CAN THE SOVIETS "STAND DOWN" MILITARILY?

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP83T00853R000100050004-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 26
• Document Creation Date: December 19, 2016
• Document Release Date: February 16, 2007
• Sequence Number: 4
• Publication Date: June 1, 1982
• Content Type: REPORT

Approved For Release 2007/02116 :CIA-RDP83T00853R000100~0004-7
Directorate of ecre
Intelligence
Can the Soviets
"Stand Down" Militarily ?
An Intelligence Assessment
Secret
SOV 82-10101
June 1982 ~}
COPY ~ fi.
 Approved For Release 2007/02116 :CIA-RDP83T00853R000100050004-7
Approved Far Release 2007102/16 :CIA-RDP83T00853R000100050004-7
 Approved For Release 2007/02116 :CIA-RDP83T00853R000100050004-7
Directorate of ~ Secret
Can the Soviets
"Stand Down" Militarily ?
Ir~ormation available as of 1 June 1982
has been used in the preparation of this report.
This paper was prepared b
Office of Soviet Analysis. Comments and queries are
welcome and may be addressed to the Chief
Defense Industries Division, SOVA,
Secret
SOV 82-10101
July 1982
 Approved For Release 2007/02116 :CIA-RDP83T00853R000100050004-7
Secret
As the Soviet economy continues to deteriorate, more and more attention is
being given to the notion that at some point the leadership might attempt
to prop up the Soviet Union's faltering econom b shiftin some resources
from arms production to civilian end uses 25X1
To be sure, there is no evidence that any resource shift is under way, or
even that Soviet leaders are seriously contemplating one; the dominant
feature of Soviet defense spending has been the persistence of its growth.
Nevertheless, as economic problems mount-and as the struggle for
leadership intensifies in Moscow-the possibility of a resource shift
requires that Western policymakers have some grasp of the Soviet system's
technical capacity to accommodate such a shift if, in fact, a decision of this
sort were to be reached or even considered.
Apart from ideological imperatives, perceived national security needs, and
the personal commitment of Soviet leaders to growing military power, the
very structure of Soviet defense planning and production, which is vastly
different from ours, contributes heavily to the momentum of defense
spending in the USSR and makes any shift of resources out of the defense
sector more difficult than would be the case in a market economy.)
In the United States, the allocation of resources for the production of both
guns and butter is carried out in the free market. Government's role is to
allocate enough money to provide the minimum number of guns judged
necessary to assure the national security. A political decision to expand or
contract the US military sector, once reached, is implemented merely by
raising or lowering the defense budget. The free market then reallocates re-
sources, and it is an efficient mechanism for doing so. By contrast, the en-
tire Soviet system-with its five-year plans, its comprehensive resource-
allocation process, its command economy-is designed and managed by the
government to provide a high priority to defense production. A political
decision to alter the guns-vs.-butter ratio requires far more from the
government than merely a budgetary adjustment: production plans must be
changed; financial, material, and human resources must be reallocated;
production must be rescheduled in government plants; and the actual goods
and services that emerge must be iven rices and assi ned to customers-
all by government officials.
25X1
iii Secret
SOV 82-10101
July 1982
Approved For Release 2007/02116 :CIA-RDP83T00853R000100050004-7
 Approved For Release 2007/02116 :CIA-RDP83T00853R000100050004-7
After briefly outlining the Soviet industrial structure, this paper examines
the technical capacity of the Soviet Union to shift resources from military-
related production to civilian end uses-assuming a Politburo decision .to
attempt such a shit. It examines the time that a significant resource shift
would require and the impact of such a shift on the Soviet Union's
economic performance and military prowess. After outlining the role of
Western economic assistance in maintaining the Soviet Union's current
resource allocation scheme, this paper discusses the difficulties that the US
Intelligence Community would have in detecting and monitorin a re-
source shift from arms production to civilian end uses. 25X1
 Approved For Release 2007/02116 :CIA-RDP83T00853R000100050004-7
Secret
25X1
Can the Soviets
"Stand Down" Militarily?
Key Judgments On the basis of observed military activity, we expect that Soviet defense
spending will continue to grow 4 to 5 percent a year through at least 1985.
Sustaining this policy over the long term will be increasingly difficult,
however, especially if economic conditions worsen beyond our projections.
