COMMENTS ON CIA PAPER, 'THE MEASUREMENT AND MEANING OF DEFENSE BURDEN IN THE SOVIET SETTING' (U)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80B01495R000300020053-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 6
• Document Creation Date: December 20, 2016
• Document Release Date: July 10, 2006
• Sequence Number: 53
• Publication Date: January 29, 1975
• Content Type: LETTER

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SECRET DDZ_
DtFENSE INTELLIGENCE AGENCY"
WASHINGTON, D.C. 20301
S-8312/DI-3H
TO: Deputy Director for Intelligence
Central Intelligence Agency
Washington, D. C. 20505
9 JAN 1975
SUBJECT: Comments on CIA Paper, "The Measurement and Meaning of
Defense Burden in the Soviet Setting" (U)
Reference: DIA Memorandum for the Secretary of Defense, 7 January 1975,
subject: Soviet Defense Burden (U).
1. (C) I commented recently, in the reference cited above, on some
aspects of the "burden" paper. While I believe that paper is a very
useful effort to address a difficult area, I believe that the importance
of this subject justifies some additional comments.
2. (C) Although economists are responsible for creating the concept of
burden, as you know they are almost universal in denying its usefulness in
international economic comparisons. The inherent problem with comparing
"burden" rates is the difference in price relationships within each
country even when the two countries are producing the same quantities of
identical items. You are well aware that distortions occur in both market
and controlled economies, and price structures may differ because of:
(a) varying productivity or input costs, (b) arbitrary setting of prices
for resources or products, and (c) differences in markets. As the burden
paper indicates, the use of factor prices eliminates only "some of the
distortions in Soviet pricing."
3. (C) In the Soviet Union and COMECON economies, these distortions are
particularly great, and a few major concerns resulting from them are
noted below:
a. The measure of burden used in the "burden" paper is, principally,
percentage of GNP allocated to the defense sector. The burden paper
offers several possible percentages of national aggregates absorbed by
the defense sector, but concludes overall that the defense effort for
1972 is probably about 6% of GNP (p. 5) and "less than 8%" (p. 1).
Table 1 (p. 5) also shows that, for 1972, the defense shares of U. S.
and U.S.S.R. national aggregates was about six percent for each country.
There is a possibility, perhaps probability, that non-economists will
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reason from such comparisons that the Soviet defense effort is
substantially smaller than our own, because it absorbs a roughly equal
percentage of an economy about one-half the size of ours (as measured in
rubles converted to dollars). For that reason, I believe that analyses
based on "percentage of GNP" methods convey an inaccurate impression
to persons unsophisticated in such analyses.
b. If the data were available, certain adjustments could be made
to the rubles to make them more comparable with Western economies.
One could add the subsidies provided the defense sector, and the
advantages or priorities provided the defense sector in the form of high
quality resources or products, and also include the opportunity costs
such as the differential wages not paid the military vis a vis the
civilians. Even if these adjustments could be made with some accuracy,
their inclusion in an analysis undertaken largely from the economic
viewpoint may obscure, rather than illuminate, a major consideration.
I refer to the fact that, in the Soviet Union, the term "political
economy" applies with particular force. The economy is an instrument
of state policy, and that policy has consistently been to give the war-
supporting industries and defense sector the highest priority. While
this memorandum is not the instrument to review the abundant evidence
supporting this point, I believe that it is very relevant to a
consideration of "burden" to observe that, from the political viewpoint,
the relevant question is whether Soviet aims in the arena of comparative
national power are being achieved at a cost which the Soviet leadership
considers acceptable and sustainable. The historical consistency of
Soviet economic policy, the gradual but visible improvements in the
Soviet consumer sector, and the lack of effective counter pressures all
suggest that defense spending is viewed, against Soviet progress in
improving Soviet military power and stature relative to the U. S., as
a tolerable burden. The Soviet leadership would, of course, welcome
conditions which permitted its aims to be achieved at lower cost.
c. The burden rate measures, in effect, only the economic loss as
a portion of the goods produced during a given period, and fails to
consider what might have been produced. It could be argued that the
U. S. burden rate is overstated at 6 per cent, insofar as this measure
fails to consider our tremendous potential to produce, and the under-
employment of labor and productive capacity. In contrast, the Soviet
defense sector has absorbed critical capital goods which could have
accelerated the Soviet economic growth rate. For this reason, one
criterion of defense burden which should be examined is the proportion
of key products or technologies, rather than industries, devoted to
defense. In the area of microelectronics, for example, the Soviets have
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not achieved production technologies for mass production and the small
amount produced is therefore devoted primarily to defense. As a
result, the Soviets provide a very small quantity of calculators and
computers to the civil sector and consequently impede its productivity
and growth. Viewed in this light, the real cost of defense to the
Soviets has been its sacrifice of even higher economic growth rates.
