquired its new professional personnel
during the past three years.
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TABLE 3
Recruitment of Professional Personnel by OERa/
FY 66
FY 67
FY 68
Number of direct hires
31
45
39
Number reassigned from
other Agency components
8
7
4
Number from Career Training
Program
2
7
7
41
59
50
Data provided by OER.
Ninety-eight per cent of the professional intelligence officers
in OER hold one or more college degrees: for 32 per cent the
B.A. is the highest degree! attained; for 52 per cent, the M.A.;
for 6 per cent, the M.A. plus all requirements for the PhD. except
the dissertation; and for 8 per cent, the PhD. Formal training
in economic theory is of paramount concern to OER, and personnel,
particularly junior grades, are encouraged to take either after-hours
or full-time college credit programs. In the past five years,
23 OER personnel have had full-time academic training. Of these
23, :one has received a M11A degree and four have received their
M.A. degrees. Most of the remaining 18 individuals who were on
full-time academic training are pending completion of their
dissertations for their Ph.D.`*
Although all four of the CER employees who are in full-time academic
training in FY '69 are in graduate-level programs at a local university
(American), in previous years such training has been taken at the
University of California (Berkeley), Brawn University, Columbia
University, and Ohio State University. In addition to the full-time
programs, OER also has long had arrangements with both American and
George Washington universities whereby credit courses in economics,
on both the graduate and undergraduate level, are offered after
hours at the CIA Headquarters. Various OER supervisory personnel
are accredited as faculty representatives at the respective universities
and teach the courses.
*Data provided to OTR/IS by OER, February 1969
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In addition to formal schooling, there is a significant amount
of on-the-job training that is acquired as one becomes more senior
in OER. Extensive use is made of field and orientation trips --
r
this is particularly true for those who are involved in functional
areas of research; opportunities are freely available through the
25X1 A for direct contact with industrial, business,
or academic spec a is s as the need arises; and strong support is
given to participation in professional societies. Prior to the
severe restrictions necessitated by US balance of payments problems,
so OER personnel were encouraged to attend various international
meetings -- the World Petroleum Congress, for example -- which
would be dealing with work-related problems; and four to six weeks
of TDY in non-Communist countries was rather usual for purposes
of area orientation or for discussion of special intelligence
problems.
The Production and Review Cycle
As with other major segments of the Deputy Directorate of Intelli-
gence, the principal function of OER is to produce finished
intelligence. The production cycle noted in Chart 3** is similar
to that in the offices of Strategic Research, Current Intelligence,
and National Estimates. The process has many features in common
with academic research and, to a more limited extent, journalism.
There are, however, certain significant differences. The following
comments may help to illustrate some of these distinctions at
various stages in the production process noted in Chart 3. In
the area of Preliminary Preparation, for example, note that:
Definition of the intelligence problem is usually
a shared effort in OER. Regardless of the origin of a
request, it has become usual for OER to have some
*Additional foreign and domestic travel was also possible
for some OER professionals with Russian language fluency to serve
as interpreters or delegates for scientific-technical exchange
Anlaara+innc ficr.ral fF.R nrnfessionals also have had an nnnnrfainity
No. 2, Spring 1968, pp. 3-51. C.
**Chart 3 folic w s P. 9.
25X1A
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PRODUCING ECONOMIC INTELLIGENCE
PRELIMINARY PREPARATION
1: Define problem -- requester and purpose
2. Note deadline
3. Determine format
4. Assign production responsibilities
ANALYTICAL PROCEDURE
1. Historical review -- check published reports
2. Data survey -- all potential sources,
USIB and non-USIB
3. Preparation of requirements
4. Research -- within given time frame
5. Writing draft -- response required
1. Branch review
2. Review by contributors
3. Division review
4. Area review
5. Office review and final approval
PUBLICATION AND DISSEMINATION
1. Editing (format, statistics, and style)
2. Dissemination by OER
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advance indication of an upcoming production request and for
OER personnel to help shape the request. Although the
immediately concerned production Branch frequently will be
principally responsible for developing precise terms of
reference, the next levels of command -- the Division and/or
Area -- usually get involved in this initial process.
(Always, when the request comes from the White House or
Congress!) Such review permits a better focus and a less
parochial view than is likely in academic research, where
a single individual may work to suit his own particular bias.
Deadlines for CER products are frequently as tight as
for OCI or ONE and can subject the economic intelligence
officer to pressures unknown to the academician. Obviously,
the depth of analysis is sometimes reduced by the need to
hold to a given time frame
Requesters' wants and needs are of primary importance
to OER. Where the professors and even some of the senior
journalists) are, for all practical purposes, masters of
their own destinies" insofar as research and writing
(reporting) are concerned, the same freedom seldom applies
to the OER professional. The emphasis of the 1950's on
leisurely, in-depth, long-term, self-initiated research --
much of m .?e academic than intelligence oriented --
came to an end in the early 1960's. As noted previously
(see Table 2*), there is a continuing flow of requests for
policy support and an ongoing series of NIE, NIS, and
other programmed commitments to be met. Such self-
initiated research as is done at the present time usually
represents an attempt to "crystal ball" an upcoming request.
Joint responsibility for economic intelligence
production has become common within OER, particularly as
the 1 July 1967 reorganization distributed substantive
competence throughout the regional branches within the
Office. Also, the heavy current intelligence responsibilities --
particularly reporting on the Vietnam War -- has increased
the need for OER coordination with OCI; policy questions
may require ONE participation, and the growing concern with
military-economics necessitates extensive cooperation with
OSR*
*Table 2 follows p.6.
**Until 1 July 1967, when OSR was made a separate office,
military-economic research had been a responsibility of OER.
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In considering Analytical Procedures, the differences
between the economic intelligence analyst and the academician
also can be sharp and distinct:
In surveying available data, the intelligence officer
is dealing not only with many of those same overt sources
known to the academic and non-intelligence research community,
but he also must survey an additional increment of "all source
classified materials -- the volume of such materials ranging
from the minute to the monumental, depending on the particular
substantive problem and region under study. As the data
survey reveals gaps in the intelligence information, the
intelligence researchers may call into play -- as the deadlines
permit -- the extensive collection machinery available to
USIB members. The effort that can be mounted to fill
requirements of the intelligence producers are unmatched in
the private or non-USIB sectors in either sophistication or
timeliness. Although the collection activity is regulated
by formal machinery beginning with the Priority National
Intelligence Objectives, OER's requirements are frequently
serviced through informal channels.
Perhaps the most critical of all differences between
the economic intelligence producer and his academic counterpart
is the fact that when called on to produce, the intelligence
officer knows that he must respond regardless of data limitations.
Unlike the scholar who can abandon a project which appears
unfeasible because of data limitations, the OER analyst,
sooner or later, must produce an estimate on the basis of a
visceral reaction -- even worse, the intelligence specialist
may be required to provide estimates or evaluations about
subject fields completely unrelated to either his training
or experience. As a case in point, OER was asked by the
Department of Defense to undertake certain problems of
assessing bomb damage in Vietnam. Even though this work was
beyond the scope of OER's normal activities, the job was done;
and the Office's reputation was enhanced by the quality of
the work. (One danger, of course, is that other equally
unrelated tasks will be directed to OER on the basis of such
performances!)
Deadlines, lack of data, inability to acquire data,
and the "unknowableness" factor in given problems,'have
taught the successful OER analyst to overcome the inhibitions
instilled by his academic training and to make the best
"guesstimate" he can at a given time. Unlike those
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academicians who slid? quickly over problem areas, the OER
producer has a responsibility, particularly in his gzesstimate,
to make clear the area and magnitude of his imprecision.
The review of the finished OER product also differs
considerably from the procedure normally followed in
academic circles:
The first and most severe critiques of both substance and
format are made at the- section and branch level. Individuals
at these levels are most competent to judge substance and,
usually, focus. Because the level of branch expertise runs
high, these initial review sessions can be quite rigorous.
No comparable review situation is required in academic circles,
although there is a superficial resemblance in the editing
process in journalism.
The nature of review will vary from branch to branch.
There may be a single individual (e.g., a senior analyst or
a section chief) who says "yes" or "no," or this may be
the responsibility of several reviewers, before the branch
chief sends the paper forward. The most effective branch
chiefs in OER take their sign-off very seriously and accept,
with the principal analyst, the responsibility for defending
any paper which goes forward. Consequently, there is a parochial
interest in maintaining the branch "image," particularly where
this 4mage has always been good. Academicians seldom, if ever,
participate in such head-knocking reviews as take place within
an OER branch.
If a project represents a joint OER effort, contributors
also may participate in review sessions. Here, incidentally,
reputations of personnel in contributing components can be
helped or hindered as e. result of an individual's performance
as a critic or contribuitor on a given paper.
Considering the lcng record of experience of many of the
analysts., the Office review of a given OER report generally
relies heavily on branch expertise. Queries from the
Director's office may o through channels, but commonly go
directly to the analyst-author. Unlike the academic community,
where neither the dean nor the department chairman is necessarily
aware of the research efforts of his associates, OER has no
communication gap between the senior OER administrators and
the working analyst.
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PROFESSIONALISM IN OER
As previously noted, the level of academic training in OER is quite
high, with approximately 98 per cent of all professional intelligence
officers having obtained at least a B.A. degree. However, the
judgment that an economic intelligence officer is "good" or-"poor,"
"professional" or "amateur," is a continuing one by peers --
including branch chiefs, most of whom have themselves progressed
through the ranks of substantive analysts -- who have ample
opportunities to assess both the research and writing abilities
of a given individual. Careerwise, the peer judgments are important
because they are usually passed upward.
Economic intelligence estimates, generally well respected by
intelligence professionals in other production areas, are far
better than those made by private research groups or by the academic
and journalistic communities. In 1964, for example, when OER made
public its estimates of a declining rate of Soviet economic grmTth,
the academic community and other professional students of the USSR
(including among the later, Harry Schwartz of the New York Times)
raised considerable objection to the Agency estimates. By the end
of 1965, the OER estimates were generally accepted as reasonable.
In fact, a leading Soviet economist is reported to have chided his
colleagues because the published CIA assessments were better than
any comparable estimates available in the USSR.
In OER, unlike the academic community, tests of professionalism are
frequent. There is less tolerance of frauds than in academic or
news media or than among the ranks of private researchers studying
foreign economic-strategic problems. Again, it should be emphasized
that the OER analyst has the benefit of all-source collection efforts
and a high degree of inter-disciplinary cooperation.
Because it is the subject of so much discussion, particularly among
novitiates in the intelligence field and non-OER personnel, the
place of the professional economist in OER deserves specific notice.
No "good" intelligence officer in OER denies the need for having a
stable of competent economists, and similarly he also recognizes the
need for technical specialists, linguists, historians, and others.
Some of OER's tasks require more sophisticated economic analysis
than others. Work assignments are carefully matched to the analyst's
training, so that each can contribute his expertise.
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The professionalism of OER personnel is also subject to frequent
tests outside of the Agency in both the public and private sectors.
This dates back to the 1950's with the beginning of serious contacts
between OER specialists and industrialists, as Agency people sought
technical help or as they began planning for the first of the US-USSR
technical exchange visits; and it continues through the present. With
numerous requests for contributions to the Joint Economic Committee of
Congress (reports on economic growth in the USSR and Communist China)
and other similar types of reporting (the Banking and Currency Hearings
on the Fiat-USSR deal had the benefit of an unclassified CIA/OER
report, for example), the OER image has frequently been projected before
the Congress. Either industrial or Congressional experts would be
quick to spot any incompetent Agency analysis. Consciousness of Agency
image is a continuing concern and undoubtedly imposes more severe
restrictions on intelligence officers than on representatives of the
non-USIB agencies, indust:^y, or academic institutions.
Professionalism can be measured to some extent by professional writing
for public consumption. ::n the intelligence community, it is always
difficult to obtain permission to publish, and OER authors must always
struggle with the question of whether or not their publications could
embarrass the Agency if they were to be identified as Agency employees;
but it is possible to publish articles and books in various disciplines --
many OER employees, in fact, believe that such works attributed to
OER personnel should be f-Lrther encouraged to help improve the Agency
image. Whatever the philosophy, the fact is that since 1 January 1965
OER personnel have published at least three books and 20 professional
articles. Among the publications by members of the OER career service
in 1968, were "A Recent Soviet Study of Economic Growth' (Soviet Studies,
1968). "How Much Grain Does Communist China Produce? (The China
Quarterly, Spring 1968), "Siberian Syndrome: Fact cr Fiction?"
(Pacific Historical Review, February 1968), and "Soviet Economic 'Reforms':
A Study in Contradictions' (Soviet Studies, July 1968).
SELECTED READINGS
The following readings are either illustrative of the techniques and
methodologies which have been employed in solving economic intelligence
problems or they provide indications of some of the philosophical concepts
F regarding the intelligence a _licatio on foreign economies.
i ers o the Office of Economic Research. all authors are, or were,
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THE VALIDITY OF SOVIET ECONOMIC STATISTICS
The publication, beginning in 1956, of a variety of Soviet statistical
handbooks on the economy of the USSR signalled the end of a twenty-
year data drought. This shift from the Stalin-imposed era of virtually
complete concealment, when even a report on the production of samovars
was considered a state secret, has been most welcome. No longer is
the student of the Soviet economy forced to function like an archeolo-
gist, spending most of his time digging for individual isolated facts.
He now can start with figures which, while far from complete, indeed
quite skimpy by comparison with data published on the U.S. economy,
provide a sufficient basis for serious analysis.
A sufficient basis, if a valid one. Can we accept these Soviet-
supplied data as reliable and bona fide? Has the Central Statistical
Agency at the bidding of N. S. Khrushchev perhaps erected a Potemkin
village of false figures, deliberately fabricated to deceive the West?
Or, alternatively, are the data so distorted at their source on the
enterprise level as to be meaningless when aggregated? Both these
possibilities are briefly examined in this paper.
Checks at the Enterprise Level
First, let us look at the possibility of falsification at the source.
Consider at the outset the environment in which the enterprise director
works. He is an instrument of the centrally directed, government-
owned and -operated economy. The government collects economic data
in order to facilitate planning and as a basis for the allocation
system which channels materials and supplies where they are needed
to fulfill its objectives. The operation of an economy through a
system of material balances, by allocation, requires accurate data.
It is therefore to the interest of the central control authorities
Studies in Intelligence, Vol. 4, No. 3 (Summer 1960), pp. 1-8.
Mr. Allen is Director of CIA's Office of Economic Research.
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that enterprises provide accurate statistics, and falsification has
been made subject to severe punishment.
Yet plant managers do manipulate output and inventory data, at the
risk of their careers and stiff jail terms, as evido>_nced by the many
horrible examples cited in the Soviet press and tec-nical journals.
Why is it they resort to extralegal practices? The usual reason is
that the centrally determined production goal for tie enterprise is
very high; and also the director is at the mercy of his suppliers in
his efforts to fulfill the plan. The successful industrial leader in
the Soviet Union, as in the United States, plays the game by the rules
which are actually in force, not according to a strict interpretation
of legal statutes. The question is whether these manipulations are so
widespread or of such a magnitude as to invalidate production figures
across the board.
There are a number of in-built controls over the director within the
onterprise itself. The chief accountant is responsible to the state
for refusing to execute any orders from the director or other senior
officials to fudge his accounts and for reporting such demands "up
the line." Another plant official, the chief of the quality control
department, is subject to imprisonment if he falsely certifies sub-
standard products as meeting stipulated technical rEquirements. A
more knowledgeable representative of central authority within the
enterprise is the secretary of the Party organizaticn in the plant,
and his salary is paid from Party funds, not by the enterprise. The
role of the Party apparatus in guiding and monitoring the activities
enterprises has been greatly increased since Stalin's death.
"another completely independent, plant official is the chief of the
"special section," or secret police, who is extremely well paid and
oho maintains dossiers on all key enterprise personnel. This enforce-
ment officer is almost certainly aware, through his network of informers,
,f any shady or illegal activities being carried on in the plant. If
;>ome such activities, however, are necessary to carry out the govern-
cent's plans--black-market purchase of materials needed to meet the
current production goals of the enterprise, for example--he may decide
to tolerate them.
.finally, the books of the enterprise are subject to inspection by
)utside agencies reporting directly to the Council of Ministers.
Representatives of the Ministry of Finance, periodically collecting
profits and taxes, check this aspect of the enterpri.-~e's financial
Performance against the plan. The Ministry of State Control polices
all enterprises charged wi-,h carrying out the decrees of the Council
Of Ministers and has broad powers to subpoena the records of any unit
under suspicion.
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The State Bank also plays an important role as a control and inspection
arm of the Council of Ministers. Virtually all financial activities of
an enterprise--its purchases, wage payments, sales, etc.--are reflected
in the transactions recorded in its account at the Bank's local branch.
The Bank is responsible for auditing -these transactions to insure that
they correspond in detail to the specifications of the plan for produc-
tion. Capital expenditures of the enterprise are similarly controlled
and reviewed by the Construction Bank of the Ministry of Finance, which
disburses investment funds.
As long as the enterprise is functioning successfully, the watchdogs of
the central authorities permit the director legal elbow-room. Thus, if
he needs to "borrow" one percent of next month's expected output to
reach this month's plan goal no one is likely to object to his reporting
the plan as fulfilled. But this borrowed production must be made up in
the next accounting period by subtraction from the then current production.
If the director continues to fall behind, one or another of the enterprise
watchdogs will denounce him to the higher authorities and receive credit
for uncovering the "scandal."
The system, as it is reported by hundreds of Soviet refugees to operate
in practice, thus lets only marginal and discontinuous manipulation of
output data go unpunished. The error introduced into Soviet production
figures by such distortions, one would then conclude, is in all likeli-
hood too small to interfere with their usefulness.
Intelligence Verifications
We in intelligence have further means to check the reasonableness of
individual enterprise reports. Military and civilian embassy officials
have been engaged in observational reporting from iron curtain countries
for many years.
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Agricultural Enterprise
Special mention should be made of particular probles which affect the
collection of agricultural statistics. First of all, there is the
problem of the competence of the rural collector. Despite the sweeping
claims made for Soviet education, only 40 percent of the adult popula-
tion in 1959 had had eight years of schooling, and the proportion in
the rural areas was undoubtedly lower than this nation-wide average.
The quality of Soviet agricultural statistics has suffered from the
consequent lack of adequate training given the collectors.
Secondly, the typical peasant; expertise at ochkovtiratelstvo--throwing
dust in the eyes--had developed to a fine art in response to the challenge
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of the Tsar's tax collectors. That it continued to be practiced long
after the Communist take-over was shown by the 1951 Soviet decree that
no report of a collective farm claiming the death of an animal from
natural causes would be accepted without a veterinary's corroboration.
Through most of the years of the Soviet regime, the final authority for
estimating crop production lay with the Office of the Chief Inspector
for Estimating Crop Yields, attached to the Council of Ministers. This
office relied on a staff of local agents to inspect reports and used
historical correlations of weather conditions with crop yields to check
the validity of local reports and determine output. It is interesting
that U.S. intelligence officers now use this same technique to judge
the reasonableness of official Soviet claims for agricultural crop pro-
duction. Agricultural output statistics are still regarded as generally
less reliable than industrial production data, and the agricultural
delegations which have gone to the USSR under the exchange program have
provided few, if any, checks on the published figures.
There are, however, a number of current developments favorable to
improved agricultural reporting, to wit:
The rapidly increasing size and decreasing numbers of collective
farms--from 250,000 in 1950 to about 55,000 in 1959--must be
resulting in the assignment of better qualified personnel to
prepare statistical reports.
The increasing percentage of agricultural output given food-industry
processing before going to consumers requires that the center
receive relatively accurate data in order to plan for the food
processing plants.
The progressive substitution of money wages for payments in kind
to labor will reduce independent marketing of collective farm
produce, putting more of it under state control and facilitating
the spread of economic accountability.
Integrity at the Center
We can move now from the origination of statistics at the farm or factory
to their collation and publication at the center. Statistics are an
essential operating tool for an economy that relies on allocation rather
than a market price system as its controlling mechanism. Lenin's decree
of 1918 set up the first Soviet statistical organization, and an indus-
trial census was taken the same year. Since 1948 the Central Statistical
Administration has been an independent agency reporting to the Council
of Ministers, with jurisdiction over reporting forms and authority to
check on the accuracy of reports received from subordinate echelons.
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The CSA runs its own schools for training accountants and statisticians,
writes textbooks, and develops calculating machinery. It receives
quantities of reports covering quarterly, monthly, ton-day, and, if
the subject is important enough, even daily results.