Indeed, a new leadership by mid-decade will feel greater pressure to reduce
the growth rate of defense expenditures to free up labor, capital, and
25X1
An absolute cut in defense spending on the order of 20 percent by 1990-a
hypothesis discussed in this paper-could result in meaningful economic
changes. A gain in per capita consumption growth of up to one percentage
point a year would be likely, and there could be a moderate increase in the
growth of GNP. We believe such an abrupt shift is highly unlikely in the
short run. If it were made at all it would be phased in gradually after
materials-resources urgently needed in key civilian sectors.)
1985
25X1
Absolute cuts would almost immediately free up raw materials and some
semifinished goods. such as high-quality steels, construction materials,
chemicals, and fuels. These could help eradicate bottlenecks in such critical
economic sectors as energy, agriculture, and transportation. Many military
production facilities could begin producing goods for the civilian sector
within a reasonable period of time. Capacity currently used in armored
vehicle and tank production, for example, could be converted in roughly a
year to support increased production of a broad range of civilian vehicles-
for example, railway rollin stock tractors, trucks, and construction
equipment.
25X1
Absolute cuts in military programs would probably impact most on theater
air, naval, and land arms, possibly causing a major restructuring of
missions and postponing replacements. The Soviet strategic forces could
emerge relatively intact.
25X1
The military would object strongly to a resource shift of this magnitude,
but the ob'ections would manageable once the Politburo decision was fi-
nal.
25X1
The credit, goods, food, and technology provided by the West have helped
Moscow maintain its current resource allocation scheme. If the West were
able to deny or limit Moscow's access to these forms of assistance, pressure
 Approved For Release 2007/02116 :CIA-RDP83T00853R000100050004-7
would be increased on the Soviet leadership to shift resources from arms
production to the civilian economy. By curtailing the Soviets' import
capacity-primarily by restricting credit but also by hampering their oil
and gas production and thus their hard currency exports-the West would
further raise the cost to the USSR of maintaining its present resource
allocation policy. 25X1
It is, of course, impossible to say for certain that the Soviets would respond
to Western pressure by shifting resources. However, it is important to note
that in some instances they have deemed a shift to be in their best interests
and have directed the military-industrial complex to support the civilian
economy 25X1
Monitoring Soviet weapons production by intelligence methods is extreme-
ly difficult. Thus it is highly possible that should Soviet leaders in fact shift
some resources from arms production to civilian end uses-especially if the
magnitude of the shift is smaller than hypothesized in this a er-the
change could go unnoticed for quite some time.
Secret vi
Approved For Release 2007/02116 :CIA-RDP83T00853R000100050004-7
 Approved For Release 2007/02116 :CIA-RDP83T00853R000100050004-7
Secret
Potential Resistance to and Support for Any Shift of Resources From 5
Mililitary Production to Civilian End Uses
 Approved For Release 2007/02116 :CIA-RDP83T00853R000100050004-7
1. Principal Military-Related Product Lines of Selected Industrial 4
Ministries in the USSR
Approved Far Release 2007102/16 :CIA-RDP83T00853R000100050004-7
 Approved For Release 2007/02116 :CIA-RDP83T00853R000100050004-7
CPrrPt
D
Can the Soviets
"Stand Down" Militarily?
Soviet military-industrial policy is established by a
small group of senior officials, many of whom have
long experience in dealing with defense issues. These
officials are advised by the military and by several
government agencies, which in turn formulate pro-
grams, plans, and budgets to implement policy deci-
sions. Military programs are given considerable mo-
mentum by the vested interest of key officials, the
policymaking and planning process itself, and resist-
ance to change within the production system.
Key Officials and Organizations.
The ultimate decisionmaking authority resides with
the Politburo, the chief executive body of the Commu-
nist Party. The Politburo includes the top officials of
both the party and the government and considers the
full range of domestic and foreign policy issues. Many
of the important decisions on military-industrial mat-
ters, however, probably are made by the Defense
Council, which is composed of the half dozen top
party and government officials with national security
responsibilities. With Brezhnev as its chairman, the
Defense Council operates by consensus, so that mem-
bers are collectively responsible for decisions. The
Council of Ministers, which is in charge of the
economy, elaborates policy decisions and is responsi-
ble for ensuring that the economy meets the military
requirements approved by the Defense Council.