4. (S) All of these difficulties should cause us to reconsider the
use of burden and comparative measurements in percentage of GNP. It
may be possible to devise more meaningful and communicable comparisons
than those used in the burden paper, and also to treat some very
significant U.S. - U.S.S.R. economic comparisons. For example, the
following statements are, in my opinion, much more meaningful for the
general public and as a basis for U. S. defense policy decisions:
a. The Soviet military budget, measured in terms of the equivalent
dollar purchasing power, has been higher than that of the U. S. for.
every year since 1971.
b. The proportion of the Soviet military budget devoted to "military
investments" -- that is, to the acquisition of new military hardware and
to research and development -- has been approximately double that of the
United States for every year since 1971.
c. Recently Soviet military expenditures have been growing at a
rate approaching. the six percent growth rate of the Soviet economy.
d. Continuation of a higher rate of expenditure and a higher rate
of increase in expenditure, while not a perfect reflection of the rate
of change in relative military power, indicate a continuing shift
toward the Soviet Union in the U.S. - U.S.S.R. military balance.
e. At the conclusion of its present major effort to replace and
modernize its land based and submarine based ballistic missile force,
the Soviet Union will have the option of reducing military expenditures
or accelerating the already impressive rate of modernization and
improvement of its general purpose forces. With the strategic force
relationship fixed by the SAL treaties, the election of the latter
option would accelerate the shift in the military balance toward the
Soviet Union.
f. Every leadership elite in the Soviet Union since the October
Revolution has regarded the relative economic power of the Soviet
Union, measured in terms of war supporting industry, as a principal
factor supporting the achievement of Soviet aims.
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g. Given this tradition, and the fact that its economy and war
supporting industry now permit it to exceed current U. S. spending, in
terms of the purchasing power of its military budget, at an acceptable
"burden" level, the Soviet leadership can be expected to maintain or
increase defense spending unless. there are strong incentives or
pressures which, in the aggregate, make a reduction advantageous.
h. The economic "burden" of defense spending is not, at this time,
visibly influencing the Soviet leadership toward reduced military
spending. (Agreed limitations on strategic armaments appear to have
been influenced principally by U. S. strategic strength, corresponding
fear of nuclear war, and the view that other options were preferable.
The fear of nuclear war led Khrushchev, after Soviet studies of the
effects of nuclear war, to revise the long standing Soviet doctrine
that war between the Soviet Union and the capitalist powers is
inevitable. In Khrushchev's formulation, the power of the Soviet
Union made the doctrine obsolete, such wars are "no longer fatalistically
inevitable," "we have no need of war," can avoid nuclear war, and can
"win" by overtaking the United States in industrial output and by
supporting "warscf national liberation" and other activities to weaken
the Western powers and change the power relationship in favor of the
Soviet bloc.)
i. Some aspects of present Soviet attitudes are influenced, to
some degree, by the fact that Khrushchev's aim "to equal and surpass"
the United States in economic power by 1970 has clearly not been
achieved, in spite of impressive economic progress. The serious Soviet
economic deficiencies lie in agricultural productivity, the variability
of annual production of basic cereals, and relative inferiority in high
level technology. It is belaboring the obvious to observe that Soviet
leaders have perceived detente as, among other things, an opportunity
to obtain Western and, particularly, American help in ameliorating
these problems. What the Soviet attitude toward detente might be if
these problems were substantially solved is, at the very least, a
legitimate area for thought and study with respect to future U. S.
national security.
5. (S) To sum up an already lengthy memorandum, the role of the Soviet
economy in the whole spectrum of Soviet strategy appears to be better
defined, more coherent, more political, and more influential than
economic considerations in our own country. While I do not hold that
each of the underlined statements above is precisely true and correct
as stated, I believe that each of them is substantially or "operationally"
true and that, in the aggregate, they present a substantially correct
picture. That picture is a very different one from that which I believe
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the public would get from the "burden" paper, and for that reason I
believe that its publication is not in the best interest of the United
States.
6. (S) Since DIA's capability for economic studies is limited by our
small number of personnel, I do not at this time have a well considered
alternative analysis to offer. However, I believe that some or perhaps
all of the points raised above should be weighed for incorporation in
any paper intended to publicize our Government's views on Soviet
military spending and the role of the Soviet economy in Soviet strategic
considerations. I understand that CIA has decided to defer publication
of the burden paper, and we may now have an opportunity to broaden the
analysis to include some of the above points.
7. (C) The analysis of the cumulative U. S. - Soviet investment and
inventory levels in relation to the growth in capabilities in the various
military missions is now receiving growing attention by the intelligence
community at the request of Dr. Marshall, Director of Net Assessment.
DIA has participated in. initial seminars with the Military Economic
Review Panel and representatives of Dr. Marshall's office, as well as
CIA, on the matter of inventory valuations as they relate to the
measurement of capability. DIA expects to be involved extensively in
this project, as the objectives and the definitional or procedural
matters are clarified. I believe that at least some of the points
underlined in paragraph 4. above should be addressed in this analysis
or in a separate, early undertaking. I do not believe, on the other
hand, that the method of comparing percentages of GNP and economic
burden, without considering Soviet political and power aims, is meaning-
ful. I recommend we move toward a broad,,,r methodology.
DANIEL 0. ".y l M
Lieutenant General, USA
Director
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MEMORANDUM FOR:
D/OER,
AD/OSR D/OPR
Ed Proctor finds this a thouqhtful,
well-reasoned paper. It broadens the scope
of our dialogue on the "burden" question.
He would like your advice on:
I What our initial, response to
General Graham should be.
2- What we should do with our paper.
May we have your views on the first
of these questions on Friday?
5 Feb 75
DAr)
FORM NO. REPLACES FORM 10.101
I AUG 54. IVI WHICH-MAY BE USED.
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