The reports that CSA receives must be reasonably acczrate if the central
system of allocations is to work. Despite cut-backs, from 700 to 800
commodities were still reported under centralized distribution in 1959,
including the most important ferrous and non-ferrous metals, fuels,
chemicals, and machinery. The question of the integrity of the CSA
statistics is thus reduced to whether it publishes total production
figures unrelated to the sum of the plant production figures it receives.
En other words, does it keep two sets of books, one for the internal
operation of the economy, and another to throw dust in Western eyes?
Our most comprehensive check on centralized reporting became available
at the close of World War II. The German Army, in its penetration of
the USSR, had captured a 750-page statistical document carrying the
Official Soviet security classification Not for Publication and entitled
"State Plan for the Development of the National Economy of the USSR in
1941." This document was recovered from the Germane by U.S. intelligence
personnel, and the data ccnta-'fined in it were compared with openly
published statistics, particularly those given at the 18th Party Congress.
It was found that the openly published data were identical, except
for minor discrepancies that could be accounted for, with those in the
classified' document intended for the official use of Soviet planners.
It should also be remembered .,hat Soviet officials need not falsify
data to keep the West uninformed. The USSR can easily withhold
information either for security reasons or because it would reflect
unfavorably on the regime. Since the Communists first came into power
they have followed a policy of selective release of data. The controlled
release of information, although usually designed to mislead, is concep-
tually and practically quite different from falsification.
One of the best examples of Soviet manipulation of data for propaganda
purposes was in reporting grain production, when they shifted, for the
years 1933-1954, from quantity harvested (barn yield) to the larger
figures for the size of the crop in the field (biol)gical yield). Although
they made no secret of this switch from standard world-wide procedure,
some unsuspecting and careless Western writers accepted the biological
yield figures without correction for comparison with Western barn yields.
Need for Interpretation
The interpretation of Soviet commodity statistics, in common with those
of other countries, depends upon definition of the categories being
r
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measured. Soviet definitions and usage are often different from those
commonly accepted in the United States. Some such lack of direct
statistical comparability exists, of course, in the economic data
of any two countries, but the reconciliation of Western data is
usually an easy task because of explanatory notes appended or explana-
tions available in convenient source books.
Such is not the case in the USSR. Often terms are not explicitly
defined, and their meaning must be determined by laborious cross-
checking. For these reasons, the statistics released by the Soviet
Union must be screened very carefully and not assumed to be comparable
to U.S. figures unless so proved by rigorous analysis.
Finally, Soviet aggregate statistics, such as those stating total
industrial and agricultural production and national income, whatever
merits they may have for internal measurement of progress or external
propaganda purposes, cannot be compared with similar measures of total
economic activity released by Western nations. The conceptual differences
between East and West are too great. For example, the Soviet definition
of national income is one of physical production, excluding most of the
governmental, professional, and domestic services included in Western
income definitions. Variant methods of pricing manufactured products
probably introduce another area of noncomparability.
The Soviets have released enough data on physical production, however,
to enable us, by augmenting it with additional commodity figures obtained
through intelligence research, to compute reasonably satisfactory indexes
of both industrial production and national income in terms of Western
concepts. These computations will remain a necessity: no matter how
liberal the data disclosures of the Soviet leadership in the future,
it is unlikely that they will supply us with computations of aggregate
indexes based on non-Marxist definitions.
We can be reasonably sure that economic data presented by the Soviet Union
will continue to have both meaning and significance. The major research
problem will remain in the future what it has been in the past--to
find out just what this meaning and significance is.
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The main job of the interpreter accompanying a Soviet delegation
around this country is to facilitate communication. He should not
be so loaded with other a:,signments that he reaches the point of
exhaustion in which, as a Soviet interpreter once put it, he feels
like a wise dog--he understands everything but cannct say a word.
Yet if he keeps it a secordary function he can elicit, and help in
the elicitation of, useful information, a good deal more these days
than in the first years of the exchange program. Sometimes he
stumbles on it; sometimes he works for it and succeeds, sometimes
fails. And exceptionally he may be deluged with more than he can
absorb. How he goes about it can most easily be shcwn by holding
up some pages from his life.
Paducah
As I near the top of the temporary ladder leading to the second
floor of the new Paducah city hall, open to the sky during construc-
tion, the December fog from the Ohio river is so thick that I cannot
see whether the two missing members of the Soviet delegation are
there. Twisting around on the top rung, I now spot the two ghostly
figures at the far end of the building--and simultaneously slip and
nearly tumble. I picture the headline in the Paducah paper: "State
Department Interpreter Breaks Leg in Fall: who accompanied
the Soviet delegation of 12 construction specialists to dams and
construction sites around :?aducah, is said to be in Satisfactory
ondition after . . .
"he slip is a warning that I am overanxious. The reason for my
eagerness is that these two Soviets, the most communicative of the
Studies in Intelligence. Vol. 9, No. 2 (Spring 1965), pp. 1-14.
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12, for the moment are alone. All week the head of the delegation,
Andrei Schepetyev, has blocked my every move to talk to them without
his supervision. Here is my chance. As I approach them amid the pipes,
conduits, and construction debris, I can tell from their stance and
dramatic gestures that their conversation is of the heart-to-heart
kind. Now I can hear it.
Pravilno, pravilno! Girenko is agreeing with something. The big man
of magnetic personality is head of some 400,000 construction workers
in the South Ural economic district, a gold-starred Hero of the Soviet
Union, and a delegate to the Supreme Soviet.
"I told them, I wrote them; but it did no good," protests Denyega, an
idealistic, obstinate, and bitter Ukrainian whose job is to coordi-
nate the production of construction machinery throughout the USSR.
He is thirty-seven but looks fifty. The head of the delegation
appears to hate him.
From the commodious pockets of my trenchcoat, from among the
neosynephrine, aspirin, cough drops, and indigestion pills there,
I take a small box of chocolates which were to have beer my break-
fast (try ordering for a dozen hungry Russians in Paducah when
they want real Central Asian kefir and won't settle for buttermilk
or even yogurt) and hold it out to them. "Chocolates, Pavel
Gavrilovich, Andrei Yermoleyevich?" With an automatic spasibo
they munch the candy and continue talking. Denyega, I learn, has
written a report in which he is going to take on the entire Gosstroy
chain of command and doesn't care what happens.
Drug moi, proshu vas ochen--ne goryachites. Like an old coach
calming down his star player, Girenko in his velvety basso tells
his friend not to get excited and act rashly because he will only
hurt himself. Denyega gives a frustrated kick at an imaginary
impediment, then reluctantly concedes, "You are right. But how
long do we have to wait? It is not for me. It is for the good
of all."
"You can be sure," answers Girenko with great power of persuasion
in his voice, "that soon there will be changes. Enormous changes.
Life demands it. But right now be calm and do not criticize them."
"Them," I think, the insiders, the politicos. I interrupt. "I am
glad I found you. Shepetyev worries when you are missing."
"Let him. We are not children," says Denyega, just as I expected.
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"May I ask you, is this building of interest to yoL? It is old-style
custom construction, monumental type. The last delegation from Gosstroy
that I had was only interested in mass production methods, prefabricated
parts and all that."
"That's absolutely wrong," says Denyega, and Girenkoo nods. "If our
responsible people were not so blinded by dogmatics, they would learn
much here--they would see our weaknesses."
`What do you mean?"
"Rhythm, Ivan Antonovich. Rhythm."
I am puzzled, and both smile at me. "Better speak Russian, not construc-
tion jargon," suggests Girenko, lighting another Russian long cigarette.
"Look!" Denyega paints his dream, "The second flocr is put on top of the
first with all the electrical conduits and cutlets, all the pipes already
in place. The building emerges from the ground a logical organic whole--
like a squash coming up from the earth. The carpenters, masons, electri-
cians, assistants, truckers all work in rhythm doing the right thing at
the right time--like players in a symphony, like our great Moscow orches-
tra under Kondrashin. Have you heard him? Now do you understand?"
I say I do but I already knee, that some buildings ere quickly assembled
in the USSR out of prefabricated parts. What's wrcng?
Again they smile at my naivete. "True we put a building together. But
it is only the shell. Then come the pipefitters and poke it full of
holes. Then the electricians and make more holes, then the plumbers
who usually flood it for you," explains Denyega.
"And chip off all the plaster!" breaks in Girenko. "So before your
customer will sign the acceptance you practically have to refinish the
whole building, and then explain the delay to the bank and a myriad of
supervisors. Oh, Ivan Antonovich, you have no idea what unpleasant
negotiations one has to carry on! You know I have an ulcer, don't you?"
"Not only buildings; even roads. Remember the road?" asks Denyega,
beginning to laugh.
"Yes, the road!" roars Girenko, and then the -owo of them, interrupting
each other and doubling over with laughter, gasp out the story of how
500 kilometers of a highway Girenko had just built were torn up so
that telegraph wires could be placed under it.
I realize that I am witnessing a rare moment of purgation--accumulated
frustration suddenly expressing itself in near-hysteria. I play along.
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"I understand that under your system each enterprise makes its own
plans and sends them to Gosplan for approval. What goes wrong?"
"Gosplan--those mother-rapers!" explodes Denyega.
"Our cross and crown of thorns," says Girenko, rolling his eyes to
the foggy sky.
"We in Washington are accustomed to thinking of them as top experts
surrounded with computers, etc. Are we mistaken?"
"Partly. They have good engineers, good staff. But key decisions
are often made by unqualified people at the top. Overall planning
devitalizes the individual building organizations. Here your con-
tractors do what common sense tells them. We frequently can not.
That is our grief. It is not your factories and engineers that
impress me," continues Denyega. "Man for man, plant for plant, we
are as good as you are. But in system of management--here you have
something we should take lessons in."
"Ach, we know all this," Girenko says. "We didn't have to come to
America to see the changes that are needed. Life demands them. Life
teaches us. It is just a question of time, we will make them. And
then, mark my words, we will catch up with you."
At this juncture the head of the delegation comes climbing up and
slips on the same rung I did. It does not improve his humor. "Well,
have you found anything useful?" he asks Denyega and Girenko.
"Not very much . . .
"Then why waste time?"
"Well, not utter waste. Note here--they use stamped pipe clamps.
We still cast them. It is cheaper their way," says Denyega.
"Aha, Aha!" Shepetyev is pleased and tells the secretary, Kazari-
nov, always at his elbow, to note the name and location of the factory
that makes this minor item. "Now please, Ivan Antonovich, do stay at
my side," he turns to me. "My colleagues need you. What were you
discussing here so long?"
"The delegates very kindly explained some facts about building planning
that confused me."
"Later, later, I will personally explain and answer all your questions.
They are not specialists in this field and should not try to educate
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you. I are the specialist. I will talk to you latEr. But right now
please work with me. Every minute is valuable. This trip is very
expensive and we are not rich like you. Shall we gee?"
Some Notes and Thoughts
At the airport I quickly make notes on the conversation, and then I
test my recall from brief notes I took about a week ago on another
incident involving Denyega.
My notes, like those of most interpreters trained by the State Depart-
ment, are based on the principle of Egyptian ideographs with a few
key words, letters, or symbols added. In the twinkling of an eye a
whole idea or incident cac thus be recorded. This method releases
the interpreter's attention for listening and comprehending. Of
course it takes practice. The principles of interpreting impressed
on us in the instruction are the following:
Learn to listen; subordinate yourself. Listen for the ideas, to what
the man is selling, not what he is saying. Interpret the man's ideas
rather than his words whenever possible. Make your notes suggestive,
to stimulate your memory. These personal reminders will also be
secure.
Now I am pleased that I seem to recall fully the week-old incident
from just a few ideographs and words and can compare. it with what
just happened at Paducah city hall. Here is how it goes.
The letter L and the symbols 3/12, yd. tell me that on 3 December
1963 we were at the Lorain- factory near Cleveland which makes cranes,
and the incident took place in the yard. A crudely drawn fish skeleton
and the words Loch Ness, tubular, 250' welded remine me that we were
looking at a tower of a crane 250 feet high made of welded tubular
steel instead of the usual ri~reted flat members. It therefore had
unusual lightness and strength. And it did look to me like the
skeleton of a Loch Ness Monster.
The letters D, K, 0, and the word Gosplan with a line through it mean
that Denyega, Kazarinov, and an engineer named Ozercvv,r who builds cranes
assured me they knew of such crane construction and wanted to build
some, but Gosplan objected. Or, rather, it upheld the steel industry,
which did not want to have to make a special small production run for
the tubing.
!Jralmash=Henry Ford "T" tells how, when I asked the engineers why they
could not place an order with say the famous Uralmash, they replied that
this wealthy combine, with its own sanatoria and a huge director's fund
I Im
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from which special bonuses can be given its employees, is slow to
change models and so makes a lot of money but produces machinery
they considered obsolete. I thought of Henry Ford clinging to his
Model T and making quite a few millions by not changing.
The last symbol is a book with the letter K. This is my observation
that Kazarinov, the secretary, who at home is a senior engineer at
Gosstroy and tests all the foreign machinery for it (to compare it
with the Soviet, he says)--this Kazarinov, with a face like Shosta-
kovich and as tall and lean as an Olympic track star, is a fabulous
note-taker. Looking over his shoulder I see that he too uses symbols
and ideographs, and he is a marvelous sketcher. When he cannot take
pictures (as he does by the hundreds) or get photos or drawings from
the plant, he takes notes in order to make sketches later. "The design
of this connector is so interesting," he confides with a happy smile.
I bet he will have an almost 100-percent recall of every plant layout,
dam site, and construction project we visited, as well as design
features of new machinery. But I note that the Americans shy away
from telling him everything. Usually they hold back about steel
specifications. Maybe this is one reason the Soviets still have to
buy U.S. technical data and know-how.
St. Louis
Six months later, in the summer of 1964, I am in St. Louis with another
delegation. A high-powered one, it includes: Novikov, head of Gosstroy
and deputy to Khrushchev in the Council of Ministers; Neporozhny, top
man on electrification and builder of the Aswan Dam, just back from a
visit to Egypt with Khrushchev; several Ministers of Construction from
large republics; Petya Chernyshev, builder of the largest turbines for
electric generators and a recent Hero of the Soviet Union. The last
is a pudgy, nervous, pleasant young man who speaks in snatches. His
hands testify that he did indeed start his career as a lathe operator
at the plant where he is now the principal engineer.
I no sooner step into the hotel than I am told to call a number in
Washington "no matter what the time is." I recognize the number as
that of my backstop, Sean. I cannot make the call until 2:30 A.M.
Reason: his most communistic majesty Ignaty Trofimovich Novikov
chooses to have tantrums and summons me and the tour manager to his
suite and bawls us out because no crowds, no VIP's, no press and
photographers met him at the airport. He had wanted to make a
speech on Soviet-USA friendship there at eleven o'clock at night in
a pouring rain. We express anguish at his displeasure, promise to
phone Washington, and hope to do better in the future. Thanks to
Neporozhny we are dismissed with a conciliatory pat on the back and
a tumbler of Ukrainian vodka aptly called Gorilka, the Burner.
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Then I get Sean DI-it of bed and get the news, which is good. The
host company has been briefed by and is coop-- 25X1A
orating fully in the effort to get answers to intelligence questions.
A young engineer named Joe is the key man, and I shiuld work with
him. I have seen the questions, and they are good. They are clear,
logical, and not probing sensitive matters about which a delegate
cannot tactfully be asked. Enough background is given for the ques-
tioner to understand the problem. Petya (the Turbine) Chernyshev
is the main target.
The next morning finds me working without a break. Since the tour
began, ten days ago, I have not asked a single question; but I have
bought technical books and periodicals as gifts, lave given
Neporozhny a plastic raincc,oat, have made some usefuL suggestions
from prior experience in some of the areas visited--in short, I
have put the Soviets unde_- obligation to me. I hav-, helped them
and they know it.
I spot Joe easily. He is a smart young engineer, a turbine spe-
cialist. He and Petya enjoy talking to each other --Ihrough me. But
there never is an opportunity for them really to ge, together. The
next day is the same. The third day it rains, and am getting des-
perate. Nonetheless a part ^f the group goes cut to a power plant
under construction, puts on rubber boots, and sloshos through the
foot-deep mud at the site.
As we start back Joe and I make our move. Joe says he wants Petya
to ride with us. Petya is most agreeable, for he has questions on
the huge new turbine he has seen. But the other Soviets raise a cry
as if Petya is being kidnapped, and the Americans nit in on the game
side with them. Shortly Everybody is hopping in and out of cars--a
Mack Sennett comedy in the mad. I am getting dirty looks from every-
body. Petya ignores them and gets into the car next, to Joe, who is
at the wheel. I get in and shut the door and we drive off. The
others follow, then overtake us as we slow down for conversation.
Petya wants to know why the compressor is located where it is on
the new turbine. A tough question, but Petya sketches the turbine
and Joe explains why. Petya understands, takes notes, and begins to
Look like the cat that swallowed the canary. Then Jae asks him
questions about his turbine and his problems with it. I suggest
that he sketch it, pleading the very real difficulty of interpreting
Soviets were particularly interested in the "critical path
method" of programming construction.
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teohotcal descriptions. Petya does; and presto he shows its configu-
ration, its size, the steam flow, and many other characteristics--
everything we wanted to know.
Joe takes the sketch while driving. He glances at it, points to the
exhaust, and says, "Tell him, John, there's where his trouble is."
Petya turns beet.-colored and bursts out with something incomprehensible,
showering my face with saliva. Then he chokes with laughter as he
wipes my face with his hand in a friendly Soviet way--"Tell him that
I have trouble here too," and he points to the last section where the
blades are longest. He says Joe is real bright and pats his shoulder.
Joe says Petya is real bright and pats him back. He says both West-
inghouse and General Electric had trouble in exactly these same spots
when they were in the design .stage. Petya asks about steels, and Joe
tells him something but seems unable to recall the full answer.
Suddenly Joe honks madly. The lead car has forgotten to make a turn.
Joe makes the turn, and soon we are driving along the Mississippi
without the other car. Joe asks if Petya would like a ride to see
another plant with an interesting water intake. Would he? Why it's
the river of Mark Twain. He has read "Life on the Mississippi." So
another hour of talk about turbines. The two promise to write to
each other; Joe will send Petya some steel specifications when he finds
them.
When we arrive at the hotel Novikov's personal secretary is standing
at the entrance, angry and impatient. He demands what Petya was
doing for such a long time. Petya pats the pocket where his note-
book is with a happy expression and says he was learning things about
turbines and viewing the Mississippi. "And how was it?" asks the
secretary. "Wet," says Petya, and walks away.
Joe and I compare notes. He reveals he was the one that made the
wrong turn--on purpose. He agrees to write a report for Washington.
Petya is at least three--maybe four--years behind us, he says. But
he is bright. If he knew English he would recommend the Company hire
him. "He's no competition now, bat he will be."
Schenectady
Although the people who work and live in Schenectady call it an ugly
and dull company town, I found it a cool, immaculately kept little
city, set in an emerald valley and having wide boulevards, magnificent
factories, and a lovely old section of colonial homes with large neat
lawns and flowering shrubs that have Georgetown in D.C. beat all
hollow. Furthermore, Neporozhny, his secretary, and Petya (the Turbine)
Chernyshev, who were there with me on the closing days of their tour,
agreed with me wholeheartedly.
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When the tour of the fac-,oriel was over we walked through this colonial
section, and the Soviets daydreamed like kids, picking out which house
they would like to live =_n. They praised Schenectady and the American
engineers and managers and labor and General Electric and the whole
United States. Schenectady and the Hudson river valley is just like
countryside in the vicinity of Kiev, they said, admitting they were
getting homesick.
Maybe Schenectady looked so good because all of us were happy, the
Soviets with what they had learned and I with the facts I had gathered.
For after St. Louis, and par5icularly after Los Angeles, mid-way in
the tour--after I had taken care of Neporozhny when he fell ill and
got him gratis a miracle-working doctor who had him back on his feet
in one day--the tour became for me virtually a moveable feast of facts
and interpretations. My main frustration was inability to absorb all
of the particulars and details that were thrust upcn me from all sides;
it is my practice not to take notes during such conversations. Consider
the following:
Item one. The Minister of Construction from Kazakhstan, shaken by
the colossal irrigation and flood-control works in southern Cali-
fornia, began to tell me all about his irrigation scheme. The Minister
from the Ukraine said his was much bigger, and both started reeling
off names and details concerning the crash program that seems to be
under way in the USSR. Neporozhny, with a mischievous twinkle in his
eye, said the program was drawn up personally by hie friend Nikita
Khrushchev, who sequestered himself a whole month at his dacha after
the disastrous crop failure, helped by only one export.