Policymaking bodies are served by a large number of
military, party, and government organizations that
are collectively responsible for the planning and over-
sight of military-industrial activity. Four of these
organizations significantly influence policy decisions
and exert primary control over their implementation:
? The General Stc1fl o1'the Ministry of Delense, the
main executive organ of the armed forces. It appar-
ently serves as the secretariat for the Defense
Council-providing agendas, lists of attendees, and
decision papers. It prepares threat assessments that
are used to assess defense requirements, and it
prepares and defends military plans for the procure-
ment of weapons and related material.
? The Military-Industrial Commission (VPK), con-
sisting of the top executives of Soviet defense indus-
tries and a supporting staff. The VPK monitors the
work of the nine defense industrial ministries and
coordinates party and government decisions for the
development of major weapon systems. It also close-
ly monitors weapon programs, enforcing schedules
and ensuring that technical and performance speci-
fications are met. 25X1
? The State Planning Committee (GosplanJ, the na-
tional economic planning agency, is the final techni-
cal authority on the ability of the economy to meet
overall military needs. It has amilitary-economic
department-manned in part by officers from the
General Staff-which coordinates with the civilian
sectors of Gosplan and enforces military priorities in
the economic planning process.
ly its Defense Industries Department. Central Com-
mittee departments help government agencies inter-
pret policy decisions when plans and programs are
prepared. These departments also maintain25X1
independent party channels reaching into all levels
of Soviet military and industrial organizations,
through which they gather information on compli-
ance with the leaders' directives.
Officials from these organizations cooperate closely
on military-industrial matters. They resolve conflicts
through compromise or, failing that, through appeal
 Approved For Release 2007/02116 :CIA-RDP83T00853R000100050004-7
The organizations that implement decisions-the
military services and industrial ministries-influence
policy through their special expertise and their control
over information. The services originate requirements
for new weapon systems, and each competes with the
others for missions and resources. Military officers
stationed at development and production establish-
ments enforce military claims and maintain high
standards of quality control. Officials of the industrial
ministries have information on development and pro-
duction capabilities that is not routinely available to
the top leaders and planners.
? A set of targets for improving the capabilities and
meeting the threats.
The plan probably shows projections of military ex-
penditures and manpower requirements and the share
of national economic resources that will be required to
fulfill the targets. This information would enable the
Soviet leaders to assess in eneral the potential costs 25X1
of their defense programs.
Economic Plans. The production needed to meet all
civilian and military requirements, including those of
weapon programs, is organized and directed by eco-
nomic plans. Five-year and annual economic plans
establish production targets, and annual plans allocate
the material resources necessary to meet these targets.
The economic planning process affords the best oppor-
tunity to assess trade-offs between military- and
civilian-industrial claims, but the ability of decision-
makers to make such assessments is limited by the
Crucial positions at all levels in the military-industrial
complex usually are occupied by officials with long
experience in defense affairs. Brezhnev was responsi-
ble in the party for defense industrial matters before
he assumed the leadership, and current Minister of
Defense Ustinov has been a defense industrial man-
ager since the 1930s. Frequently, key officials in
planning and management agencies are recruited
after successful careers in defense industry or the
military, and sometimes they move between major
agencies. Important military industrial managers usu-
ally have long tenure and wield considerably more
influence in party and government channels than their
civilian industrial counterparts.
Plans, Programs, and Budgets
Defense Plans. Soviet defense plans set forth the
principal goals and lines of development for military
forces. The 15-year perspective defense plans deal
with broad goals rather than specific programs. The
more detailed five-year and annual defense plans are
prepared by the General Staff on the same cycle as
the corresponding national economic plans. (The Sovi-
et five-year defense plan is presumably reviewed and
adjusted periodically, but it is not completely revised
and extended each year as is the US Five-Year
Defense Plan.) Gosplan and the VPK review the parts
dealing with procurement of weapons and other mili-
tary materiel before the plans are submitted to the
Defense Council.
We believe the five-year defense plan contains:
? A threat projection that identifies foreign military
strengths and weaknesses.
? An analysis of current Soviet military capabilities.
planning procedures.
