'THE CHALLENGE OF SOVIET INDUSTRIAL GROWTH' BY ALLEN WELSH DULLES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80R01731R001700030002-3
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 23
• Document Creation Date: December 19, 2016
• Document Release Date: August 10, 2006
• Sequence Number: 2
• Publication Date: December 12, 1956
• Content Type: SPEECH

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"THE CHALLENGE CF SCVIET INDUSTRIAL GI OWTH"+
by
ALLEN WELSH DULLES
DIRECTOR CF CENTRAL INTELLIGENCE
before
THE PRINCETON C ON.FE.RENCE
PRINCETON UNIVERSITY
at 8:30 p. m. , EST
12 December 1956
Princeton, New Jersey
It is a pleasure to return to Princeton to take part in y.iur
discussions on the "Challenge of Soviet Industrial Growth".
During the past two days a group of outstanding experts, meeting
here, have been thoroughly canvassing this subject. I shall endeavor- not
to retread the ground they have been over.
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A sober understanding of the facts of life about the Soviet Unic,n is
fundamental to any appreciation of the :security position cf the ZTn.ited Gtatec .
I' has always been a source of groat comfort to us in 7,ra3hington to vao:h: i.nElu nc! of ti-
Spiritual leader of the mi.l'.ionc of Catholics in the world with the
questiori? 11 The Pop ninny divisl''+rifi d':)cr h have ! 11 i'-1 darns. 1 ?'t
rllrti7.shchev can be just as t; m'.lk`a
rai." [1t "here could hai--11 T be a betty-., case i point tI'.^tIt'-vl :irr;L_',.l 1 t 11c_f
to crush 'Ihe Hungarian Y
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The leaders of the Soviet Union know full well that military o-wrnr .14
political power, which they also cherish, rest on a foundation of in_ ustri it
power. Soviet devotion to the rapid growth of heavy industry is one of the
most unhappy love affairs of the 20th Century. They subordinated the
personal welfare of a whole generation of Soviet people to forced-1i aft
production of steel, oil, and machinery.
If any capitalistic country in the world had set its priorities so he:r.~--+/
in favor of steel and so markedly against humanity, that country would be
thoroughly castigated, and rightly s In contrast, the Soviet Uni- r, is nroou i
of its success in grinding the makings of a great modern industrial ;ysters-
out of the flesh cf its pe -~ple.
The price the USSR has paid for its rapid in,ustrializati-:n rr,ust n a
blind us to the physical accomplishments of the Soviet Union in this fiel:'.
At the 20th Party Congress of the Communist Party f the Soviet Union in
M.-scow last February, a full-dress presentati.rn of Soviet policy was giver;
and on many occasions since, Soviet leaders have described their in lust-- 0
achievements and their pr.-gram for the future. They have literally issuv-l
a challenge to the United States to compete with the USSR econr micaLly,
and -- through the w-rld-wide use cf their economic power for internati rtal
political influence. This is a grave challenge.
Soviet leaders believe they have grounds for the high self -c _nfilenco
they have been showing.
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T- day the gross na.ti~-nal pr_-ducti.-n -f the USSR is slightly m re thew
one-thir_1 that of the U.S.; it is abut three--quarters again as ]arise -'s tho':
of the United Kingdom which rinks third. We still have a very re?at Ieal,
but the Soviet rate of progress is rapid. M- reover, in the Soviet Un :?n,
capital goods and basic industrial materials form a much greater sh-,re
overall production than in the United States. Thus, while their gres4-? na.
production is only one-thirc'. of curs, their production of capital equi)rneoc
is abut 45% o:f curs. S.'.viet production -f machine tools actually exceed-
that of the United States.
The resources f:- r i ave stment in heavy industry are male a v4 iilabla
by a deliberate policy of withh.-l_iing ec..nomic benefits from the Seva,:t
consumer. Thus, Soviet production ~f passenger automobiles is bct-vee1-1
1% and 2% of our own. The United States produces 50 washing machnes 1r
every one produces in the USSR, and 5 radio and TV sets f. r each ore they
produce for a population almost ne-quarter larger than slurs.