Item two. Neporozhny revealed to a host (who I could tell had been
well briefed intelligence--wise) his problem with costs in electric
power production, how they seem to be twice the average in the United
States, and how all the turbines in the world will not :Lower them
significantly as long as Gosplan makes the electric industry use the
worst coal in the RSFSR so it can give the best to _he chemical and
steel industries. "Right now the chemists in the Soviet Union are
Czar and God," he said. "I am having to use my cadres on building
twenty factories for them."
Item three. At the amazing Enrico Fermi atomic plant in Detroit,
again in Boston at an experimental plant that generates electricity
directly from '.)urning gasES, and again in Schenectady the Soviet
electric power specialists made no secret of their philosophy for
expansion of the industry, their troubles with a long-range trans-
mission system which they had been boosting for sale to the United
States, the high cost of atomic fuel in the Soviet Union, apparently
precluding large-scale commercial use until a fast breeder reactor
Ls perfected, and their troubles with bursting boilers, symptomatic
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of the general stand-still in electrical engineering until there is
a breakthrough in metallurgy. The American hosts agreed they had
similar troubles; electricity knows no politics. But everywhere
in this area we seem to be ahead, sometimes by a nose and sometimes
by several lengths.
Item four. On one long flight I opened a gambit by saying I had not
yet met a delegation that liked Gosplan. The delegates laughingly
agreed and told the following story:
We understand that the mythical figure Jesus Christ once worked an
utterly improbable miracle; he fed the multitudes with five loaves
and two fishes. Well, it might have been possible after all. He
did not have the Gosplan allocating his material resources."
Then, referring to speeches of Novikov, I asked his secretary if
Novikov was satisfied that he could bring about with his existing
authority and organization the programmed improvements in the
construction industry. "No," was the reply, "he has asked the
Council of Ministers for some added powers, which Gosplan, headed
by Lomako, now has."
For the next several hours, five miles up in the sky, I was afforded
insight into the workings of the minds of the top Soviet echelon as
the various Ministers dropped in on this bull session. They complained
that insufficient funds are allocated for planning and supervision.
"The difference between us and the Americans," said the six-foot-
seven Minister from the Ukraine, "is that here they think before
they start construction, and we afterwards." Even Novikov joined
the party to remark that Ministers should merely execute orders while
others--more intelligent people--do the thinking for them.
Last Flight
Mulling all this over at the Schenectady airport, I decide I should
make one more try, for the answer to a question a colleague has
asked about Soviet organization. So another gambit. I give Nepo-
rozhny a handbook I have promised him--Annual Indicators of the USSR,
published by the Joint Economic Committee of Congress in February
1964. It is my personal copy and shows the use. Neporozhny is
grateful. Since he can read some English he is at once so absorbed
in it that I begin to regret giving it to him.
"Aha, aha," he mutters. "See how much bigger you are than we. What
is all this devilishness Lomako has been telling me! Wait till I
shove this at him. Oh I will shove it hard."
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I ask if it is possible that a person of his rank has trouble getting
original foreign statistical data. Surely the Soviet embassy in Wash-
ington would send him a copy. Looking away, he says matter-of-factly,
"Shameful as it is to admit, this is one of the hangovers from the
Stalinist period we have not yet eliminated. Our government organiza-
tions do not exchange information freely--lateral dissemination of
economic data is frowned upon. There is a prejudice against asking
for it unless it is directly related to your job; and occupying the
position I do, I am supposed to set an example for others."
Boarding the airplane, I ask to be seated next to Neporozhny. He is
still studying the handbook with shifting expressions of satisfac-
tion and dissatisfaction. I pull out of my briefcase a new, still
uncatalogued Soviet book on organization of economic management and
open it to a place my colleague had marked. Here is indicated a new
organization, and one of great importance, for it stands squarely
between the Council of Ministers, which runs the economic life of
the Soviet Union, and the four pillars of planning and management--
Gosplan (Lomako), the Councils of National Economy (Dimshyts), Gosstroy
(Novikov), and the several specialized State Production Committees
(headed by men like Neporozhny). This new body is headed by Ustinov
and called the USSR Supreme Council of National Economy. Its function
is not at all explained by the tiny paragraph devoted to it.
1 ask Neporozhny what this organization does and does he know Ustinov.
l: tell him how hard it is for me to make intelligent translations
because of a lack of clarity in some Soviet publications, of which
this is a good example. His answer is simple; it is a kind of appeals
board for conflicts which can be resolved on a technical basis without
modification of basic directives. The Council of Ministers did not
want to be bothered with questions which experts could settle.
I note that the new Council. has specialists for defense on its staff
and pry further--for it is suspected that it also coordinates economic
activity with defense requirements. What kind of experts does Usti-
nov have? Neporozhny saysUstinov's staff is small but he calls in
experts as needed. What kind, I ask.
The now familiar twinkle comes into Neporozhny's intense blue eyes.
"Preference is given to ex-.wrestlers," he says. "They grab the ministers
by the scruff of the neck and seat of the pants, catch-as-catch-can
fashion, and pull them off each other. For Usti.nov is a small man and
not very strong. Against a man like Novikov, who is a former coal
miner, he wouldn't have a chance!"
Checkmate. I know when I'm licked and put the book away. I make a
few notes, openly this time. Neporozhny continues to answer questions
and talk freely on other problems of economic organization and management--
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industrial consolidation, capital formation, labor productivity, and
its scarcity under the new priority for agriculture. When I ask how
a central planning system can compensate for the lack of the built-
in incentives to cut costs in a competitive system, he says, "Since
you raise this question, you are the person best qualified to answer
it. Come to Moscow and we will give you all the information needed
for a comparative study."
"Do you think it would be useful?"
"I think," says Neporozhny, "the more meaningful fact is the suita-
bility of a system to a people at their present stage of development.
At one time your ststem gave you very rapid growth. Your mastery of
technology is beyond what I imagined it to be; yet your growth has
slowed down. Clearly something is wrong if, having such fine cadres
of labor and engineers, such abundance of resources, and such a God-
sent climate, you are not working at your highest potential. We are.
Our growth is more rapid than yours. So Communism is in our blood
and there can be no hint of a return to the past."
I explain that I was not thinking of that, but of the capacity of their
system to evolve, as ours has also evolved. "Yes, we change," he
replies. "So long as new ideas do not conflict with basic Marxism
and dialectical materialism, we adapt them for our use. Notice I say
adapt; we do not copy. Neither machinery nor ideas do we copy. All
require adaptation before being incorporated in our system."
Neporozhny, who had been a professor of electrical engineering with
many published works, says he became an industrialist when, under
Khrushchev's reforms of 1957, a decision was made to have the
economic life of the country run not by politicians but by top
specialists. I ask if Novikov is a PhD. Again sparks fly from
Neporozhny's eyes and he cannot resist a witticism. "He is a
political engineer," he says, leaving me to ponder the double mean-
ing while his colleagues turn red.
Net Evaluation
The tour is over. At the Kennedy airport, as the delegation prepares
to emplane, Novikov gets off his last speech before a few Americans,
including the official State Department host. Compared with his
initial speech a month ago, this shows him a changed man. He is more
relaxed, far more thoughtful. The strident, self-confident style
of the udarnik, the shock worker is mercifully gone. He speaks of the
usefulness of the tour, simply, with dignity and sincerity. He asks
the Americans to come and visit the USSR, where they too may learn
something. His talk of peace and friendship does not sound like
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propaganda. The dapper Ambassador Fedorenko, delegate to the UN3
trembling in the presence of Novikov, translates his speech. He
falters and I have the satisfaction of prompting him.
Later I shall see that Novikov gave a favorable and fair interview to
Pravda on his return to Moscow. The main nonintelligence objective
of the tour, its one really big purpose, has been accomplished: even
a tough, doctrinaire Communist like Novikov has been deeply impressed
by the United States. And this is the usual pattern for every delegation
I have accompanied. At first impatience, braggadocio, suspicion, and
unreasonable demands. Then the big thaw and a peri-)d of good feeling.
'Then the thoughtful, quie-~ parting, the warmth of a month's comradeship
dissipated as the Soviets make ready to be whisked back into their
perilous, rigid world.
What impressed them? Not only, I hope, our industrial might, roads,
cars, real wages. I hope it is our people and their attitude towards
life: the semi-employed workman speaking withcut embarrassment to a
Minister about his car, his mortgage, his union benefits, his sons in
school or in the army; the lovely air hostess who quickly learns enough
Russian to offer them kofe ili chap.; the soft-spoken colored porter who
graciously refuses their tip; the earnest college students poring over
books in the library.
As for the intelligence objective, the interpreter is greatly aided if
there is no break in the cuestion chain that originates with the specialists
in Washington and ends with a cooperative host. The latter is in by far
the best position to ask questions at the usual meeting winding up a
plant visit. To the Soviets it seems only fair that reasonable questions
should be put to them by Americans engaged in the same line of work.
This then gives the interpreter an opening to follow up with more questions
and develop the topic more fully. It is quite difficult--sometimes, with
a hostile delegation, utterly impossible--for an interpreter to start
the questions on his own.
Aside from factual information there is need for interpretive insight
into what stands behind it. The integral meaning of what lies openly
before us is probably one of the more important problems in Soviet
studies today, and the interpreter who lives for a month with a Soviet
group,is in a good position to achieve some insight into deeper meanings.
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GUNS OR BUTTER PROBLEMS OF THE COLD WAR
When a Roman commander in 50 B.C. took the men and materials to
throw up a fortress wall or build a new catapult, no one balanced
this against civilian use of the resources. Defense was paramount.
But no organization man in Washington or Moscow today would think
of ordering a strategic weapon system without inquiring, among
other things, into its impact on the economy. In this nuclear
age both weapons and organization have become so complex, even
in peacetime, that men must now study carefully the economic
result of every major armaments decision. The questions asked
may range from the industrial implications, here and in the USSR,
of disarmament proposals on the one hand to the effects for the
Russian consumer if Moscow matches a Washington decision to install
an expensive antimissile system on the other. This article will
explore the contribution of economic analysis in studying the
impact of alternative military programs and will point out some
of the intelligence problems involved in doing it on the USSR.
Economists recognize that in a global context the major considera-
tions relative to disarmament or increased armament are not economic.
Maintaining a counterpoise to the adversary in military strength
and political initiatives will continue to be the overriding objec-
tive over the next decade. The economic problems will increase
in importance only if the political and military problems come
nearer to solution. But analysis of the economic impact of alter-
native defense budgets may help us understand the implications of
military and political developments as they occur.
It is the cost of modern armaments and the stretch-out in develop-
ment of new military hardware that make it necessary to consider
the economic impact of defense. The world now spends about $135
billion annually on the war industry, roughly as much as the entire
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income of the poorer half of mankind. The United States spends a
Little more than a third of the total, the USSR about a third, and
the rest of the world a little less than a third. There are many
competing demands for the :-esources represented by this money, for
example increases in personal consumption, more investment to accel-
erate economic growth, war on poverty, expansion of higher education,
nore aid to developing coaitries. Moreover, decisions on arms spending
?nade today cannot easily bD changed tomorrow by beating the swords into
plowshares. The Pentagon's shopping list has few items in common
with the housewife's, and nilitary hardware ordered two or three years
ahead cannot be converted to patios or cabin cruisers. That is why
a new military order, usually expensive and highly specialized, will
affect other claimants to the nation's output for several years to
come.
What is needed for studying the economic impact of defense is a
technique that will translate military spending into civilian spending
and vice-versa, so as to forecast the effect on the structure and
growth of all civilian sectors as the resources available to them
are increased or decreased. One must take into account: (1) the
quality as well as the quantity of resources left for the civilian
economy (a GI mustered back to an Iowa farm will not contribute as
much to technological progress as an engineer released from the
Redstone arsenal to AT&T); (2) the regional impact of defense
spending, particularly with respect to small cities where the phasing
out of a weapons system may close an assembly plant, for example;
(3) the speed of military--civilian conversions, which may aggravate
the frictions developed in switching resources from production of
household appliances, say;, to marine turbines; (4) the differences
in national abilities to adjust, recognizing that a taut and muscle-
bound economy like the USSR's will not as readily absorb increased
defense outlays as one with some unused resources and the tremendous
flexibility of the American. Economists have not yet developed
standard techniques with which to attack this many-faceted task, in-
deed have done very little pioneering work on it.
A Hypothetical Case: The Problems
Military planning today requires some notion of the possible size
and structure of the enemy's forces ten years from now and of its
economic capability to support them. Suppose one were speculating
about the size of Soviet iefense outlays through 1975, necessarily
making assumptions about many things such as technological break-
throughs and the shifting winds of coexistence. With the USSR's
current defense spending at about $45 billion, a plausible range of
alternative budgets over the next decade might be from a low of
$35 billion to a high of $75 billion (reflecting, perhaps, a great
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difference in the magnitude and sophistication of strategic forces).
With this frame of reference established, the economic impact problems
begin.
First, would the $40 billion difference between the high and the low,
if Moscow chose the latter, buy $40 billion worth of Russian consump-
tion, or foreign aid, or investment in economic growth? Not necessar-
ily. It might yield more (or less) than $40 billion in additional
consumption, less (or more) than $40 billion in new investment, or
some indeterminate addition to foreign aid. One of the riddles that
research on the Soviet economy has not yet solved and must devote
more attention to is the "exchange rate" between military and other
spending.
This problem illustrates a fundamental difference between the U.S.
and Soviet economies. In the United States a dollar is a dollar
whether spent on military R&D or new housing, and our price system
reflects the spending of economic resources in a way that accords
with our national and individual desires. Through the price system
people vote for the goods they want, and investors plan their output
'in line with these price votes--a very efficient arrangement. But in
the USSR a ruble is not a ruble, because prices are set by Moscow with-
out reference to consumer votes. If more resources are needed for
military R&D, the Soviet price system does not determine which sector
of the civilian economy will give up these resources. The decision
is part of the economic plan, and the resulting shift in resources
may be quite inefficient. Thus it is difficult to determine whether
a ruble taken from housing will buy a ruble of military R&D.
Second, would Soviet GNP grow at the same rate under the high and
the low military budgets? That depends on the quantity and quality
of men and materials left for the civilian sector and on how Moscow
divides them between investment and consumption. The quantity
problem by itself is easily interpreted--sum up all the men and the
metal and the electronics gear ticketed for defense, and those
resources are lost to the civilian economy. The quality problem is
more difficult--the kinds of men and metal preempted by defense will
affect the rate of technological development and hence the rate of
growth in the civilian economy.
A high defense budget that concentrated specialized resources on
military research, development, production, and space activities
would interfere seriously with the introduction of new techniques
in civilian industry. For example, if a disproportionate share of
high-grade scientists and engineers are shunted to defense for
several years, progress in developing new chemical processes and
automation may be greatly retarded. Economists would say that
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growth in "factor product'vityy"--the productivity of labor and capital,
measured by the ratio of GNP to the input of the two combined--has
slowed down because of pressing military needs.
A question quite apart from the character of the military bite on
resources is how Moscow will use those that are left, whether to
increase (or decrease) the rate of growth of GNP by raising (or
lowering) investment. But adding a ruble to investment will sub-
tract a ruble, more or less, from consumption.
A Quantitative Method
The concept of factor productivity is useful in expressing more
specifically the impact on the Soviet economy cf the $75 billion
and $35 billion defense budgets. Historically, during the long
period 1928-63, factor productivity in the USSR increased at a
rate of 1.5% annually; but during 1950-58, when. defense expendi-
tures grew slowly, this rate was accelerated to a little more than
3.0%, and then during 1958-63, when defense expenditures were stepped
up, it fell to about 1.0%.. This is the empirical basis for the
following hypothesis: high defense expenditures preempt critical
resources such as R&D and cause a slowdown in the growth of factor
productivity. In our hypothetical example the growth in factor
productivity might be about 1.0% with the high defense budget and
about 2.0% with the low.
The higher rate, of course, permits a faster growth of GNP. But
several other factors enter into the projections of GNP under the
two defense budgets:
(1) Moscow's decision whether to put primary emphasis in the
civilian economy on investment or on personal consumption; if in-
vestment is planned to increase 10% annually, the capital stock
(plant and equipment) wil__ grow faster than if it increases only
7%, and the faster capita-- stock grows the faster GNP will grow;
(2) The annual growth in the labor force; this is related to the
growth in adult population and is estimated at 1.7%;
(3) The relative shares of labor and capital. in GNP; it is esti-
mated that the return to -_abor in the form of wages and other pay-
ments amounts to about 75i'D of GNP, and the return to capital about
25%.
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We are now ready to summarize in a table the possible impact of a
high and a low defense budget on Soviet consumption and economic
growth over a decade.
HYPOTHETICAL ANNUAL INCREASES IN GNP AND COMPONENTS, USSR, 1965-75
AVERAGE ANNUAL RATE OF GROWTH (%)
Priority on
Priority on
Economic Growth
Consumption
Case I--High Military Budget:
GNP . . . . . . . . . . . . . . . . . .
5.0
4.0
Consumption . . . . . . . . . . . . . .
-1.0
3.5
New Fixed Investment . . . . . . . . .
10.0
7.0
Military Expenditures . . . . . . . . .
5.5
5.5
Case II--Low Military Budget:
GNP . . . . . . . . . . . . . . . . . .
6.0
5.0
Consumption . . . . . . . . . . . . . .
3.5
5.0
New Fixed Investment . . . . . . . . .
10.0
7.0
Military Expenditures . . . . . . . . .
-2.5
-2.5
The general formula is:
GNP growth rate = (factor productivity growth rate) +
(labor growth rate) X (labor's share
of GNP) + (capital growth rate) X
(capital's share of GNP)
Substituting figures for the high military budget and priority
on economic growth:
GNP growth = 1.0%
+ (1.7%)
(.75) + (10%) (.25)
1.0%
+ 1.275%
+ 2.5%
= 4.775%, rounded to 5.0%
When the GNP growth rates have been determined, aggregate
GNP can be projected to 1975 for each of the four cases.
Military expenditures and investment, as given, can then
be subtracted from GNP to derive the only residual--
consumption.
From this quantification of economic impact it can be seen that the
high defense budget is not compatible with a premium on economic
growth; it would result in an annual decline of 1.0% in personal
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consumption (about 2% in per capita terms), which would be anathema
to the Soviet leaders and their constituents. If M.:scow chose the
high military budget for a decade, it would probably have to be
content with a rather low rate (4%) of growth in GNP, and even then
personal consumption would increase more slowly--3.?% annually in
aggregate, or about 2.5% -Der capita--than it has during the past
10 years. If, on the other hand, Moscow considered the low military
budget adequate through 1975, it could maintain a substantial growth
in GNP (5%) and the large increase of 5% in personal consumption
(about 4% per capita), or alternatively it could opt for a higher
rate of growth in GNP (6%) and a more modest increase in consumption
(3.5%). -f
A puzzling question still remains. Would the high -ilitary budget
put too much strain on th Soviet economy? The new leadership is
already stretching resources to the limit in its grandiose plans for
expanding agriculture, boosting consumer welfare, koeping abreast of
the United States in space, and maintaining the image of a dynamic
economy. If Moscow spent $75 billion annually for defense by 1975
it is certain that something else in the economy would have to give.
Could the USSR really afford such a high level of military spending?
This question economic analysis cannot answer; it can say how much
must be sacrificed for a given level of defense, but not whether the
sacrifice will be made. What, a nation can be persuaded to give up
for defense depends on a host of sociological factors, including
the nature and seriousness of the threat, the charisma of the
leadership, and the cohesiveness of the people. It is a problem
for the combined talents of political scientis-os, sociologists,
economists, and other kinds ;f experts.
The Disarmament Problem
Although disarmament talks have made no dramatic progress, it is wise
to think of economic impact along with the disarmament itself. Some
of the many forms that an agreement might take are general and complete
disarmament, halting the production of nuclear weapons and delivery
systems, a ban on research, development, and testing of new weapons,
reduction in conventional forces, and annual percentage reduction in
over-all defense spending. All of these programs would release men
and resources to the civilian economy, but some would be more useful
to a particular economy than others. For example, a country with a
It is emphasized that these figures are purely hypothetical,
serving only to illustrate the methodology.
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labor shortage might be attracted by the prospect of a reduction in
conventional forces that would release manpower, whereas a technology-
poor one might prefer a ban on new weapons development in order to
free scientists and engineers for industrial research. It would be
useful for disarmament negotiators to know which possible proposals
would be most attractive to the USSR, or Communist China, because of
economic impact.