Gosplan and other agencies participating in economic
planning do not have the technical capability to
compare all potential resource applications when
making plan assignments. Instead, Gosplan tends to
allocate resources sequentially. In plan preparation, it
takes care of military requirements first, relying on its 25X1
military-economic department to develop the specific
production and supply relationships within the defense
industries. Once these requirements have been estab-
lished, officials resist adjusting economic plans be-
cause each change requires further changes through-
out complex networks of production and supply
relationships. When plans must be adjusted, Gosplan
tends to apportion available resources according to the
priority of the user-again favoring the military.
O
The military also has several advantages in disputes
with civilian interests. Because of the priority enjoyed
by the military, civilian economic planning officials
usually cannot effectively challenge specific military-
industrial uses of resources. When they do attempt a
challenge, the decision is usually governed by political 25X1
rather than economic considerations. General Staff
 Approved For Release 2007/02116 :CIA-RDP83T00853R000100050004-7
Secret
and other defense officials have wide access to civilian
industrial plans. They participate and wield consider-
able influence in the resolution of disputes over
resources 25X1
These characteristics of the Soviet decisionmaking
process impart considerable momentum to military
programs. They limit the ability of civilian claimants
(except at the highest levels of the leadership) to
challenge the military's priority access to resources,
and they promote a basic continuit in the develo -
ment of Soviet military power.
The Production System
There are three types of industrial plants in the Soviet
Union: those that produce primarily military equip-
ment, those that produce military equipment plus a
substantial amount of civilian equipment (called dual-
use plants), and those that produce civilian equipment.
There are more than 1,000 production facilities under
the control of the defense industrial ministries. The
Soviets officially categorize nine of their 63 ministries
as "defense industries" (table 1). Over 100 final
assembly plants manufacture the bulk of major weap-
ons systems. These production facilities are supported
by several thousand producers of major com onents
and combat support equipment.
Dual-Use Plants
Several hundred plants produce both military equip-
ment and a substantial amount of civilian equipment.
For example:
? The Kirov Plant in Leningrad is the Soviets' largest
producer of marine gas turbine engines, supplying
the GTU-20 turbine for civilian freighters and the
TV-12 turbine for submarines. It also produces the
T-700 heavy tractor for Soviet agriculture and is the
prime developer and prototype producer for the
T-64 tank.
the T-700 tractor line can be converted to tank
production within 48 hours.
? At least one submarine building yard produces pipe
to transport oil and gas.
? Kazan Aviation Plant 22 (producer of the Backfire
bomber) also produces the IL-62 civilian transport
aircraft and has produced some consumer goods.r
Dual-use plants fall under the control of their respec-
tive industrial ministries. Tank plants are under the
Ministry of Defense Industry, while shipyards are
under the Ministry of Shipbuilding Industry2a~'~*i~t
organization and bookkeeping practices do not sin le
out dual-use plants for unique forms of control
Civilian products made at defense plants may or may
not be the same products made in civilian industry:
25X1
? Electronic components generally are not produced
outside of the Ministry of Electronics Industry-a
"defense industry." Thus there is no civilian indus-
try available for comparison. Many of the types of
computers made by the Ministry of Radio Industry
(MRP) are delivered to both military and civilian
customers and have no identical counterpart made
by the civilian Ministry of Instrument Making. The
Kazan Computer Plant of the MRP is the
producer of the ES-1030 computer. Altho ~~
development and entry into production were under
the aegis of the VPK, the ES-1030 has been pro-
duced for both civilian and military customers.
? The Ministry of Defense Industry produces I"he 1
same type of rail cars, locomotives, turbines, and
steel as the civilian ministries of Transport Machine
Building, Power Machine Building, and Ferrous
Metallurgy. For example, Nizhniy Tagil Plant 183,
the producer of the T-72 tank, also makes rail cars
very much like those produced at civilian plants in
Dneproderzhinsk and Kaliningrad.