As I have indicated, the Soviet industrial base is still only a
oof our own. It is nevertheless large ens ugh to permit the Soviet lea- ers t
expand their military capability impressively, to plan an increasingly actic^B
economic r,--,,le in undeveloped areas, and to speak confidently at the ?0th
Party Congress of closing the nap between their output and :urs.
The Soviet leaders point boastfully to the fact that the value --= Sovica:
total economic output has increac-cda alm.-.st threefold from 1928 t_: 1..:te an]
this despite a devastating war which set them back severely during t'-.e peri -l
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'94I-45. The rate f their industrial growth luring this period has ->eer=
abut twice as high as the rate :;f their aver-all growth. This has bcoen
possible because important parts ~.f their economy have been permit:col i.
lag behind, particularly agriculture and c _onsurizer goods,
Cne key factor in achieving this rapid rate of industrial grcw':h is
Soviet investment policy, which of course is set by the S._viet Government
not in accord with demand but according t- what the traffic will bear A
large part of the total nati:mal production of the USSR has consistent: y bt r,
devoted t. investment,
We estimate that 24% of the USSR gross national production went
directly into capital investment in 1955 to increase the base for future
industrial growth and expanded military capabilities. only 18% f Arner.c--i
gross national pr"ducti n is currently being used f_;r capital investment, a n
this is the highest percentage we have achieved in the post-war peri:: 1.
Of course, it is c_:nsclin;; t ; note that 18'16 for us amounts t_ ? far
greater absolute total than 24% for them. In their case, h wev-er, hf:avy
industry has been the major beneficiary and is now absorbing ab ut 506 f
their total investment. Thus, industrial plant and equipment in the S _:vict
Union has nearly tripled since 1540, and their investments have been
allocated prod..minantly to the c: al, Al :and electric power industrie=., t:
metalworking and metallur--;ical industries.
!Vhile capital goods output was rising over tenfold, agricultural
production has barely kept pace with the gr._.wth of p:.pulati_ n.
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AmhitLus gals for heavy industry set in their five year plans 3.r
usually met or surprise j; unimpressive ads f. ;r consumer goo is ~ (
agriculture have fared basiy.
For the future, the principal economic task of the Soviet Uniin as
expressed in the Sixth Five Year 'Plan, which c-vers 1956- 1 ^50, is ~,t
overtake and surpass the most aevel_:pel capitalisi c_untxiee as re r I
per capita production. "
This ggeneral objective has been spalled out by Sabur::v, Chef f=ovi,
planner, '.s ciao ws:
"It 1t is true ttia.t we have not yet caught up to i:?he Unite l ata' e a e the
in the volume of pro 1uction per capita, and s_o far in the volume ix.: ?,a T
pr. oductio:;n per capita. " "1-T_wever, " he a:.' ded, "the pace of L.. ? c 1
which by many times exceeds the pace r f the growth of in _str,T i--i TiniT,e l
States, permits us to o:verc:.mc this la;; within a very si~.-_ ^t hit :-ic
of time, "
From the context, it is clear that Saburov was thinking in terra s
fifteen to twenty years.
This, in simplest terms, is the industrial challenge If the US -R.
Without going into the difficulties that the Soviet Union un1._ubte Ily ~vi.i m'21:
in striving to build an industrial base m.,-re directly c _mparcble t . u - :-.wn,
we have to admit that So viet industry is powerful and rapilly g;r 'win-7 and
that the political effects in the non-Communist world ._f Soviet inlustrial
strength are bound to be far-reaching.
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There is no doubt that in many countries, particularly amor:n the
countries of Asia which have obtained free-Ion, over the past few decade ,
the rapid industrial progress of the Soviet Union has made a very yap
impact, This impact has been increased as the Soviet Union has came fo- -
ward with tempting offers in the field of military and industrial equipment
and of technicians to help in it' installation and use.