The impact of disarmament might be likened to that of a shift in
popularity from vacations at the beach to private swimming pools in
the back yard. Demand for services at Ocean City would go down,
whereas demand for cement, excavating equipment, and local labor
would go up. There would be a similar shift of men and resources
if the Pentagon were to slash its orders for aircraft and the Interior
Department let contracts for large new dams. In a modern, developed
economy there are dozens of industries that would be involved in the
switch from planes to dams. While some industries push the finished
planes off their assembly lines, others produce only the engines or
the tires or the radar systems, and still others make only the metal
or only the sulphuric acid that helps make the metal. Some sell
primarily to other industries; some sell most of their output to
final consumers. How will each of these interrelated industries be
affected if military aircraft production is banned by a disarmament
agreement? Would the subsequent shifts in resources affect economic
growth and personal consumption? These are the key impact questions.
One way of getting at the answers is through input-output analysis,
a technique for tracing the complex adjustments that occur throughout
a nation's industrial machine as demand for final products is cut
back or increased at one point or another. A large "flow table" is
prepared, in which each major industry is listed once as a row and
once as a column. The row shows how industry A sells its products
to all the industries listed in the columns, and to final consumers
in an extra column. The column shows how industry A buys from all
the industries listed in the rows, and from the labor market in an
extra row. The table thus shows, for example, the total sales of
aluminum to the aircraft industry and as pots and pans to households.
Using the Table
Table 2 is a highly simplified example of the basic flow table in
input-output analysis. A usable one would have at least 30 columns
and rows; in practice it would be likely to have several hundred.
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HYPOTHETICAL INPUT-OUTPUT TABLE
miLlicns of dollars
TOTAL INTER-
PURCHASES
BY STEEL
PURCHASES
BY COAL
INDUSTRY
PURCHASES
PURCHASES BY
CONSUMERS
TOTAL
OUTPUT
Sales
of Steel
20
20
40
25
65
Sales
of Coal
30
10
40
10
50
Sales
of Labor
10
15
25
It is apparent from the table that in producing $25
million of steel for use by final consumers the steel
and coal industry used up $40 million of stee_. In
other words, it takes steel to make steel and coal,
and it takes coal and steel to produce coal. If con-
sumer demand for steel and coal should increase by
$5 million each, the input-output technique will tell
us how much additional steel, coal, and labor !gill be
needed to satisfy both the increase in consumer pur-
chases ($5 million each) and the additional inter-
industry purchases $? million). The procedure
is approximately as follows: The flow table _s
used to derive a coefficient matrix, a table which
shows the inputs of steel, coal, and labor required
per dollar of steel and coal output. We now ask a
computer to invert the coefficient matrix and multiply
it by the column showing the increases in consumer
demand. The resulting product is the total increase
of steel, coal, and labor needed. If a flow table has
200 industries rather than 2, and if we define a
calculation as either a multiplication o_~ a division,
inversion of the corresponding coefficient matrix
requires about 2,5CO,000 calculations.
If the Pentagon were to cancel its contracts for the F-111, an
e-economist with a set of input-output tables and a digital computer
could estimate the resulting changes in every industry affected.
There would be a decrease in demand for steel, which in turn would
require less sulphuric acid, less iron, less limestone, and less
coal. There would be a reduced demand for synthetic fibres and
plastics from the chemical industry. The tire industry would
demand less rubber and less nylon and rayon. Employment would be
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cut at General Dynamics and at some of its subcontractors and
suppliers. These are only a few of the ramifications from such
a single cut in production of military aircraft. The input-
output tables are a tool for tracing the highly intricate chain
reaction through the industrial structure and measuring the
resulting demands, direct and indirect, on each of the industries.
Aircraft production is a comparatively trivial example. General
and complete disarmament would have a substantial impact, releasing
perhaps $40 billion in resources annually to both the Soviet and
the U.S. economy. Input-output tables would show the kinds and
amounts of material and the quantity of labor that would be freed
for use in civilian industry. This information, together with
regional economic data, would form the basis for planning the
alternative uses. In the USSR the government would make all the
decisions as to what resources go where and when. But in the
United States planners in private industry would bid for the
released materials and labor, basing their bids on their estimates
of consumer demand; the government would step in only if a geo-
graphic region or an industry needed outside help to adjust to
the new conditions.
Another use for the input-output tables would be to evaluate the
impact of a large increase in military expenditures. They would show
the additional effort required by each industry, would point to the
kinds of civilian activities that might be cut back, and would help
identify bottlenecks.
To construct an input-output table for the USSR would require a
great deal more data than is presently available to Western econo-
mists, but fortunately the USSR has become interested enough in
this technique to develop some large-scale tables of its own. Parts
of the tables for the year 1959 were published in 1962. Russian
books and journals have referred to nine national and nineteen regional
input-output tables that have been constructed or are in preparation.
Soviet writers use input-output data widely in their unclassified
papers, implying that the tables are circulated in the USSR and that
economists are free to use their statistics in detail. Moscow may
in time release some of the more extensive tables for other years.
It is clear that Soviet input-output tables would be more useful to
economic planners in Moscow than to intelligence analysts in Wash-
ington. The planners have to solve the problems, whereas analysts
only identify them. Nevertheless, the wealth of information that
emanates from an input-output table would help the analyst measure
the strains in the Soviet economy caused by increased defense spend-
ing or evaluate the impact of resources released through disarmament.
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Other Economic Impact Questions
The ready transferability of men and factories from the military to
the civilian sector has received relatively little attention. In
the event of general disarmament, what amounts and kinds of the
material and human inputs to defense could be used in the civilian
economy (1) immediately? (2) after modification. or retraining? (3)
not at all? A number of excellent studies of this problem have
been made in the West, ? but the few Soviet economists who have
written on problems of disarmament substantially understate the
difficulties that would likely be encountered in the USSR.
The costs of transfer would be less in the United States than
in the USSR, because our market mechanism will more quickly and
efficiently switch resources to products the consumers want.
Conversion probably would cause more problems for the Soviet
economy and require greater effort than is now recognized in
Moscow, and some of our economic intelligence efforts should be
directed to the specifics of the consequent dislocations and effects
on the development of the economy.
ucational progress has been an important factor, though difficult
to quantify, in the rapid economic growth of the USSR. With the
increasing complexity of modern weapons, a grea.,er share of the
highly trained scientists and engineers in the USSR are now used
in defense, and the implications of this for the future development
and growth of civilian industry are uncertain. In order to refine
his impact studies, the economist needs some information on educational
achievement in the USSR, including projections a decade ahead, and
better understanding of the contribution that education makes to
conomic growth.
Economists often say that defense is a quite separate sector of the
economy that drains resources away from other uses. Although prima
facie true, this assertion may ignore a possible feedback from
defense to the civilian economy. To what extent, if any, does
Benoit and Boulding, Disarmament and the Economy, 1963.
The Economist Intelligence Unit, The Economic Effects of Disarmament,
1963.
I. S. Glagolev, Vli_yani_ye razoruzheniya na ekonomiku (The
Economic Impact of Disarmament), 1964. I. S. Glagolev, ed.,
Ekonomicheskiye problemy razoruzheniya (Economic Problems of
Disarmament), 1961.
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technological know-how developed specifically for defense benefit
the civilian economy? In the United States, military-space tech-
nology is often diffused into the civilian sector: e.g., the
2-thousandth-inch aluminum-coated plastic film developed for the
ECHO satellite is now used as a reflective insulator for very
low temperature vessels; superior printing rolls have been made
from the polysulfide rubber developed for cast solid propellants;
sintered aluminum oxide ceramic, developed for rocket nozzles, is
now used in industry for special check valves and resistor cores.
Little is known about interchange of technology in the Soviet
economy between the military and civilian sectors; it is probably
not as widespread as here. It is an important matter to the
economist, however, because the extent to which military R&D
filters into the civilian sector will affect his estimate of
factor productivity and future growth of Soviet industry.
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25X1A
The Soviet Union, being the only country with enough military capa-
bility to constitute a serious threat to U.S. power, is the principal
focus in the intelligence effort to give warning of any deliberate
all-out attack on this country. Under prevailing conditions as of
the mid-1960's, economic intelligence can contribute to this effort
in a number of important ways. The USSR has elaborate civil institu-
tions whose main purpose is to facilitate the transition of the econ-
omy from peace to war: they provide for stockpiles of all kinds of
goods, industrial and agricultural, and maintain the administrative
apparatus needed to integrate industrial and transportation facilities
into a military effort. The Soviet civil defense program is already
extensive and would undoubtedly be augmented in the event of imminent
hostilities. Finally, a variety of economic problems would hinder
the Soviets from undertaking the kinds of massive action called for
by their military doctrine except after a great deal of advance prepa-
ration; the transportation system, most notably, operates at close to
capacity under normal loads.
It is true, however, that economic intelligence has a diminishing role
in today's early warning process. Under conditions that prevailed
immediately before World War II, or even the Korean war, logistics
were frequently more important than either weapons systems or tactics,
and the potential of economic intelligence for strategic warning was
correspondingly great. But as such current military concepts as "zero-
reaction-time" long-range ballistic missiles with nuclear warheads and
"instant-ready" airborne armies approach realities, information on the
slow build-up of a logistical base contributes less toward determining
whether, or where and when, the technically advanced weapon systems are
to be used. It is nevertheless to be expected, since the maintenance of
"instant readiness" will be very expensive in this era of rapid technical
-; Studies in Intelligence, Vol. 9, No. 1 (Winter 1965), pp. 1-14.
25X1A
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advance, that economic intelligence will continue to be useful for
strategic early warning.
In the USIB Watch Committee's monitoring of war indicators Communist
China, though a poor second to the USSR, remains of considerable
concern for a variety of reasons. These reasons include a very
large army, a regime which sometimes talks as if it considers war
an enjoyable pastime, an inclination toward what Mr. Kent calls the
"dramatically wrong decision," its proximity to the Nationalists'
offshore islands and Taiwan itself, its Indian adventure in 1962,
and the expectation of its eventually producing nuclear weapon
systems. Today, however, it not only lacks modern weapon systems,
but the ability of its economy to support a sustained effort by its
massive but obsolescent ground force is, at best, in doubt. The
achievement of a significant modern military capability will require
a large and successful industrial program, one as much concerned with
production of basic commodities (e.g. high-grade steels and technically
complex chemicals) as with military equipment proper. The economic
intelligence officer charged with strategic warning of hostile Chinese
action against the United States will be preoccupied with the regime's
progress toward such a program for some years to come.
Civil Defense ? the MOG
It could be argued that with present collection capabilities civil
defense is the best bet as source for successful strategic warning of
Soviet intention to start a big war. Furthermore, it seems probable
that the potential for collecting civil defense information of the
warning type will improve.
Although the Soviet civil defense program seems to have changed policy
several times since the war, and although there are grounds for debate
over its exact size and effectiveness, there is no question that it is
large; in comparison with those in the West it is enormous, involving
Said of the Soviet decision to install strategic missiles on
Cuba, Studies VIII 2, p. 15.
Soviet civil defense has long been a concern of the economic
intelligence officer because the present program began as an integral
part of the post war reconstruction of the Soviet economy. Today the
Ministry of Defense and other institutions are heavily involved in the
program, but the role of economic institutions also continues to grow.
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millions of people. Whether the current policy calls for urban blast
shelters or urban evacuation plus fallout shelters makes no great
difference in its value for warning. Either way, the public has
to know what it is supposed to do, when to do it, and where to go.
The best of security is not likely to conceal even the earliest of
the massive public actions that go with the declaration of a "special
period" of possible imminent hostilities. Urban evacuation, moreover,
presently an integral part sf Soviet policy, requires several days.
The program is as complex as it is large, and it appears to stipulate
detailed procedures for every part of Soviet society. These details
are one of the reasons that it offers good opportunities for the collec-
tion of strategic warning information. In Moscow they include such
seeming minutiae as relocating to the suburbs fire engines stationed
in the central city, removing national treasures (probably including
Lenin's body) for safekeeping, preparing for window-by-window blackouts,
and probably even making "final disposition" of carnivorous, poisonous,
and obstreperous residents of the zoo. So long as persons friendly to
the United States can move about in Moscow, we have simple, inexpensive,
and reliable collection devices--such as an embassy wife airing the
heir--to give us the crucial information on implementation of civil
defense procedures.
A ,Moscow Observer's Guide, assembled by the National Indications
Center, covers the possibilities for simple physical observation at
times of crisis. The MOG was used during the Cuban missile crisis,
and in retrospect it can be said to have proved a useful tool. One
defect in the performance was notable, however: an cmincus sign--
distribution of gas masks before the eyes of U.S. personnel on one
of the upper floors of the Foreign Ministry building--was reported
by the highest priority cable, whereas reports of negative indications--
neither Lenin nor the live inhabitants of Moscow, neither fire engines
nor ferocious animals ever left their normal quarters--arrived by slow
boat, or not until personnel returning to Washington underwent an
end-of-tour debriefing. Next time it would help to know in Washing-
ton which items in the MOG had been checked and which of these conveyed
''no information," which were normal, and which omino-u.s.
Prospects for increasing the MOG type of emergency collection appear to
be improving. There is now an Indian consul stationed in Odessa; his
? The simplicity', economy, and reliability of embassy wives
emerges from comparison with other intelligence systems, not other
wives.
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cooperation would double (from 1 to 2) the cities covered. Then if a
U.S. consular office opens in Leningrad the coverage could be tripled.
Disaster Columns
Paramilitarized relief and recovery columns based in rural areas under
the civil defense program offer another possible set of indicators.
The task of these "disaster columns" is to move into a nuclear-devas-
tated urban area and attempt to assist the injured, limit damage, and
restore or salvage what they can. They are to get their personnel
mostly from the farms, their transport and earth-moving equipment from
farms and from construction projects. Similar city units to be evacu-
ated in an emergency draw personnel and equipment from factories, util-
ities, and service groups. Both the Soviet press and secret intelli-
gence suggest that the rural relief columns have not yet developed
much beyond the planning and organization stage, but there has been
recent public exhortation to increase efforts to equip and train them.
We have no source with a demonstrated ability to observe and report
promptly an alerting of the disaster columns. Still, collection pos-
sibilities seem fairly good. The columns will directly involve large
numbers of people. And if alerted they would disrupt the activities
of even larger numbers by their claims for equipment on farms and
construction activities. Thus the immediate task is to determine the
procedures prescribed for the disaster columns as they are organized
and trained, so that emergency collection requirements and means to
meet them may be established.
The foregoing discussion may suggest that the prime task in day-to-
day observation of the Soviet civil defense system is measurement of
its alertness for near-term use. In fact, it is not. Although portions
of the system have been alerted and exercised, there is no evidence
of any national exercise having been staged, even one of a command-
post type. The most widely held (but not necessarily the best) guess
at the reason for this apparent shortcoming is that the Soviet popula-
tion has a proclivity to read too much between the lines and might
react in ways that would hurt, for example panic buying.
Over the years, in support of the National Indications Center and the
Watch Committee, economic analysts have charted the slowly growing cap-
abilities of the civil defense apparatus. They seek the answers to
such questions as: "Does the disaster column program have a readiness
date? Does it require the diversion of resources from some other user?
How effective will the columns be?" In order to answer such questions
as well as possible the collection and analysis of data on civil
defense developments must be a day-to-day process rather than one
concentrated on periods of crisis.
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The overwhelming majority of the answers have, in NIC jargon, been
"negative." That is, we have never (Cuban crisis included) discovered
an urgent effort to achieve early readiness, peak at a given time, or
otherwise meet a specific target date. It appears rather that the
;soviet regime believes civ'_l defense to be a necessary part of the
balanced economic and military power base of the stare which, like
,he other parts of that base, must more or less keep pace with general
progress.
Suppression for Surprise?
idhat of the possibility of a surprise attack plan which omits any
direct pre-action alerting of the civil defense apparatus? Summarily,
,uch a plan is considered to be unlikely. Even if we ignore the
-trategic military reasons for using the civil defense system, what-
cver its capability (as well as the even more cogent military reasons
For not meditating an attack at all under the present balance of
Forces), there remain a nunber of considerations against it.
!civil defense is an integral part of Soviet power. in some areas,
when a regional military aithcrity has conducted an air defense
eexercise, the regional civil defense mechanism or some part of it
has also been exercised. Me military authority can do this because
civil defense is now a military responsibility. The regional military
commander is trained to consider civil defense another of his many
tools. Consequently, it appears that a decision to omit civil defense
would be administratively as complex as a decision to cancel participation
of aircraft in an air defense effort and leave the job entirely to
missiles.
The military commander, however, does not bear sole responsibility for
civil defense. The party, the economic bureaucracy, and the civil
government each has its own responsibilities, chain of command, and
interlocking liaison with respect to it. In order to omit civil
defense from a surprise strike plan, positive instructions to prevent
the execution of standing operating procedures would thus appear to
be necessary at a multitude of geographic locations--would need to go
to party officials, military officers, civil government bureaucrats,
and managers of factories, and would need to go to many levels in each
of these hierarchies. With so many people involved, the planners of
the strike have a problem: would the security of the surprise be well
served by an attempt to leave out civil defense?
Most important is the probability that the party leaders would not
accept a military plan which excluded civil defense participation.
One totally unacceptable result of such a plan might be the decimation
or worse of the party while the military leadership remained relatively
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unimpaired. Another consideration of the Presidium ought to be the
reaction of the surviving members of the populace, as well as of the
party, if available civil defense facilities had not been put to use.
Above all, the party leaders remember the effects of World War II on
Soviet industry and the prodigious logistic efforts required to fight
the war and afterward to rebuild the economy and restore the culture.
Even now the demographic effects of World War II present problems of
labor force and military manpower. It is these memories and the
dangers of nuclear warfare, not charity, that have caused the party
leaders to expend the money, effort, and manpower to create a civil
defense organization, along with strategic reserve and industrial
mobilization systems.
To sum up, the Soviet civil defense program involves millions of
people in a multitude of tasks. It is considered a basic component
of national power, and there are strong reasons for expecting it to
be activated even in connection with a planned surprise attack. Cur-
rent collection systems are relatively inexpensive and reliable, and
they are capable of timely reporting on the activation of at least
some part of the system. Prospects for this reporting appear to be
improving rather than diminishing. Let us now look at indicators
in other economic fields that can be monitored with existing collec-
tion capabilities.
Transportation: Pre-attack Moves
Because the Soviet transportation system is usually operating at
close to capacity, a major increase in military movements would dis-
rupt normal traffic patterns. The operation of the system is conse-
quently of great interest for strategic early warning. Moreover be-
cause the bulk of transport is concentrated in rail facilities, the
Soviets are concerned that the existing system might not give them
the flexibility and service they would need after a war had begun,
and schemes to remedy the projected shortcomimgs are probably also
of value in pointing to possible indicators.
These propositions are not just wishful thinking on the part of U.S.
intelligence officers. The July 1961 issue of the Soviet journal
Military Thought (secret edition) contained an article which discussed
military transport in much this light. The author was quite concerned
lest the West be tipped off to any imminent action against NATO by the
total disruption of normal freight when reinforcements were moved to the
western front. He proposed, in order to allay this danger, that a large
proportion of normal movements be continued and the reinforcement trains
mixed in as a minor part of total rail activity over several weeks.
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From the Soviet viewpoint -,he problem of concealing ;his westward
reinforcement of the ground armies, a necessary actiDn under the
"balanced force" concept, is complicated by the difference in gauge
between Soviet and European railroad tracks. At each border cross-
ing point, paired tracks of the two sizes parallel one another in
rder to facilitate train-,o-train transloading. These transfer yards
Iiave grown slowly but steadily, and some now reach many miles both
ast and west of the Sovie-, border.
Surveillance of the routes, crossing points, and yards in the western
USSR and abutting parts of eastern Europe should reveal by direct
bservation the reinforcement of the armies facing NATO. For in-
direct acquisition, information useful tc the strategic warning
orocess should be available to a number of railroad men, bureaucrats
i_n economic administration, and plant officials on bsth sides of the
border. These people would quickly be aware of an either general or
oartial embargo on civil f:-eight or passenger traffic, and many of
them could determine whether it resulted from military usage of the
system.
wartime Capability
Soviet military planners also appear to be much concerned about the
difficulties their transpo:-tation system will face in providing the
required service after the start of a war. A variety of measures
intended to strengthen it have been proposed, some of which would
:)ffer opportunities to collect early warning information. Because
some of the measures could also serve purely economic ends, however,
both collectors and analysts must treat them with care.
"I central organization for the control and direction of all forms of
transportation would increase the efficiency, f=_exibility, and recuper-
'bility of the Soviet system. With central direction, priority freight
could be more rationally shuttled among various routes and carriers
and around bottlenecks and damaged facilities; repairs could be
7rganized in better accord with national priorities. The intelligence
fficer concerned with strategic warning therefore watches constantly
the administration of Soviet transport. Centralization, subordination
to the Ministry of Defense or a supraministerial body, and military
staffing of either the operating or directing levels of transportation
administration are considered possible moves that would have meaning
for early warning.
?1. wide range of physical improvements in peacetime have also been
suggested as means to strengthen the wartime capacity of Soviet
transport. At one end of the range these consist simply of more
facilities, especially of kinds other than railroads--more pipelines,
more and better roads, improved canals, and more double tracking.
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Less grandiose proposals are for road and rail bypasses around cities,
alternative bridging, and extension of Soviet-gauge track farther into
eastern Europe. Proposed emergency measures include road trailers to
move rail cars across breaks in rail lines, stocking of reconstruction
materials in the vicinity of probable Western priority targets, and
last-minute evacuation of transportation equipment from target areas.
We do not know which of these proposals might be implemented in
preparation for an anticipated war. Economic development requires
that some of them -- the "Friendship" oil pipeline into eastern
Europe, for example--be acted on without particular regard to their
military utility. Others, particularly evacuation of transport
equipment from target areas, would be either very expensive or so
disruptive of normal military and civil activity that they are unlikely.
But if evacuation did occur, it would be an unmistakable sign that
large-scale hostilities were imminently expected.
Finally, in addition to land transportation, the intelligence officer
must follow Soviet merchant shipping and civil aviation. Normality
in the deployment and occupation of the merchant marine has been a
comforting phenomenon during, past crises. Sometimes the Soviets
have moved ships out of an area of immediate danger, but they have
not put them in safe havens. If they really mean business one would
expect them to move at least some ships to home or friendly ports.
As to aviation, almost as many high-performance air transports are
operated by Aeroflot as by U.S. air carriers. These planes plus the
military air transports provide a substantial airlift potential, and
so any unusual activity in Aeroflot needs to be identified.
Thus transportation, like civil defense, should be featured in a
list of activities that under existing collection capabilities could
provide useful, perhaps conclusive, strategic warning information.
Strategic Reserves
Over the years the Soviets have quietly created a vast and expensive
system for maintaining strategic stockpiles. It is administered un-
obtrusively and with unusual care from Moscow by the Chief Directorate
of State Reserves, apparently directly responsible to the Council of
Ministers. Its object is support for a war effort. It was used for
the initial effort in the Korean war.
For this purpose the Directorate administers and operates stores of
foodstuffs, raw materials for industry, semiprocessed materials,
finished manufactures, medical supplies, fuels, spare parts, construction
materials--some of almost everything. It is not the only operator of
storage facilities in the Soviet Union: The Ministry of Defense has
depots; factories and distributors hold limited inventories; economic
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and political administrative institutions keep some stocks. But State
Reserve inventories are probably by far the most important. They were
designed, for example, to enable the economicall'T inficient eastern
littoral of the Soviet Union to operate for extended periods without
the aid of the vulnerable Trans-Siberian Railroad.
Under Khrushchev the rules governing the withdrawal of materials stored
in the facilities of the Directorate were relaxed to allow use in easing
the effects of natural disaster and economic abnormalities--in June 1964
Tass noted that farmers lacking seed were being supplied from state re-
serves. But the primary purpose of the system--strategic reserve for war--
remains. Withdrawals frcm stock are not a routine bureaucratic procedure;
high officials must rule on each individual release and approve the replace-
ment schedule. Accounting procedures, including physical inventory, are
apparently stringent. The refreshing process, putting old stores into
service and replacing them with newly procured goods, seems to be pursued
with care.
As long as the Chief Directorate of State Reserves exists it must be
presumed to have a role in any Soviet plan to start a large war, and
it may have one to play in limited war. In recent years, however, the
value of this knowledge to the indications process has been slight because
the intelligence community lacks a source for timely and detailed inf or-
mation on actions of the institution. The USIB's Economic Intelligence
Committee reaffirmed in 1964 that development of such a source is one
of the first-priority requirements for economic inf -ormation. Prospects
for filling this requirement are uncertain.
Industrial Mobilization
Another unique Soviet institution (or perhaps set of institutions) is
designed to coordinate the efforts of industry and transport in filling
wartime military needs. ==t is most easily explained in terms of the
pre-1957 economic administration because there was information on its
operation then. Prior to 1957 the Soviet government ran the economy
through a series of ministries based in Moscow; there was an oil ministry,
an aircraft production ministry, an ocean fleet ministry, etc., sometimes
close to fifty of them. Each ministry was subdivided into departments,
some functional, like supply or finance, some product-oriented, e.g.,
fighter aircraft production, and some geographical, as eastern area
oil exploration.
Now each ministry had also a military affairs office called the "Mili-
tary Mobilization Department," and the administration of each factory,
railroad section, river fleet, or other activity had a similar subdivision
under one of a variety of names--mobilization section, special depart-
ment, secret department. These two, the ministry department and the
factory department, had a number of different responsibilities, depending
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on the kind of ministry or facility it was in. For example, at plants
which had been converted after the war to the production of agricultural
implements instead of small arms and ammunition, the responsibility of
these departments included maintenance of an ability to switch back to
arms--the required equipment, limited quantities of raw materials, and
personnel with the right skills. Another responsibility was to keep
track of the draft status of the employees in order to assure that
quotas for draftees and for skilled production personnel would both
be met. It was the factory departments that handled classified docu-
ments at the plant level.
Like all Soviet institutions, these were required to submit many
reports. The instructions for some of the reports, which have come
into the hands of U.S. intelligence, clearly assumed that these units
would be deeply involved in the Soviet actions precedent to initiation
of any major military action. In some instances they were the channel
through which the civil defense readiness of the plant was reported to
the ministry in Moscow and would have been the channel for reporting
the effect of enemy military action on the plant. The intelligence
officer concerned with economic activity in the Soviet Union presumes
that these units will continue to play a considerable part in any
Soviet preparations for war.
Again, as reflected in the 1964 updating of EIC priorities, the in-
telligence community needs a source. In at least one of the few eco-
nomic ministries that retain more or less their pre-1957 form, the
units continue to exist and to function. Soviet attitudes and procedures
being what they are, the continuity of the system would be assumed with-
out any evidence at all, but there is some indication that units at the
factory level also continue to exist. A source is now needed for much
more basic information than the alerting of the system. We need to
reidentify its parts and rediscover its procedures after the constant
shuffle of industrial administrative bodies since 1957. Prospects
for such a source do not appear very bright.
The four activities discussed above (strategic reserves, the industrial
mobilization system, civil defense, and the transportation system) are
the ones that the economic intelligence officers in CIA consider the most
likely to be productive for indications purposes. They are the fields
that are kept under constant review for the National Indications Center,
subject of course to what the quantity and quality of reporting are at
any given time. The list of four, however, by no means exhausts the
economic phenomena from which early warning indicators may be derived.
Indeed, they may not even be the most important.
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General Economic Activity
At least some economists turned intelligence officers believe that
their most important contribution to the warning process is the con-
tinuing analysis of the tctality of Soviet economic policy; they
believe that a Soviet decision as important as to gc to war will be
reflected in a variety of broad economic developments. These might
include great changes in the share of investment resources going to
support military activities, in the division of construction activities
between projects offering a relatively quick return and those having a
slow return over a very long period, in the proportion of total goods
available assigned to people for consumption and to industry for invest-
ment opposed to that available for military forces, in the way the
annual addition to the labor force is divided umo, and in the assignment
of priorities among the various claimants in the economy.
Other intelligence officers, including economists, arguing that data
on general economic policy is too imprecise to be of great value for
early warning, point out that conclusions reached in the last 10 years
or so via this route have regularly been that the Soviet Union is hell-
bent for peace. The fact that there has been no global war in this
period does not demolish the objection: in late October 1962 econo-
mists involved in intelligence were not likely to be making arrange-
ments for a winter vacation in southern Florida, even though the
evidence from Soviet economic policy suggested That it would be rea-
sonable to do so.
Strictly, it can be claimed only that the total economic picture should
tell us what the potential enemy ought to be considering if he is ra-
tional, not what he will necessarily do. The Chinese Communists, for
example, would be unable at present to sustain a massive military
operation over an extended period, but Mao and friends might still
start one. At times, nevertheless, the total economic view can be
fairly conclusive. In late 1963 and up to Khrushchev's fall in 1964
a variety of sources, secret and public, have given evidence of a
Soviet economic policy so clearly reflecting peaceful intent that
it should prevail even in the face of fairly strong ^ontrary evidence.
In practice, the National Indications Center and the Watch Committee
have been interested in Soviet economic policy only as background
or the week-to-week examination of more direct indicators. Though
this practice may seem to neglect an important part of the total
picture, there are valid reasons for limiting broad economic policy
to a background role. The information on which judgments about this
policy are based is more often than not obtained from open Soviet
sources and is therefore subject to manipulation by the Soviets. It
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also requires interpretation, which can be a long and involved process,
and frequently it is not timely enough for indications purposes. Ma-
terial in open sources becomes available when the Soviet publisher is
ready, not when the economic intelligence officer needs it.
Bottleneck Intelligence
Under this heading one can collect the unending flow of reports on
shortages of particular kinds of equipment and materials in the Com-
munist world. The warning watchman is traditionally interested in
the bottleneck because it might reflect a diversion of the commodity
in question from normal to military use ("Lucky Strike 'green' has
gone to war!"). A typical example might be the periodic Soviet
shortages of petroleum products, generally diesel fuel or bunker
oil. The bottleneck report of a commodity specialist is generally
his most frequent contact with the indications process. All such
reports are carefully reviewed for indications implications.
The commodity specialist himself, however, is not likely to consider
bottleneck intelligence a very useful input for strategic warning.
Because the Communist economies are continually trying to get from
available resources the maximum output and because these resources
frequently do not stretch as far as the planners had scheduled them,
shortages are a permanent part of all economic systems like the
Soviet. The specialist might even find it more disturbing if all
references to shortages among the commodities he watches disappeared
from the Communist press; the disappearance might be a reflection of
tightened security, which in turn might suggest some dark intent.
Moreover, a confirmed or admitted shortage in a commodity which he
had estimated to be in good supply might move the analyst rather to
question his previous estimates, all too often based on inadequate
sources, than to suspect a diversion to military usage.
Most investigations of bottlenecks as indications turn out like one
made at the request of a congressional leader who had been told that
the Soviet purchases of Canadian and U.S. grain reflected very high
military consumption of alcohol (industrial) rather than a crop too
small to feed the population. The gist of the intelligence reply was
that even if Soviet military use of alcohol exceeded U.S. military use
by 10 times it would still consume only about three percent of Soviet
alcohol output, far too little to require large grain imports.
In the light
of
his experience the commodity analyst thus properly
looks first
to
the economy rather than to hostile intentions for the
explanation
of
all shortages. Even when he cannot find an economic
explanation
he
remains reasonably sure that there must be one. That
he still looks carefully for indications implications in each new
shortage does credit to his integrity, for he feels like a man exam-
ining clams for pearls.
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And Others
tt myriad of other possible economic events might theoretically provide
valuable indications information, but limits on collection capabilities
and on the ability to generalize from fragmentary information (like data
on one activity at one facility at one point in time) severely reduce
the logical possibilities.
A large "unknown" area in the potential utility of economic intelligence
for strategic warning is covered by the items in the General Indicator
List which refer to relocation of plants, increased output in armament
plants, and changes in the pattern of industrial output. The validity
Df such indicators and to Some extent the prospects -f collecting inf or-
nation on them would depend on what assumptions were made as to the kind
of war plan the USSR might settle upon. There is little precedent in the
aistory of such activities to serve as a guide for early warning; some
redirection of economic effort occurred during (but not before) the Korean
,Jar.
En practice, there are only a few additional economic areas of occasional
oncern, even as background, to the NIC and the Watch Committee. Economic
developments in the GDR are of considerable background value for strategic
warning. In particular, the level of interzonal trade has over the past
everal years been a good gauge of the intensity of Communist feeling on
Lhe Berlin issue. Moreover, it is difficult to see now the Group of
:soviet Forces Germany could be put to extended use without the support
oof the GDR railroad net, which is sometimes hard pressed to handle
normal loads and therefore could not move greatly in-~reased military
,,raffic without cutting off its civil customers.
The varying priorities accorded Communist agriculture are also of
!)ackground value. For an extreme example, the periods when signifi-
-ant number of troops are engaged in digging potatoes or moving wheat
;oem unlikely to bring war. At other times the Soviet Union is involved
in one of its chronic reorganizations of economic administration (such
Us that being prepared in --,he fall of 1962), with inevitable disruptive
effects on command, output, and supply flows, aggravated by infighting
'or position in the new scheme. That such a reorganization is in progress
(toes not preclude war, of course, but it does indicao,e strongly that the
Possibility of war is not preempting the undivided attention of party
rind government leaders.
Construction projects are of occasional concern in early warning.
information on important projects is sometimes available with little
ime lag, and analysis of the purpose, priority, and cos-. of the effort
nay then be of significance.
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Aerial photography has been used in the United States for several
decades to obtain useful information on agricultural resources, and
in recent years intelligence analysts have taken increasing advantage
of it for help in estimating crops and identifying Trouble spots in
the agricultural sector of Communist countries,. As a source of in-
telligence on the agriculture of a foreign power it is still in its
infancy, but it shows promise of becoming a valuable aid.
Stagnation in Communist Agriculture
Communist leaders have revealed an increasing awareless that the
provision of an adequate supply of food is one of their most critical
problems. In nearly all Communist countries stagnation in agriculture
has seriously damped economic growth. Because of tis stagnation in
the face of continued increases in population, they have had to spend
an average of more than $_'_ billion annually during :-ecent years to
purchase grain from the West, while by way of contrast the United
States earns about $2 billion annually from sales of grain abroad.
These purchases of grain have placed a severe strain on Communist
reserves of gold and fore__gn exchange. For the USSR and particularly
China, grain imports have meant a sacrifice in the acquisition of
badly needed machinery and equipment.
The Communist leaders now realize that agriculture must be accorded
a higher priority than in the past, even though thi, may require some
diversion of investment funds from defense and heavy industry, the
traditional priority sectors. Emphasis is being given to agricultural
intensification--getting higher yields per acre. Increased supplies
of mineral fertilizers, pesti(-ides, and improved seeds have been
promised, along with exparded irrigation and higher incentives for
farm workers and managers. The USSR's record crops in 1966 reflect
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in part this greater priority. But to what extent the Communist
effort can mitigate the serious agricultural problems that stem
largely from the nature of the system remains a critical question
before the economic intelligence analyst.
Crop Estimation Procedures
The analyst attempting to evaluate the current agricultural situation
in the Communist countries has a very difficult task. Inadequate
sources of information make the estimating process much less refined
than he would like. He is envious of the U.S. Department of Agricul-
ture's Statistical Reporting Service, which in estimating U.S. crop
production has available the periodic returns from more than 850,000
volunteer crop and livestock reporters scattered throughout the coun-
try. He himself has to build up his estimate of the early summer
condition or the final harvest of a Communist crop from scattered
bits and pieces of evidence.
In trying to determine, say, the actual amount of grain harvested
in the Soviet Union in a given year he begins with an estimate of
sown acreage by region and by kind of grain. Yields per sown acre
by crop are estimated from widely variant sources--detailed weather
information provided by the U.S. Air Force, reports from the press
and Western travelers describing the condition of the crop at vari-
ous times during the season, the reported progress in seeding and
harvesting, data on grain procurement in various administrative sub-
divisions, general statements made by Soviet officials, data on inputs
such as machinery, fertilizer, and seed. These estimated yields per
acre are checked against the figures obtained for earlier years when
crop and weather conditions were similar in the respective regions.
Then they are multiplied by the estimated sown acreage to give the
production of each kind of grain and the total grain harvest.
In the past few years aerial photography has become an important new
source in this process, primarily, thus far, as applied to China and
North Vietnam. Here its supporting role has been considerable because
of the paucity of data on these countries. In the early 1960's U-2
photography over China partially filled the almost complete vacuum
of information on agricultural production. During the spring of
1963, for example, weather information and Chinese press and radio
reports indicated the possibility of a rather severe drought in
south China. Chance availability of U-2 photography over south and
central China at various times from January to June provided con-
firmation in the form of dried-up river beds and reservoirs as far
north as Hunan province. Similarly, in the late summer and autumn
of 1963 the Chinese press and travelers reported severe flooding in
the north China plain. Weather data also showed above-average rain-
fall for the period of March-July, followed by very heavy rains over
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large areas in the first ten days of August--up to 10 inches in the
area of maximum precipitation. U-2 photography in September and
October 1963 revealed that large areas of the plain were still cov-
ered by water.
More basically than in this verification of mcistu,~e conditions affect-
ing crop production, the photography of North Vietnam and China has
been valuable for purposes of familiarization with agricultural
processes and projects in the two countries. From reconnaissance
photography over North Vietnam the photointerpreters have been able
to tell what state of preparation fields are in for rice culture
and then the crop's stage of maturity--from seedlings to fully mature
rice being harvested. A number of farming operations such as plow-
ing, transplanting, and harvesting were readily identified. It has
also been possible to spot certain conditions that, depending on
severity and time of occurrence, could significantly affect crop
yields, such as lodging (grain flattened by wind or rain) and flood-
ing. Photography of China has been particularly helpful in evaluat-
ing the success of programs to reclaim land and develop irrigation.
Large areas of reclaimed land in northern Heilungkiang province
appeared to have been abandoned. In other areas, particularly in
the north, many canals du7 during the Leap Forward were subsequently
refilled and the land ret-irned to cultivation
Potential Refinement
Experts in the developmen-, of remote-sensing devices believe that
satellite-mounted remote sensors have great potential as an aid to
estimating crop production worldwide. Wernher von Braun, asked about
the possibility of direct'_ng some of the "technologu_cal spin-off"
from our moon program toward solving the world's hunger problem,
replied:
It has been demonstrated with airplane flights, using some
sophisticated photographic equipment and remote sensors,
that from high altitudes you can distinguish very clearly
rye from barley, soybeans from oats. Moreover, you can
distinguish healthy crops from sick ones. You can, for
example, distinguish corn afflicted by black stain rust
from healthy corn. You can also find out whether the
proper fertilizer has been applied, whether there is too
much salinity in the soil.
By continuously surveying and re-surveying the tilled
areas of the world--by keeping track of each patch of
land as it develops f=m the planting season in the
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spring to the harvesting season in the autumn--you can
predict very well the crop expectations on a global scale.
When drought hits an area, you will find a local setback.
If some crop has been damaged or destroyed by hail, your
satellite-mounted remote sensors will find it.
As you get closer to the harvesting period you can, by
feeding all that information into a computer, predict
just how much of a crop to expect, and what kind, and
when and where.
Of course, you would need plenty of correlation data
before the data produced by such a satellite system
would be reliable. You get this correlation simply
by comparing the "ground truth," or the facts deter-
mined by a man walking through a field, with what the
satellite equipment sees in that same field.*
Well in advance of this suggestion from Von Braun, CIA's research
and development organization had begun intensive investigations of
the feasibility of determining yields of rice, wheat, and sugar cane
from high-altitude photography, and the preliminary results were
affirmative.? Flights were made with cameras of such focal lengths
as to simulate from several conventional altitudes the corresponding
high-altitude scales. A few flights were made at U-2 altitudes for
purposes of correlation. Photography was also taken from a 150-foot
tower to permit large-scale sequential photography of test crops planted
adjacent to the tower. Various filters were tried in combination with
black-and-white, color, and infrared film. Ektachrome infrared seemed
best for rapid monitoring of a crop's health, but once yield-reducing
factors were suspected the black-and-white was better able to discrimi-
nate among these factors.
In these investigations a preliminary photointerpretation to establish
parameters was conducted during the early stages of each crop, and then
its further growth was followed by photointerpretation at various stages.
The procedure used in estimating yield was to estimate degradation from
a theoretical maximum potential yield. It was assumed that, given seed
U.S. News and World Report, 12 Dec. 66, p. 66.
.' "Investigation on the Feasibility of Determining Yield of Rice,
Wheat and Sugar Cane by Means of High Altitude Aerial Photography,"
Vols. I, II, and III, Final Report ORD #2265-66.