Before dealing with the Soviet program of economic penetration,
is worth considering why it is that their program in this field seem 3 to h.-It,(-
had such an initial impact. After all, over the last ten years, the U. S. ha c
expended far more to aid the undeveloped areas of the world than the Soviet
Union has given or even promise,".
Here are some of the considerations upon which Soviet liplornacv
has played with cunning effect.
At least until the events of the past few weeks, the "have-not"
countries, -- many of them formerly colonial areas, -- have believr!_i thit
the U. S.. was so tied in with the colonial powers that it was not free to exear?ci St
an independent attitude.
The complexes resulting from the long period of colonial sta.-us, have
caused many of these countries to react toward the U.S. , in the cla;;sic w.-av
of self-assertion and opposition. The Soviets, until forced to show their
hand in Hungary, have been very astute in their approach. They have m'n:.t e
to create in the countries of Asia and Africa the impression that thug- io n-::
look upon these people as backward or underdeveloped, phrases to~) )fter-r
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by the West.
Hence, we have the; strange situation where the most ruthless colonial
power in the world -- the power that has dealt most cruelly with its own
minorities -- is viewed as a liberator in areas where Soviet conduct e std
policies are little known.
The Soviet leaders have also been very flexible in their no g,oti:Aions.
They have promised liberally. They have not been tied down by legal
restrictions which sometimes hamper our own ability to compete with the
Soviets in many crisis areas. They have tailore i their demands as tc,
interest rates, terms of repayment and the like, to the capabilities of the
receiving state.
The attitude of many of the Asian countries has also been irdlL..nce
by the fact that they have suspected that the manufacturin interests in the
Western world rather wishe_' to discourage industrializaticn in Asia i-z
order to keep them as good customers.
The general world trade pattern also looms large in the thinking 3f
some of the Afro-Asian countries. For: example, the Unite? States at; an
exporter of rice is a competitor of countries like Burma an(c Thailang wh.osetive
barter deal reappear as competing sales for that covntry~ s establish- l
12 -
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markets. Cement deliveries exceeding a country's storage faciliti.:!s he
un,ier the monsoon deluge and harlen into worthlessness. Some a ustorn-r,
Comninnist China, for example, fail to get all they want from 'Russia.
I think we can safely say that on equal terms, Free-Worl_l' : rode s ?>.
and economic assistance will be preferred to Soviet equivalents- l?ut ter
must recoga.'ze that the Soviet'.. prices, terms and conditions are -jwav,
add justable so as to confront the underdevelope' country with an urequ-il
proposition. And suspicious of Communism as many countries are. thEir
urge for capital goods is such that they will remain sorely tempte 1 to acci-.at
the cheapest proffers.
In addition to its strictly economic assets for playing up to these
nations, the USSR has the advantage of possessing an enormous supply cf
obsolescent military equipment, which the smaller nations hunger fcr, ,,q
elements of prestige and power. These arms have only marginal or scrap
value to the USSR, and they can be parcelled out on generous credit -ernYa
The USSR quickly found it had a valuable combination packayc to
dispose of; cheap armaments, industrial equipment, exportable test nic,.1
skills in. the form of Soviet advisors available on request, a realy m, rke-t
for raw materials, subtle propaganda, and a total absence of politics;. seru._-1,y
T'.::,e fru. t& :)5' :11 thi' we have been seeing in the recent tr.-3ublas centerinf,
aroun 1 tl-,? Suoz; Caw}.l,
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It may not be too much of an oversimplification to say that t4he
eruption of the Midvale East into a complex, dangerous crisis stems fro---n
Soviet decision in April 1955 to buy its way into a power position in the ,>,-
with diplomatic and economic support for the Arab states, ]During the sunTfl1e1
of 1955, some eighteen months ago, the Czechs, fronting for the US'iR,
entered into s:orious negotiation; with Egypt, offering economic aid in gcnorz,
and, of particular interest to the Arabs, the opportunity to acquire
Bloc armaments.
The first Soviet arms deal with Egypt was finalize.], in September
Similar deals on a smaller scale were made with Syria and Yemen, -mn.1 cff,a r