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typical of the variety grown with success in the study area and a
suitable plot of ground, a perfect crop of known yield would result
except for the action of yield.-limiting factors which may become
operative from the day the seed is sown. These degrading factors
may be classified as physical, that is the absence of crop-producing
plants in any part of the field or less than ideal plant density, or
physiological--pests, disease, drought, or other operants against the
vigor and hence the yield of the plants. These factors may affect
yield in decidedly different ways depending upon the severity of their
manifestation and the stage of growth at which they appear.
3tatistical analyses were performed on the results of the photointer-
pretation as the yield estimates so reached were correlated with
;round-truth yields obtained after harvest. Sources of error were
valuated with respect to each of the photographic scales, film-filter
combinations, and photo dates. It was found that a number of the yield-
reducing factors--disease, insects, weeds, drought, flood, winter-kill,
mineral deficiencies, toxicities--can be assessed on aerial photog-
raphy. For an accurate assessment of the degree to which these will
affect yields, however, the photography must be taken according to
specifications tailored to each factor so as to detect the extent
and severity of its manifestations. It must be taken in the spectral
bands that give the best tone values for the factor in question. It
must also be taken at the right times during the growing season.
The contractor who carried out this investigation is testing the
,echnique on a larger scale during the 1967 growing season by under-
,aking to estimate the yield per acre and total production of wheat
for the state of North Dakota.* North Dakota, the leading U.S.
:spring-wheat-producing state, is in many ways climatically analogous
to the new lands area of the USSR. A five-mission schedule with
11-2 aircraft was carried out during the June-September period, each
mission making three north-.south flights across the state. The
photography, taken by multispectral filtration, is still undergoing
analysis at time of writing.
One of the difficulties in analyzing the output of photographic recon-
naissance is the tremendous, volume of imagery that must be scanned.
The problem becomes particularly acute when the target is agricultural
production, with scattered fields of different types of crops covering
hundreds of square miles. Its solution may lie in sophisticated sampling
procedures, or in a high degree of automation in the interpretation of
the photography, or in a ccmbination of both. An ultimate goal is the
"Technical Proposal for 1967 Chitter Program." ORD #570-67.
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development of remote sensing systems that require little or no human
participation to reduce their raw data to the desired end information.
One system now under investigation records the relative amplitude of
spectral components of the radiation emanating from a source and applies
automatic pattern recognition techniques to identify designated charac-
teristics so revealed. This research, now under way at Purdue University
under U.S. Department of Agriculture and NASA contracts, assumes that
various crops can be differentiated on the basis of multispectral
response "signatures" at various times during the growing season and
that for any particular crop it will be possible to determine what
variations in the response signatures are caused by yield-influencing
factors and so distinguish these. In initial tests the computer output
provided a good reproduction of a strip of Indiana farmland one mile
wide and five miles long, plotting the major vegetative patterns on it.
The operational stage of automated scanning and data reduction is
unlikely to be "just around the corner," however.
Outlook
The results of developmental research to date in aerial photo estimation
of crop yields make it seem likely that this technique will become an
increasingly important tool for the intelligence analyst estimating
Communist agricultural production. For the foreseeable future, however,
it will probably supplement rather than replace present methods. And
pending further development and refinement of techniques for computerized
estimation from photographic patterns, the intelligence community will
continue to rely on the skills of specialists in photointerpretation for
qualitative evaluation of agricultural conditions in problem areas where
photo coverage is available.
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In the hearings on the Soviet economy before the Congressional Joint
Economic Committee in 1959, Morris Bornstein of the University of
Michigan presented three comparisons of the U.S. and Soviet gross
national products. *'E* One of these priced both countries' goods
and services in dollars, tr.e second priced them both in rubles, and
the third was the square root of the product (the geometric mean) of
the other two. They showed, respectively, that in 1955 the Soviet
GNP was 53% of ours when figured in dollars, 27% when. figured in
rubles, or 38% when these two were averaged geometrically. The pro-
cedure Bornstein used was identical with that used by intelligence
analysts, and the data and results were essentially the same.
Hornstein's paper was the first public revelation of any figure
Except the geometric mean.
The calculation comparing total Soviet and American production is
done in response to the perennial question asked of intelligence,
where does the Soviet economy stand in relation to ours? Comparing
quantities of individual products--steel, coal, oil, electric power,
cement, grain, tanks, aircraft--is necessary and more useful, but
people still want an overall comparison, one that is comprehensive.
Such comparisons of gross national products in dollar and in ruble
prices have therefore been carried out as completely as possible.
The geometric mean has been used as a "best" single-value answer.
When, however, two alternative calculations of what supposedly is
the same thing differ so widely as by a factor of 2, the meaning and
usefulness of the figures or their average are open ';o question.
Since the Joint Economic Committee hearings the use of the geometric
11
Studies in Intelligence, Vol. 6, No. 1 (Winter 1962),
pp. 1-11.
25X1A
Comparisons of the U.S. and Soviet Economies, Joint Economic
Committee of Congress, USGPO, 1959, Part II, p. 377-'i91--1-
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mean as a meaningful comparison has been challenged by both American
and Soviet economists for quite different reasons. The object of
this article is to set forth the main outlines of the very complex
calculations underlying the comparisons, to make clear their concep-
tual basis, and to show what interpretations of the comparative
ratios are consequently justifable. It will explain why the dollar
and ruble comparisons are not so good, and the geometric mean not
nearly so bad, as critics have alleged.
Unit-of-Measure Bias
Comparison of two heterogeneous baskets of goods and services in
aggregate requires that their contents be measured in a common
unit. Standard economic procedure is to use money values as the
unit of measure and to convert each basket of goods into a monetary
equivalent by a set of prices. Each good or service in physical
units (e.g., tons of coal) is multiplied by its price per unit
(e.g., $25) and the resulting values are added together. But what
prices should be used--in an international comparison which coun-
try's prices, and analogously in computing growth of output from
one period of time to another, which period's prices? The choice,
as Mr. Bornstein's figures show, can be of major quantitative
significance.
This now familiar impasse is referred to by economists as the index
number problem. It is conceptually insoluble. It is also universal.
It occurs unfailingly in any aggregative comparison between two
economic complexes separated in time or space. Until a few years
ago there were no international comparisons based on a detailed
valuation of one country's product in another country's prices.
Most international comparisons were derived simply by converting
the total value of one country's product in its own prices into
the currency of another country by the international exchange rate
between the two. In 1954 the pioneering study of Gilbert and Kravis
presented detailed comparisons of U.S. production with that of the
UK, West Germany, France, and Italy. The results showed that the
foreign exchange rate conversions were quite misleading. They also
showed that the index number problem was significant for all the
countries studied. The ratio of UK to U.S. GNP is significantly
;; An International Comparison of National Products and the
Purchasing Power of Currencies, Milton Gilbert and Irving B. Kravis,
OEEC, Paris, 1954.
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higher in U.S. prices than it is in UK prices. Here the difference
is less than in the USSR/U.S. comparison; but in comparing U.S.
production with that of Italy the difference between the two ratios
is about as large as with the Soviet. So the difference between
the ruble-valued comparison and the dollar-valued one cannot be
attributed solely to the artificiality of Soviet prices.
The index number bias is also uniform in direction. In every case
the ratio of country A's GNP to country B's GNP is larger when the
products are valued at B's prices than when A's prices are used.
This holds for the Western European countries as well as for the
USSR. In each bilateral comparison with the United States, the
ratio of the other country's GNP to ours is larger in dollars than
in its own prices. The sane systematic bias holds in comparisons
over time. In 1954 prices U.S. GNP in 1955 is 216% of that in 1929;
in 1929 prices it is 222%. A spectacular index number spread for
time comparisons is found in measuring the growth of Soviet GNP:
in 1926/27 prices the 1937 Soviet national product, as measured by
Jazny and Grossman, was 193% of the 1928; in 1937 prices it was
150%.
the economic explanation for the index number problem is fairly
:straightforward. The price of one kind of goods relative to that
of other kinds varies from time to time and place to place. Given
transport costs and barriers to trade, relative prices may differ
greatly between countries. Everyone is familiar with differences
Like the following: wine is relatively cheap in France, while
beer is relatively cheap in Germany; domestic servants are rela-
tively cheaper in most f orDign countries than in the United States;
fuels, oil, coal, and natural gas are relatively much cheaper here
than in Western Europe; meet is relatively very expensive in the
Soviet Union but standard machine tools are relatively cheap.
Pelative prices differ bet-aeen countries because of differences in
taste, culture, and habits and also because of differences in
natural resources, capital/labor ratios, stage of development,
and other factors that affect the cost of production.
Patterns of output also vary between countries, and their variation
is related to the price patterns. Specifically, each country tends
Soviet Economic Growth, Abram Bergson, ed., R_)w, Peterson &
So., 1953, p. 7.
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to use and therefore to produce relatively more of the goods which
are relatively cheap. This tendency accounts for the systematic
direction of the index number bias. To clarify this point a
numerical example may be helpful. Suppose two countries, F and
G, produce only two commodities, wine and beer. The quantities
produced and the prices in each country are shown below.
COUNTRY F COUNTRY G
Price per liter Output Price per liter Output
(Francs) (million liters) (Marks) (million liters)
Wine ... 2 10 2 5
Beer ... 3 3 1 10
Then the total value of output in the two countries can be computed
in either country's prices:
VALUE OF OUTPUT
In million Francs In million Marks
Country F Country G Country F Country G
Wine . . . . . . . . . . . 20 10 20 10
Beer . . . . . . . . . . . 9 30 3 10
Total . . . . . . . . 29 40 23 20
Ratio F/G . . . . . . 72 115%
In country F wine is cheap relative to beer and the population
consumes relatively more wine, perhaps because the price is cheap;
and the price is cheap because resources for producing wine are
abundant. It is also possible that wine is cheap because the
population likes wine and has concentrated on the tehcnique of
its production. In country G the wine-beer situation is reversed.
Because of these inverse price and output patterns, country G's
total output is greater than F's when measured in francs but smaller
than F's when measured in its own currency.
If in this example one substitutes the United States and the USSR
for F and G and consumer goods and investment/defense production
for wine and beer respectively, it is easy to visualize how the
U.S./Soviet index number discrepancy arises. In the United States
consumer goods are relatively cheap and investment/defense goods
relatively expensive, and our pattern of output favors consumer
goods. In the USSR the situation is reversed. The ratio of Soviet
to U.S. output is larger in dollars because U.S. prices are rela-
tively higher for the goods the USSR produces in relatively large
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quantities. The pattern of output by major end uses is shown in
market prices below.
COMPARISON OF SOVIET AND U.S. GNP FOR 1960 AT MARKET PRICES IN 1955
DOLLARS AND RUBLES
RUBLE COMPARISON DOLLAR COMPARISON
USSR TJ.S. USSR USSR U.S.
(bil-? (bil- as (bil- (bil-
lion lion per- lion lion
ru- ru- cent dol- dol-
bles, tiles) of U.S. lars) lars)
GEO-
METRIC
AVER-
AGE
USSR USSR
as as
per- per-
cent cent
of U.S. of U.S.
Consumption . . . . 1,172 1,700 24.9 143 315 ./.5.L 33.6
Investment . . . . 4,47 514 87.0 102 78 130.8 106.7
Defense . . . 156 162 96.3 39 38 103.0 99.6
Government admin-
istration . . . . 22 30 73.0 10 14 71.0 72.0
Gross national
product . . . . 1,797 5,406 33.2 291. /5 66.1 46.8
The index number problem derives from differences in patterns of
output which in turn derive from differences in resources and in
national preferences. The wider the divergence in patterns of out-
put, the wider the index spread. Comparisons of de'Teloped with
underdeveloped countries yield extremely large spreads between the
two valuations simply because the patterns of output are so different.
Partisan Positions
As indicated earlier, this problem is insoluble. There is no
ground for choosing between the two alternative valuations. A
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time-honored expedient has been followed in using their geometric
average in public pronouncements. 3` The comparison the President
made in his press conference of July 1961--that the Soviet GNP was
47% of ours in 1959--was the geometric average. This usage has
been challenged by both Soviet and American economists. The Soviet
economists have come out flatly for the dollar comparison, in which,
of course, Soviet GNP is higher relative to ours. Interestingly
enough, their justification is that in a planned socialist economy
price does not have to correspond to value, i.e., real costs, and
in fact does not in the Soviet Union. And therefore, they argue,
the ruble valuation is meaningless.
The Soviet argument is specious. As the studies of Gilbert and
Kravis show, the index number problem always occurs, and in general
the more divergent the pattern of output the wider the spread between
the two figures. The patterns of U.S. and Soviet production are very
divergent indeed. We can estimate how much difference the irration-
ality of Soviet pricing does make in the ruble comparison. We can
eliminate a considerable part (but by no means all) of the distortions
in Soviet prices by converting market prices to the Western accounting
concept of factor costs. Factor costs are calculated by subtracting
from market prices any direct taxes included in them, like the Soviet
turnover tax, and adding subsidies granted to the industries. The
adjustment of Soviet prices to factor costs cannot be carried out
in detail because detailed data on turnover tax rates by commodity
are not available. Preliminary calculations, however, indicate that
the use of factor costs would raise the Soviet GNP as a percentage
of the U.S. in rubles by a few points but would not eliminate the
bulk of the index number spread. "'
,a The geometric mean is used in preference to the arithmetic
because economic growth and other changes in general proceed geo-
metrically; that is, constant percentage increases describe the
changes better than constant absolute increases. The geometric
average of two numbers exceeds the smaller of the two by the same
percentage as the larger exceeds the average.
The ratio of 47% in 1959 used by the President incorporated
an upward adjustment from market price ratio to allow for the effect
of factor costs.
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Objections by American economists are more serious. Abraham Becker
of Rand -; has argued that the average is meaningless and should be
abandoned, that the ruble and dollar comparisons are equally correct
measures of relative output and should be equally and impartially cited.
The basis of his contention is that while the ruble and dollar compari-
sons are precisely defined by the two real price systems used in the
calculations, the geometric average of the two does not correspond to
any existent price system. Another position is taken by Francis Hoeber
of the Stanford Research Inst-Mute, who votes for the dollar comparison.-`
His argument, as nearly as I can tell, is simply that American prices
are more familiar to American:, who will therefore understand the dol-
lar comparison better.
Both these positions impute more meaning to the comparisons than they
can have. The GNP ratios, have a broad, general, far from precise
meaning, one which tends to disappear if you try to pin it down. Like
a faintly fragrant flower; it can be apprehended by gentle inhalations,
but an attempt to extract the scented oil and subject it to chemical
analysis will ruin it altogether.
Unknowns in the Equation
As background for a better appreciation of what the GNP index numbers
mean let me outline some of the difficulties inherent in the data
used to calculate them.
Procedurally, the conversion of Soviet product values to dollars and
U.S. product values to rubles is carried out with ruble/dollar price
ratios for individual goods and services. The ratios used, numbering
a few hundred, are only a small sample of all prices in either economy.
Each price ratio is applied to those sections of consumption, invest-
ment, defense, and governnent administration for which it is deemed
to be representative: this a man's suit, shirt, and pair of overalls
are taken to be representative of the whole men's clothing category.
The small size of the price sample introduces a margin of uncertainty.
Worse than that, it is limited to prices the USSR publishes, and it
World Politics, p. 99, October 1960.
Soviet Economic Potential, 1960-1970, Francis P. Hoeber and
Robert W. Campbell, Stanford Research Institute, 1961.
But we must reject on technical grounds any suggestion that
the ratios be described as faintly fragrant numbers.
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is therefore weakest in military hardware, construction, and custom-
built equipment. And of course there can be no price ratios for the
considerable number of both consumer and producer goods produced in
the United States but not in the USSR. For many services, such as
health, education, and government administration, the product itself,
let alone the price, is indefinable. Here we use wage and salary
ruble/dollar ratios, thus implicitly assuming that the services of
one Russian doctor equal those of one American doctor, and similarly
in the other service professions.
The measurements are inherently quantitative. The quality and spec-
ifications of each product in the price ratio sample are checked as
carefully as possible: an average Russian men's suit is paired not
with an average American suit but with one that appears comparable
in quality, well below the American average. But this product-by-
product comparability, even if it could be achieved with accuracy,
would not take into account the vast difference in diversity and
assortment in the two countries. There is no way to quantify
these factors, but we know from observation and from Soviet state-
ments that supplies of consumer goods of all kinds are badly
balanced, some types being in very short supply and others in
surplus and unsalable. Diversity and assortment problems are
evident in the investment field as well; for example, the range
and mix of agricultural equipment is poor by the Soviets' own
admission. Nevertheless, if 100,000 agricultural tractors of a
certain type are produced they are included in the measure of
output, regardless whether there is a demand and economic use for
that number of these tractors.
Another deficiency in the statistical procedure concerns the value
of retail trade services, which is included in the value of the
consumer goods compared. The goods themselves are kept comparable
by matching the physical qualities of individual products, but
there is no practical way of measuring the quantity or quality of
retail service that goes along with the product. Thus a pound of
ground beef is counted the same in the two countries even if in
one it is accompanied by air conditioning, soft music, and quick
service, in the other by clouds of flies, pungent odors, and
interminable queuing.
It is hard to believe that these data deficiencies do not favor the
USSR, making the dollar valuation of the Soviet product too large
by some few percentage points. On the other hand, as we saw above,
the use of ruble market prices rather than factor cost overstates the
U.S. product in rubles. To what extent these two overstatements
offset each other is impossible to say. For all these reasons,
over and above the index number problem, the total GNP comparisons
should be regarded as order of magnitude indicators and not as
precise measures.
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Rationale of the Mean
Let us now return to the meaning of the dollar and ruble valuations
and their geometric average. The valuation of one country's output
in its own or in another country's prices has a precise statistical
neaning given it by the calculation procedure, =_.e., the multiplica-
tion of commodities by a specified list of prices. Further, these
prices are taken from an actual operating price system. But this
is still far from an economic meaning. The price systems of the two
countries subject to bilateral comparison are not the only possible
stales of valuation; consider the possibility and desirability of
multilateral international comparisons. If we were comparing the
LJ.S., Soviet, and West German output there would be three price
systems and three sets of ratios for the U.S./Soviet GNP. Each
country added would add another set of comparative ratios. In what
sense then is the dollar or ruble valuation uniquely "correct"?
in a precise economic sense none of the valuations are correct.
Two production aggregates can be unambiguously compared only if
they are made up of identical proportions of the different kinds
oof goods and services. The comparison of two GNP's with different
proportions can be given meaning only by an assumption about the
transferability of resources, the assumption, for example, that
the United States can shift resources from the present pattern of
output to any other one at prevailing dollar costs and prices.
The dollar ratio of Soviet to U.S. GNP, 66% in 1960, would be
unambiguously the measure of comparative output if the US were to
shift resources until its output had the same proportional pattern
as the USSR's and if the 1960 dollar value of this output were un-
changed. Similarly, if the USSR were to shift resources in the
opposite direction, leaving its ruble total unchanged, the ruble
ratio, 33%, would be unambiguously correct. The two provisos are,
of course, highly dubious assumptions. They imply that unit costs
of production would remain constant at all levels of output for
all products.
This argument leads to the main conclusions I wish to draw. First,
the two comparisons could be described better as equally incorrect
than as equally correct. Second, the geometric average of the two
can be given a defined mewing by assumptions no more dubious,
possibly much less so. The average ratio would be unambiguously
correct if both countries could shift to an identical intermediate
pattern of output, the value of each total output in the domestic
currency remaining unchanged. The feasibility of such a shift is
certainly not harder to conceive than a shift of either country
:ntirely over to the other country's pattern. The geometric mean
is a rough approximation to the comparison that would hold if the
pattern of output in both countries were a mean between the present
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patterns. In this interpretation it is a far from precise but
still useful figure indicative of the relative overall size of
the two GNP's.
Elements of Challenge
The third conclusion is that the capability for shifting resources
lies at the heart of these interpretations. The figures shed no
light on this capability; they require, on the contrary, an arbi-
trary assumption about shifts in order to have meaning. Thus
specific questions about capability cannot be answered. For
example, how much could each country produce of a specified list of
defense goods and services under full mobilization? One could not
deduce an answer from either the ruble or dollar comparison, but
only, if at all, from a detailed study of the mobilization potential
of each economy, industry by industry. The output comparisons really
tell us nothing about capabilities for producing alternative mixes
and hence nothing very precise about relative output. When and if
the USSR reaches a level of output measuring 103% of the U.S. in dol-
lar prices and 57% in ruble prices, it will be impossible, and
probably at that stage of the game irrelevant, to say whether these
ratios mean that it has caught up with us.
If the aggregate GNP comparisons are so ambiguous, of what use are
they? They have found a place in the propaganda battle between the
Bloc and West, but their analytical usefulness is limited. The useful
quantitative comparison between the U.S. and Soviet economies is not
of total GNP but of its separate segments. The table on page 70
shows that although there is an index number discrepancy in the
individual consumption, investment, and defense components of GNP,
it is a smaller one. This is because the difference between the
two countries in pattern of output for each individual end use is
less than in their production patterns as a whole. A breakdown
(as detailed as possible) of the two GNP's in both sets of prices
reveals precisely the divergence in pattern of output which causes
the index number problem in the total GNP comparison and at the
same time is obscured by the aggregation. The comparisons by end
use show also the relative price differences which accompany the
differences in output patterns.
The point to be emphasized in conclusion is that overall GNP
comparisons--dollar, ruble, or average--do not measure in any
significant sense the USSR's economic challenge to the United
States. It is the uses to which productive capacity is put that
are significant. Soviet GNP in 1960 may be 33, 47, or 66 percent
of ours, but Soviet defense expenditures are approximately equal
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!,o ours and investment for growth is also equal or perhaps a little
Larger than ours. In speeches by the Director of Central Intelli-
gence and in many other ways it has been publicly reiterated that
.he Soviet economy, though significantly smaller than the U.S.
over all, is growing much faster, particularly in heavy industry;
that its production is concentrated along ominous lines--investment
for more growth, armaments, and the development of now military
,ethnology; that its effor-,s in these fields are alrooady comparable
i.n magnitude to our own; that it is devoting its res)urces with all
i,he power of a determined dictatorship to a long-run aim declared
i.n Khrushchev's promise, "lie will bury you."
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THE ESTIMATION OF CONSTRUCTION JOBS
The questions most frequently asked of the construction estimator
are how long it will take to build an installation, how much it will
cost, and how soon he can answer these questions. The answering
requires some kind of estimative process, which may vary from what
seems a mere intuitive guess to a time-consuming analysis of extensive
data by complex methods. Among the more important determinants of
the process are the qualifications of the estimator, the availability
of data, and the methodology employed.
The process as carried out for intelligence purposes is generally
similar to that used by the construction industry itself. In the
construction industry, however, estimates are made primarily to deter-
mine the best and most economical way to do the job, whereas intelli-
gence wants to know the actual cost and the time required, given the
materials and construction methods in fact used. This distinct
approach sets the intelligence process apart from that common in
pre-bid estimating for construction projects. Moreover, the paucity
of data available to intelligence usually precludes detailed analysis
and requires a large measure of extrapolation and approximation.
Especially in intelligence, therefore, the validity of an estimate
depends in large part on the estimator's practical experience and
maturity of judgment. He should be thoroughly familiar with all
aspects of the work involved in the project at hand. There is no
substitute for the know-how imparted by long and varied experience
on field construction jobs, and the estimate prepared in the office
must reflect this field experience. Ideally, in view of the consid-
erable differences in construction technology in different countries,
the intelligence estimator should have obtained some of his field
experience in the country in question. Since this is seldom possible,
Studies in Intelligence, Vol. 7, No. 4 (Fall 1963), pp. 11-21.
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he must consciously adapt, his experience to the building methods pre-
vailing there and minimize the use of direct analcg-y -,.ith U.S. practice.
On construction projects in the USSR the best single source of basic
working data is found in the Soviet Norm Books for -'onstruction, which
list labor and equipment requirements and the cost for such units of
work as excavating a cubic meter of earth or rock, placing a cubic
meter of concrete, and erecting a ton of Steel. Composite cost and
time requirements for constructing various ty^es of residential,
industrial, and public buildings per square meter cf floor are
also given. Architectural journals furnish a great deal of helpful
information on building construction; similarly transportation pub-
lications in the field of railroad, hiErhv.-ay, and waterway construction
and maintenance. Soviet handbooks give specifications for construction
machinery and equipment and for buildin :-aterials, and construction
journals and newspapers place these specifications in practical context
for the experienced construction es-=a-,,or by discussing difficulties in
the actual performance of equipment and materials on the job. Newspaper
accounts of operations on current projects shed light on specific
problems and how they are over. -le.
Much of the data needed with respect to particular Soviet projects is
derived from classified d,cu:-._enis and publications which range from
defector reports to the Nati-nal Intelligence Survey. The latter
gives geologic, meteorologic, and terrain information which can be
of great value in determining the rate of progress to be expected
in the work. Sometimes a refugee who had worked on the job can supply
details about dimensions, materials used, methods of placement or
erection, problems encountered, numbers and types of employees, and
other things.
So much for the estimator s qualifications and his sources of information.
His methodology can best be illustrated in a case hstory.
Men at Work on Missile Complex
The following report of information from an escapee is received:
1. A HIGHLY SECURE MILITARY INSTALLATION WAS UNDER CONSTRUCTION
IN AN ISOLATED, FORESTED IREA NORTHEAST OF YURYA, KIROVSKAYA OBLAST,
IN JUNE 1961. ALTHOUGH TEE MEMBERS OF THE CONSTRUCTION BATTALION
HAD NEVER BEEN TOLD THE PURPOSE OF THE PROJECT THEY WERE WORKING ON,
THERE WAS GENERAL SPECULATION THAT IT WAS TO BE AN INTERCONTINENTAL
MISSILE BASE. INFORMANTI5 BROTHER HEARD FROM OTHER CONSTRUCTION
WORKERS THAT ANTIAIRCRAFT ROCKET BASES HAD ALSO BEEN BUILT ABOUND
YURYA.
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2. THE INSTALLATION, WHICH WAS SPREAD OVER A VERY LARGE AREA, WAS
GEOGRAPHICALLY REMOVED FROM ANY OTHER INDUSTRIAL OR CIVILIAN ACTIVITY.
IT WAS LOCATED AT THE END OF A RAIL SPUR WHICH RAN NORTHEAST FROM THE
TOWN OF YURYA ABOUT 15 KM. NEAR THE END OF THE SPUR A ROAD PARALLELED
THE RAIL LINE FOR SOME DISTANCE AND TERMINATED IN A VERY WIDE LOOP IN
WHICH THE ROAD DOUBLED BACK PARALLEL TO ITSELF AND TO THE RAIL LINE FOR
ABOUT 750 METERS. ALL TRANSPORT WITHIN THE INSTALLATION WAS BY ROAD
VEHICLE.
3. WITHIN THE BASE WERE FOUR SEPARATE AREAS, ABOUT 8 KM APART,
CONNECTED TO EACH OTHER BY A ROAD. ALL FOUR LOCATIONS WERE SIMILAR
IN SIZE AND SHAPE, ALTHOUGH EACH WAS IN A DIFFERENT STAGE OF CONSTRUC-
TION. EACH COVERED ABOUT 35 HECTARES (APPROXIMATELY 90 ACRES) OF
GROUND, AND CONTAINED TWO LARGE FLAT EXCAVATED PLATFORM-LIKE AREAS,
APPROXIMATELY 350 METERS APART, WHICH WERE PARALLEL TO EACH OTHER.
IT WAS PLANNED THAT ALL THE PLATFORMS WOULD BE CONCRETED OVER. AT
EACH LOCATION A ROAD CONNECTED THE PLATFORMS AND AN ACCESS ROAD RAN
BETWEEN AND GENERALLY PARALLEL TO THEM. HOUSING FACILITIES HAD BEEN
CONSTRUCTED EAST OF THE RAIL TERMINUS IN AN AREA CENTRAL TO ALL FOUR
LOCATIONS.
4. CONSTRUCTION AT EACH OF THE LOCATIONS PROCEEDED IN STAGES. ONE
CREW FINISHED THE FIRST PHASE AT ONE LOCATION AND MOVED ON TO THE NEXT;
MEANWHILE ANOTHER CREW MOVED INTO THE FIRST AREA. BY THE END OF JUNE
THE EXCAVATION WORK HAD BEEN VIRTUALLY COMPLETED FOR ALL FOUR LOCATIONS,
AND IT WAS RUMORED THAT THE WORKERS WOULD BE TRANSFERRED TO ANOTHER
PROJECT OF THE SAME KIND.
5. EXCEPT AT LOCATION A, INFORMANT DID NOT KNOW TO WHAT DEGREE
PLATFORM CONCRETING HAD BEEN COMPLETED. INFORMANT UNDERSTOOD FROM
OTHER WORKERS THAT AT LOCATION A, WHICH WAS IN THE MOST ADVANCED STAGE
OF CONSTRUCTION OF THE FOUR, THE PLATFORMS HAD BEEN OR WERE ABOUT TO
BE CONCRETED OVER; SEVERAL BUILDINGS HAD BEEN CONSTRUCTED, ONE OF WHICH
WAS ASTRIDE THE ACCESS ROAD; AND A DOUBLE BARBED-WIRE FENCE HAD BEEN
ERECTED. MOST OF THE CONSTRUCTION WORKERS HAD ALREADY LEFT THE LOCATION
AND OTHER PERSONNEL WERE TO INSTALL EQUIPMENT.
The problem is to determine how long it would take to build the four
launch sites and how much it would cost. It is simplified by the fact
that their description fits previously known launch sites for which such
estimates have been made. In particular, Site A seems to conform with
the prototype launch area C at the Tyuratam missile test range, for
which a detailed estimate has been prepared. Since Site A is in the
most advanced stage of construction and shows the greatest detail of
the four, the time sequence and breakdown of operations with respect
to it will be studied first, and then the times and finally the costs
can be extrapolated to cover the other three.
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Nevertheless, Soviet construction organizations do vary considerably
in experience and effici=ncy, and the effect of this variation on
costs, although extremely difficult to quantify, should be kept in
mind as one moves from static considerations to dynamic and from
microeconomics to macroeconomics. If a program of missile site con-
structions is judged to -De of moderate size relative to the number
and capabilities of experienced construction organizations and personnel
that can be called upon, the cost per site, in general, is likely to
tend toward the low-bid :^ange. But if such a program seems massive
enough to require, as it gathers steam, the employment of more and
more construction organizations of less and less experience, the
cost per site should set-;le in the high-bid range. In many estimates
of the construction costs for new weapon systems we cannot expect
to keep uncertainty within the plus-or-minus 20% of U.S. practice.
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How much has the Soviet Union, Communist China, or France spent
on its nuclear program? What is the cost of the French gaseous
diffusion plant at Pierrelatte or of the nuclear test site in
French Polynesia? Is the allocation of funds for these installa-
tions proceeding on schedule? How much has West Germany spent on
what facets of nuclear research and development? What would it
cost India, Israel, or Japan to convert its present program for
developing nuclear electric power facilities to production of
nuclear weapons? The intelligence community is frequently called
upon to supply answers to questions such as these for two primary
reasons--to gauge the burden nuclear programs impose on the econ-
omies of the countries concerned, and to compare the sizes of
different countries' programs.
Attempts to measure the economic burden are usually related to the
question whether cost is apt to deter a nation from undertaking or
expanding a weapons program. Analysis for this purpose of the
pattern of spending also reveals much concerning the nature and
probable rate of development of a program. Cost and rate-of-ex-
penditure studies constitute a useful approach to these problems.
Comparison of the size of different countries' nuclear programs is
a less cogent reason for estimating costs, and cost comparisons of
this kind must be interpreted with great caution. Comparison of
probable capacities for production of nuclear materials is the direct
and more appropriate way to get at the relative size of nuclear
programs. Size can be measured in megawatts, quantities of plu-
tonium or uranium-235, or numbers of weapons without involvement
in complicated problems of monetary conversion. Conversion re-
quires extensive studies of materials, manpower, wages, and pro-
ductivity in the nuclear industries of the countries compared,
Studies in Intelligence, Vol. 10, No. 1 (Winter 1966), pp.
23-38.
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and the requisite data, as well as the time, for these are usually
lacking.
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ESTIMATING THE SOVIET GOLD POSITICN
25X1A
The cloak of secrecy that covers so many Soviet activities is drawn
especially tight about stu.tistics on the production and consumption
of nonferrous metals and minerals in the USSR. The State Secrets
decree of 9 June 1947, as amended in April 1956 and again in 1959,
makes it a criminal offense to divulge absolute figures on produc-
tive capacity, production plans, and plan fulfillment for nonferrous,
precious, and rare metals, Apparently the decree is strictly enforced,
for since World War II there has been no known instance of publication
of the proscribed data.
If the Soviets forbid the release of information on the production
of metals like copper, lead, zinc, and aluminum, it is not suprising
that gold production and he size of the Soviet gold reserves should
be treated with the utmos-, secrecy, and these secrets in fact appear
to be kept even from many high-ranking officials of the Soviet govern-
ment. Absolute production figures have not been released since 1927,
and gold reserve figures have never been published. In the face of
this almost total blackou-; of official data, anything better than a
guess at the size of the Soviet holdings was long cDnsidered impossible.
A meaningful assessment of the USSR's financial position, however,
requires that a reasonably accurate value be placed on its reserves
of gold. The Western estimates which have traditionally ranged from
US$6 billion to $12 billion--in a self-confirming circle that does
little to inspire confidence in their validity--were not good enough.
Better estimates had to ba made on the basis of a reasoned examination
of all information available to the intelligence community.
Studies in Intelligence, Vol. 7, No. 4 (Fall 1963), pp. 1-9.
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First Questionable Construction
The approach that seemed to offer the best chance of success was to
begin with fairly reliable estimates that have been made of the
Czarist gold reserves as of the end of 1920 and then compute the
changes by addition and withdrawal over the following 40 years. An
obvious weakness of this methodology is that the results depend upon
the accuracy of the 120 component estimates of annual production,
consumption, and sales, plus those of other, irregular acquisitions
and dispositions. But although the number of errors small and large
would undoubtedly be great, it appeared reasonable to expect that
those on the high side might roughly compensate for those on the low.
A preliminary survey of available information revealed that satisfactory
estimates could be made of gold collections from the population and
acquisitions from foreign sources--notably the Spanish gold transferred
by the Loyalist government to the USSR "for safekeeping" during the
civil war and that of the Baltic and East European countries which
came under Soviet control when these became Soviet Republics and
Satellites. Information on Soviet sales of gold outside the Bloc
was also quite good for all but a few years of the 1920-1961 period.
Consumption, almost negligible during the early years, was easily
estimated for the period since 1950. Gold production was left as the
major stumbling block.
was enough additional information to carry the estimates through
1933,
but after that the ground was not so firm. Soviet announcements
of
The USSR had published figures on production through 1927 and there
quarterly and annual percentage increases for the years 1934-1939
had been reported and analyzed, however, by the American Legation at
Riga, Latvia. These reports were studied, and with some modifications
the estimates were tentatively accepted.
For the period 1940 through 1961 there was almost a complete blank of
information, and for a time the problem of estimating annual production
in these years seemed insurmountable. But after a number of false
starts and some wheel-spinning, data was obtained from-a sensitive
source that eventually led to the development of an accurate series
of production figures for most of the 1940-61 period. With this
major obstacle out of the way and various minor problems cleared up,
a tentative estimate of reserves as of the end of 1961 could be
reached.
Only it seemed this estimate could hardly be right. It was far
lower than any made in the past, almost unbelievably low even to
those who had never taken the $6-12 billion guesses of Western
financial circles seriously--under US$2.5 billion. Moreover, the
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reconstruction showed Soviet gold sales in recent years to be consid-
erably larger than current production, requiring the USSR to have been
drawing heavily on reserves to finance its annual trade deficits, and
such improvidence seemed incredible if the reserves were really so low.
A reexamination of the whole construction was thus called for. Now a
shortage of several billion dollars in the reserves figure would have
Lo derive from systematic arrcr in a large number of component estimates
ever a considerable time; no single estimate or small group could
possibly account for such a deficiency. Only estimates of production
nnet this criterion. For a number of reasons that cannot be recounted
here, the accuracy of production estimates for the period after 1940
was established within too narrow limits to leave room for any but a
small discrepancy, so attenticn was concentrated on those of the prewar
years 1934-1940. Although a close examination of the Riga analysis
covering these years showed it, to be closely reasoned and the estimates
apparently accurate, there were several questions that had not been
adequately explored when its figures were tentatively accepted for this
study.
The first unresolved incongruity lay in announcements made at the time
by the Chief of the Main Administration of the Gold Industry, one
Serebrovskiy. Serebrovskiyy had declared that gold production increased
from about 2.7 million ounces in 1933--a figure also mentioned by
Stalin in an interview with a Western journalist--to 10-12 million
ounces in 1936 and 14 million ounces in 1937. These latter figures
were approximately twice the Riga estimates for those years, and the
difference cumulated over 5 or 6 years would yield an increase in
reserves of about US$l billion. Serebrovskiy's claims had been disre-
garded on the assumption that he was either indulging in propaganda
for Western ears or exaggerating for his own ends, as Soviet managers
have been known to do; but now it seemed possible that they were true.
The Dal'stroy Problem
The possible vindication of the Serebrovskiy figures would lie in the
production of "Dal'stroy," the only gold-producing organization not
under the Main Administration of the Gold Industry (Glavzoloto).
Dal'stroy, the Construction Trust of the Far North, was organized by
Lhe NKVD to make use of the horde of largely political prisoners in
Lhe middle thirties for forced labor on the mineral resources of north-
;:astern Siberia. Reports leaking out of Russia told of a vast gold-
bearing region along the Kolyma river that was rich beyond the wildest
imagination. Prisoners whs managed to survive the rigors of the
northern winters and the tender mercies of the NKVD ,old of the death
of millions of their fellows in the frantic production of fantastic
quantities of gold for the Kremlin's vaults in Moscow.
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For all their fiction-like quality, some of these reports sounded
credible. One popularized tale of Dal'stroy was a distillation by
a Polish army officer of the testimony of over 60 prisoners, includ-
ing their estimates as to the size of the labor force and the quantity
of gold recovered per man. This estimate put Dal'stroy's output at
almost 13 million ounces in the year of highest production. Another
account, written by a former prisoner assigned to a Dal'stroy factory
which made boxes for shipping the gold, used the quantities of boxes
produced to calculate that more than 6 million ounces of gold was
shipped in the peak year. Other eye-witness accounts of a similar
nature gave estimates of the same order. These stories had been
discounted for a number of reasons, but now the suspicion arose
that they might be somewhere near the truth. Although production
in Dal'stroy could hardly have matched the exaggerated guesses of
10-20 million ounces annually, it might have reached the more conserva-
tive reports' 5-6 million ounces. If so, the Rigra estimates obviously
were low.
Doubts about the Riga reports were increased by the fact that, in
spite of the sensational aspects of the Dal'stroy operation and the
certainty that it was producing gold, they made no mention of it.
Even more significant, Riga's breakdown of production by producing
area left no room for Dal'stroy, as though the analysts were not
aware of the operation or else deliberately ignored it. Most of the
data used for the Riga estimates were those published by Glavzoloto,
and it could be argued plausibly that Glavzoloto's production figures
would not include Dal'stroy production because Dal'stroy was not
under its administration. If this was the case, Dal'stroy's produc-
tion was not represented in the Riga estimates, and if Dal'stroy's
production had been very large, as large say as that of Glavzoloto,
the total annual gold production in the USSR would have been on the order
of the 10-12 million ounces that Serebrovskiy claimed.
These considerations launched a search for some way to establish the
magnitude of Dal'stroy's output in the 1930's and, concurrently, for
any proof as to whether the Riga estimates were really estimates of
total Soviet production including that of Dal'stroy or estimates of
Glavzoloto's production only.
Resolution
It was known that Dal'stroy's output in the 1950's prior to its
dismemberment in 1957, had been approximately 1.25 million ounces
annually. Finding some link between this level and the magnitude
of its output in the 1930's was therefore a possible approach to the
determination of the latter. An intensive search was begun for a
Soviet statement comparing Dal'stroy production in the two periods.
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such a comparison, it was felt, might have been made quite innocently;
there would be no reason is suspect in the USSR what a revelation it
would be.
The search succeeded in uncovering two partial links. The first was
a statement that in 1958 the Western Directorate of the former Dal'stroy,
now of Magadan Oblast, produced "not less" than it had produced in
any of the previous 30 years of its existence. The Western Directorate's
1-958 production was on the order of 385,000 ounces, roughly one-third
f total output in the former Dal'stroy region in that year. Now if
the Western Directorate, in accordance with this statement, produced
not more than about 385,000 ounces annually in the 1930's, a total
!)al'stroy production in the 1930's on the order of 5-6 million ounces
annually would require production in each of the four other gold-
producing directorates in :Dal'stroy to have been very much greater
than that in the Western Directorate, averaging more than 1 million
>unces each. While not imsossible, this asymmetry seemed highly
improbable. Every scrap of evidence available sugge.-,ted that all five
lad occupied positions of almost equal importance in the Dal'stroy
,tructure prior to 1952. If, on the other hand, production in the other
Pour directorates in the 1930's had averaged about the same as that
i_n the Western, total production in Dal'stroy in the peak prewar year
could not have been more than 2 million ounces.
The second link between the thirties and fifties was found in the
fross industrial index of Magadan Oblast, where thre_~-quarters of the
)al'stroy gold was mined in the postwar period. This index showed
ghat the Oblast's industrial production in 1950 was slightly greater
than in 1940 in spite of the fact that the output of large-scale
industry had remained at the same level and the outp:it of a number of
industries, including timber and brick, had declined by 1950. It is
unlikely that the 1950 gro3s industrial index could have shown an
increase over 1940 if the output of gold in Magadan had fallen signifi-
!antly over the decade, particularly when that of ogler fairly impor-
tant industries had declined. Production of gold constituted much too
Large a share of Magadan's total industrial output n>t to affect it.
?t therefore seemed unlikely that Dal'stroy's production in the 1930's
could have been 5-6 million ounces annually. The foregoing evidence,
felt to be considerably stronger than the hearsay of prisoners who
'read at best a very limited view of the operation, indicated that Dal'stroy's
major extraction areas, including the famous Kolyma, produced from 1.5
i,o 2 million ounces in the prewar year of highest output. At $35 an
ounce Dal'stroy's contribu-;ion to Soviet reserves over the crucial 6-year
ceriod in the 1930's was thus more nearly on the order of US$300 million
.ihan a billion.
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Although this conclusion leaves Serebrovskiy's claims unexplained, it
reinforces the earlier supposition that they had some other motivation
than diligence in honest reporting. In retrospect, Serebrovskiy's behav-
ior opens his reliability to serious question. On 1 May 1935 he declared
that the USSR would achieve first place in world gold output in 1940.
Six months later, 11 November, he said that first place could be reached
in 1937. Then just 17 days later, on 20 November, he claimed that it
would be reached in 1936, the coming year. Thus in less than seven
months he moved attainment of the goal of 10-12 million ounces annually
ahead four years. Either a bonanza of incredible magnitude had been
discovered or he was a thoroughly misled or frightened man. That it
was the latter may be indicated by events a little more than a year
thereafter, when Serebrovskiy, along with many other senior officials
of Glavzoloto, was removed from office and never heard of again. Soviet
statements at the time supplemented the usual accusations of anti-state
activities against these officials with specific charges of exaggeration,
mentioning in particular the practice of counting gold believed to be
present in mined but unsmelted ore.
Although Dal'stroy's peak production now appeared to have been no more
than 1.5 to 2 million ounces a year, the question whether this output
was included in the Riga total of 5 to 6 million ounces for the peak
prewar years was still of some importance. Against the negative evidence
in Riga's failure to mention Dal'stroy and listing an "all other" category
in the distribution of production not large enough to include Dal'stroy
output, it was discovered that this distributive breakdown was "forced,"
that is total production was estimated independently of any area figures
and then distributed, sometimes quite arbitrarily, among the various
sectors. The size of the "all other" category was therefore not a valid
test of whether Dal'stroy's output had been included. Moreover, if the
Soviet announcements of annual percentage increases on which Riga based
its estimates referred, as must be supposed, to total production,
Dal'stroy's output would have been included in the Riga estimates whether
or not Riga was aware of it.
There is also positive evidence that Riga's estimates included Dal'stroy
production. An American engineer, Arthur Littlepage, who had been Deputy
Chief Engineer in Charge of Production in Glavzoloto through mid-1936,
returned then to the United States and collaborated with a professional
writer in preparing an account of his years in the USSR. Not long after
the book was published he died, but his collaborator was interviewed in
the hope that Littlepage might have left notes with him or at very least
told him something about levels of production. He was unable to provide
any additional information; he said that Littlepage had purposely avoided
publishing production figures out of concern for the safety of his Russian
colleagues, many of whom had already been arrested or were under suspicion
in the purge of the gold industry that began just after he came back.
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This fear of hurting his colleagues would have been misplaced if his
published statements regarding production would have confirmed theirs,
but if his testimony would have contradicted the high production claims
cif Serebrovskiy, his concern is understandable.
Littlepage did leave one concrete piece of evidence c;n production
levels. A memorandum of conversation describing his debriefing by
riembers of the Federal Reserve Board records his saying that he had seen
the final official plan figures for gold production in 1936, that pro-
c,uction did not reach 6 million ounces in that year, and that he did
not believe it could have expanded very much in the following years,
partly on account of the purges. Moreover, Littlepagre at this debrief-
ng was shown an article in an American mining journal which estimated
the production of gold in the USSR and broke it down into Glavzoloto and
Tial'stroy output. Its figures were in line with the conclusions we
have reached above about the magnitude of Dal'stroy's production and
ifith Riga's estimates of total production. Littlepa#re read the article
and declared that it was essentially correct.
i, monograph published in 1958 by a Soviet authority cn gold production,
furthermore, used the same index on which the estima-:es in the journal
article were based to show the increase in the USSR's gold production
'_n the 1930's. This citation Df the index in 1958 is probably another
tronfirmation of the article's estimates of production and, indirectly,
c;f the Riga estimates: it is highly unlikely that an authority writing
almost 30 years later would use an index that reflec-.ed only one-half
(,f Soviet output.
Conclusions
With the acceptance of the validity of the Riga estimates of production
.n the 1930's, the last serious question regarding the estimate of
reserves was removed. Incredible or not, the analysis indicated that
h:oviet 1961 gold holdings were short of US$2.5 billion, nothing like
Lee $6-12 billion estimate still held by Western financial experts.
The experience gained in reaching this assessment does not point to
,he development of any standard technique or methodology. The impor-
t,an'I thing seemed to be a thorough exploitation of all sources and
pursuit of every however unpromising lead. Though only about five
percent of the leads proved fruitful, those that paid off did so hand-
.omely. Sources ran the gamut from the observations of a Yakut panning
for gold in one of several thousand streams in Siberia to reports
from the highest levels in Moscow.
One lesson learned in the research was the unreliability of low-level
e ye-witness reports. Only a small percentage of those bearing on this
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problem were accurate, and there was no way, except in retrospect,
of distinguishing these from the many inaccurate ones. Published
Soviet data, too, proved at times inaccurate and conflicting, al-
though there was no indication that figures put out by Soviet
statistical offices were intended to mislead.
Statements by government officials, however, were another matter.
As we have said, Soviet officials have in no known instance revealed
publicly the true order of magnitude of either gold production or
reserves. On the contrary: from the days of Serebrovskiy to the
Khrushchev visit here in 1959, when members of his entourage declared
that Soviet gold reserves amounted to US$8 billion and were being
increased by $650 million annually, the consistent goal of official
utterances has been to create the image of wealth.
Yet in the realm of deeds Soviet behavior has been much more
appropriate to a nation with limited and dwindling gold reserves.
The USSR has frequently foregone attractive trade offers when
its efforts to obtain long-term credits failed, has lost desired
deals by insisting on barter arrangements, and has been searching
among its products for additional foreign exchange earners. And
finally, during certain negotiations on an international gold
reserve to which each nation should contribute ten percent of
national reserves, Soviet representatives offered, not the $l
billion appropriate to these public claims, but $250 million,
around ten percent of our foregoing estimate of their reserves.
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Pre-Blackout Data
The basic store of information on Chinese industry goes back to
before the Communist takeover in 1949; much of the mainland in-
dustrial base was established by them. The huge ircn and steel
complex at Anshan and many of the varied industrial activities at
Shanghai and Wuhan and in other widespread areas were developed
by the Japanese during their occupation. Then many plants damaged
i_n the war were restored or reactivated, some with U.S. assistance,
between 1945 and 1949, so that much information is available on
these from Chinese Nationalist, Japanese, and U.S. sources.
During the first 10 years of the Mao regime, when there was a
great deal of industrial expansion and modernization, the Com-
munists reported openly about the progress they were making. This
information was by and large reliable; the achievements of the Com-
munists in this period, compared with the Nationalists' record, were
impressive enough to need no embellishment. A considerable amount
Of accurate information thus came out of China up to 1959.
When in 1959 the Communists attempted to make it in one great leap
Lo the forefront of the industrial nations of the world, they not
only established completely unattainable goals but also reported
incredible progress towards them. Almost all of the information
they issued at this time was impossibly warped or exaggerated.
L,ven so, placed against the previous reporting, it gave some in-
sight into actual accomplishments. When the great silence enveloped
].;he country in 1961, therefore, a good basic reservoir of data on
the industrial establishment was available to the economic intelli-
gence officer.
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TONNAG 'THROUGH TIBET
25X1A
A more than routine intere~_~t has recently been fccused on problems
of highway logistics by tho Communist Chinese threat along the
northeastern border of India. The magnitude of this threat depends
in large part on the Chinese ability to move military supplies by
road from railheads deep in China to the areas of conflict; air
transport, the only alternative, is at present not available to the
Chinese in significant capacity. It was therefore possible to make
an estimate of the threat, in terms of the size of the military
forces that could be supplied, by computing the apacity of the
roads, setting this against the supply requirements of the forces
actually in Tibet, and so determining what excess capacity was
available to support additional troops in operations against India.
Two other possibly limiting factors had also to oe calculated--the
number of trucks needed tc move the supplies, and the amount of
petroleum required to E'uel the trucks. The meth)dology for these
calculations, describes in the following pages, can be used to
estimate the size of military force that can be supported in other
campaigns dependent on supply by road.
Roads to the World's Roof
The Chinese forces at the front lines on the Indian border were at
the end of roads that wind 700 to 1,800 miles over high and rugged
terrain. The three main access routes to Tibet are indicated on
the accompanying map. The most important of these is the Tsinghai-
Tibet highway running south from Golmo to Lhasa. Golmo can be
reached by road either fr)m the railhead in the vicinity of Hsia-
tung on the trans-SinkianE railroad or from tha-. at Hsi-ning west
Studies in Intelli eg_nce, Vol. 7, No. 2 (3pring 1963),
pp. 13-25.
r
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 T S IGy,tA"'~-
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A , k. 4~ r 7 0 ~.~ _ .t, M * semis *r~ " 4 ? ? "- k I I
S.M. tMiles
50 100 150 200 250
A "* A
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of Lan-chou. The major route for the movement of supplies appeared
to be the former, from the Hsia-tung area southward through Golmo
for about 1,000 miles to An-to or 1,300 miles to Lhasa. The aver-
age elevation of this road from Golmo on is about 14,000 feet.
Troops along the western border of the North East Frontier Agency,
those in the Chumbi Valley opposite Sikkim, and those located as
far west as the southern part of Ladakh were supplied by this route.
The other two routes, supplying the extreme flanks, are about equal
in importance to each other. The Szechwan-Tibet highway, running
west from the railhead at Ch'eng-tu in Szechwan Province, served
the troops in the Chang-tu area and the eastern border of NEFA.
It goes on from there to Lhasa, a total distance from Ch'eng-tu of
about 1,200 miles, over extremely rugged terrain ranging to 12,000
feet in elevation. The third route runs from the railhead in the
Urumchi area in northwestern China southwest to Kashgar, then south-
east to the Ladakh area. From Urumchi to Rudog it covers about
1,340 miles at elevations ranging from 3,500 feet in the northern
portions to between 11,000 and 16,000 feet in the south.
The combined practical forward capacity of these access routes
under ideal conditions was figured at 2,000 short tons per day--
1,000 tons delivered to Lhasa via Golmo on the Tsinghai-Tibet
highway, 500 tons delivered to Ch'ang-tu from Szechwan for the
eastern flank, and 500 tons delivered over the Kashgar-Rudog
road for the Ladakh front. These main access routes are supple-
mented by roads leading forward to the frontier and subsidiary
east-west and north-south routes to a total of some 7,500 miles.
Development of a Methodology
By the mid-1950's policy makers as well as transportation intelli-
gence specialists had become greatly concerned about the wide
divergence in estimates of the capacities of identical transportation
routes and facilities published in supposedly definitive U.S. and
UK intelligence reports. These estimates were important to policy
makers as a basis for determining the size of enemy forces that could
be deployed and supported in various areas of the world. Without
a common understanding of the factors which entered into the cal-
culation of the capacities of the various forms of transportation,
however, it had been impossible for the specialists who made the
estimates to arrive at reasonably uniform conclusions. The dis-
parities confused and irritated the policy makers.
As a consequence, the Subcommittee on Transportation of the Economic
Intelligence Committee, composed of transportation specialists of
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the U.S. community, undertook a series of studies which led to the
formulation of methodologies for estimating the capabilities of
railroads, roads, ports, and inland waterways. * These were then
sent tor- I 25X1 C
After much consultation and exchange of correspondence, working-
level agreement on the method for computing railroad capacity was
reached in 1960 and on that for computing road capacity in 1961.
These methods were subsequently approved by the logistics special-
ists who provide intelligence support for SHAPE and are now widely
used by the intelligence components of NATO countries.
In the U.S. government the task of estimating road capacities for
intelligence purposes is performed primarily by the intelligence
components of the Department of Defense. The estimate of 2,000
tons as the capacity of the major supply routes into Tibet was made
originally by DOD analysts by these now standard methods and accepted
by other components of the intelligence community. The process is
described in brief below.
One begins with the ideal capacity of a road of a given type of
surface in perfect condition and good weather, straight, and with-
out traffic hindrances. On paved roads 5-ton trucks are assumed
to move at 25 miles per hour spaced 300 feet apart to allow for
the "concertina" (compression wave) action inherent in any contin-
uous truck convoy operation. On unpaved roads the dust hazard
requires increased spacing and decreased speed. A simple calculation
gives the number of trucks that can be moved in both directions
during a 24-hour period, considering only the speed, the interval
between vehicles, and type of surface.
This basic capacity is then reduced to obtain what is known as
operational capacity, which makes allowance for the constraints
imposed by driver inefficiency, vehicle casualties, essential
maintenance enroute, and unforeseen operational developments.
These contingencies are estimated to reduce the basic capacity
by 20 percent. A practical capacity is obtained by applying
further reduction factors to the operational capacity to take
into account the following:
" For a detailed explanation of these methodologies, see
Department of the Army Field Manual FM 55-8, Transportation
Intelligence, December 1961.
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Turning and crossing operations, including delays caused
by convoys entering and leaving the highway and the
movement across the highway of other essential traffic,
civilian and military;
Operational phasing, including the constraints created by
administrative and civilian vehicles, stops for meals,
refueling, driver rest periods, and the reduced effi-
ciency of night operations.
The resulting practical capacity is expressed in vehicles per
day traveling in both directions. Multiplication by the net
load per truck, in this case 3 tons, gives the daily tonnage in
both directions, and half of this is the practical forward
capacity of the road in tons per day.
The value of the several reduction factors has been derived from
engineering data on highway transportation and capacity, taking
into account vehicle performance and road design, construction,
and maintenance. Where precise data were not available on certain
types of roads, the experience of highway transport specialists
and engineers in truck convoy operations was consulted in assigning
values.
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resupply requirement in tons the following:
Class I (Rations) . . . . . . . . . . . . . . . 23.6
Class II and IV (General Supplies) . . . . . . . 21.5
Class III (Petroleum Products) . . . . . . . . . 3.1
Class V (Ammunition) . . . . . . . . . . . . . 28.0
Total . . . . . . . . . . . . . . . . . . . 76.2
On the average, however, -;he requirements for the forces in Tibet
were lower per man than implied in this example. Other troops
organized in independent infantry regiments had an estimated
requirement for only 22.6 tons per regiment, and border defense
regiments required even less. Some troops in garrison were esti-
mated to be using no ammunition.
It is possible that the Chinese had stockpiled considerable amounts
of supplies during the summer in anticipation of their fall offensive
against India, and the amount transported to Tibet during November
could therefore have been considerably less than 430 tons per day.
If, however, the fighting had continued at that level for any
length of time, the requirement for road transport would have
eventually reached the estimated level.
Vehicle and Fuel Requirements
No coordinated methodology like that for computing the capacity of
roads exists for estimating the number of trucks needed to deliver
the required supplies nor for computing the fuel requirements of
the trucks. Of the several methods used in making such estimates,
one which appears to give uniformly good results is described
below.
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I'll Another method, used by DOD analysts, which gives approximately
the same results is to make a separate calculation for (1) the
amount of gasoline used to haul the supplies, (2) the amount of
gasoline used to haul the gasoline for the supply trucks, (3) the
amount of gasoline used to haul the gasoline used in (2), and so
on until the figure becomes insignificant. When the total amount
of gasoline required has been obtained, it is added to the tonnage
of supplies, and the computation for the number of trucks required
is completed.
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W
Truck and Fuel Availability
Because Communist China is not yet self-sufficient in the production
of motor fuel, trucks, and spare parts, both the petroleum industry
and motor truck transport being in comparative infancy, this aspect
of the logistic problem was given special attention. The extreme
length of the supply lines from railheads to the areas of troop
concentration on the Indian border made both the amount of gasoline
required and the number of trucks needed of significant proportions;
the gasoline required to haul supplies 1,300 miles was calculated
to be nearly equal to the tonnage delivered. The delivery to the
troops of about 430 short tons of supplies daily during November
1962 required about 400 short tons of motor fuel daily and a truck
park of about 7,000 vehicles.
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It was estimated, however, that the total availability of petroleum
products in Communist China in 1962 was about 6.8 million short tons,
about 1.4 million of which consisted of motor gasoline. The daily
requirement for about 400 tons for the Tibetan front, projected as
an annual requirement of about 146,000 tons, would thus be only
slightly more than 10 percent of the motor fuel available in 1962.
Refineries are located near two of the major access routes: those
at Leng-hu, Yu-men, and Lan-chou, not far from the central route to
Lhasa, were undoubtedly the source of the gasoline used on that
route, and the Tu-shan-tzu refinery near the Karamai oil field in
Sinkiang was probably the major source of supply for that used on
the route to Ladakh. Thus it appeared that the fuel requirements
for the Tibetan fighting were tolerable and the sources of supply
convenient. Undoubtedly special military allocations were necessary,
however, with resulting cutbacks in other sectors of the economy.
It was estimated that at the end of 1962 the military and civilian
truck parks of Communist China each consisted of about 100,000 trucks
in operating condition. The size of the civilian truck park is
believed to have been reduced from previous years because truck
production nearly ceased during 1961 and 1962 and difficulties were
experienced in producing or importing spare parts. Present production
and imports are about sufficient, however, to maintain the combined
park at the 200,000 level. In the military regions of Tibet, Lan-
chou, and Sinkiang there were more military trucks available in
November 1962 than the estimated 7,000 required to transport military
supplies and gasoline. In addition several thousand civilian trucks
which are normally employed for economic activities in the provinces
of Kansu, Sinkiang, and Tsinghai could have been diverted quickly
to the military supply lines if needed.
Leeway for Expanded Operations
The table on the following page was compiled by using the methodologies
described above; others broke the daily supply requirement down into
that required by troops engaged in combat and that for those not
so engaged. It was tentatively concluded in November that military
traffic occupied about 20 percent of the capacity of the roads to
the front lines from the supply bases in Tibet and about one-third
of the combined capacity of the major access routes. It was there-
fore estimated that the forward roads could support the daily resupply
requirement of more than five times the number of troops then in
frontline combat units and that the access routes from the railheads
could handle more than three times the quantity of supplies then
required by the troops located in the whole of Tibet.
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More recently it has been estimated that the 105,000 Chinese
troops currently in Tibet would have a daily supply requirement
of 450 tons during the type of fighting that occurred last
November. It has also been estimated that the Chinese may
wish to reserve as much as 450 tons per day of the capacity
of the roads for support of an air force in Tibet. These
requirements, plus an allowance for the trucks that would have
to provide petroleum for the operation of the trucks moving
supplies, would leave a surplus capacity amounting to about
400 net tons per day that could be used to support additional
troops deployed to Tibet. The total ground force strength
that could be supported there, according to this estimate,
would be on the order of 200,000 men, a maximum of about 15
divisions.
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SUPPLIES REQUIRED BY TROOPS IN TIBET, a: BY ACCESS ROUTE AND MILITARY DISTRICT
Transport
Daily Resupply Requirement Requirements
Class I, Class Class
Route and District Troops II & IV III V Total Distance Trucks Fuel
Tsinghai-Tibet Highway
(tons)
(tons)
(tons)
(tons)
(miles)
(tons)
A-li . . . . . . . . . .
5,600
17.4
4
9.3
30.7
1,800
821
50
Zhikatse - Chiang-tzu .
17,000
52.7
6
...
58.7
1,500
1,160
70
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