The quality and cost of civilian production at defense
plants may differ from those of similar production at
civilian plants, depending on several circumstances:
25X1
? Consumer goods produced at defense plants as a
small sideline have a reputation for greater reliabil-
ity and quality than identical products from civilian
plants. This is probably because defense plants
temporarily divert some sophisticated machinery
25X1
 Approved For Release 2007/02116 :CIA-RDP83T00853R000100050004-7
Principal Military-Related Product Lines of
Selected Industrial Ministries in the USSR
Ministry of the Aviation Industry
Ministry of General Machine Building
Ministry of the Defense Industry
Ministry of the Shipbuilding Industry
Ministry of Medium Machine Building
Ministry of Machine Building
Ministry of the Electronics Industry
Ministry of the Communications Equipment Industry
Other Key Defense-Related Industrial Ministries
Ministry of the Automotive Industry
Ministry of Heavy and Transport Machine Building
Ministry of the Electric Equipment Industry
Ministry of Instrument Making, Automation Equipment, and
Control Systems
Ministry of Power Machine Building
Ministry of the Chemical Industry
Aircraft, aerodynamic missiles, spacecraft, air-to-air missiles (AAMs),
defensive missiles (both tactical and strategic), tactical air-to-surface
missiles (ASMs), and ASW missiles.
Liquid- and solid-propellant ballistic missiles including submarine-
launched (SLBMs), SLBM fire control systems, space launch vehicles
(SLVs), spacecraft, and surface-to-surface cruise missiles.
Conventional ground force weapons, mobile solid-propellant ballistic
missiles, optical systems, antitank guided missiles (ATGMs), tactical
surface-to-air missiles (SAMs), lasers, and ASW missiles.
Naval vessels, naval systems, mines, torpedoes, submarine detection
systems, naval acoustic systems, and radars.
Radars, communications, navigation equipment, computers (special
purpose), guidance and control systems, and lasers.
Nuclear weapons and high-energy lasers.
Conventional ordnance munitions, fuzing, and solid propellants.
Electronics parts, components, and subassemblies.
Communication equipment, radar components, electronic warfare (EW)
equipment, military computers, and facsimile equipment.
Armored vehicles, diesel engines, and generators.
Batteries, electrical components, communications equipment, radar
components, and biological/chemical warfare detectors.
Computers and instrumentation control systems.
Generators.
Fuels, fiberglass components for rocket motors, propellants, chemical
warfare materials, and plastics.
Ministry of Tractor and Agricultural Machine Building Tanks and tracked vehicles.
Ministry of the Petroleum Refining and Petrochemical Industry Tires, rubber, fuels, and lubricants.
and manpower usually used on military programs.
Published Soviet data suggest that unit costs are
significantly higher in the defense industries than in
the civilian industries because of the higher wages
and overhead charges in the former.
? Where a large portion of a defense plant is dedi-
cated to producing durables such as railroad cars,
the machinery and manpower involved is generally
tailored to the requirements of that program. At
Kharkov Plant 75, the same foundry that casts
engine blocks for the T-64 tank also casts engine
blocks for diesel-electric locomotives. To the extent
that the civilian products of a dual-use plant share
some of the labor, workshops, and production proc-
esses of the military products, the quality and cost
of the civilian product could be higher at the defense
plant than they would be at the civilian plant.
Approved For Release 2007/02116 :CIA-RDP83T00853R000100050004-7
 Approved For Release 2007/02116 :CIA-RDP83T00853R000100050004-7
Secret
Civilian Plants
There are at least 20,000 plants in the Soviet Union
that produce civilian-sector equipment. These plants
are under the control of their respective civilian
ministries. Many of these civilian plants, however,
have special production lines for military equipment.
Some of these lines are idle but maintained at a state
of readiness as part of the Soviets' mobilization
program. 25X1
Potential Resistance to and
Support for Any Shift of Resources
From Military Production to
Civilian End Uses
Ministry of Defense and the
Armed Forces Chiefs
Proposed resource shifts from the military to the
civilian sector would be strongly debated by the
military, but once the Politburo made a decision,
residual resistance could be worked out between
civilian and military authorities. The military estab-
lishment would be most concerned about the loss of
weaponry that would ensue from the shift. Its opposi-
tion would be reinforced by the realization that plant
and equipment in place in the Soviet command econo-
my acquire a strong inertia that is hard to reverse.
Once dedicated to civilian products, converted estab-
lishments would tend to remain in that field. The
battle between the services over the allocation of.cuts
would probably be intense but would be lar el
contained within the Ministry of Defense.
Defense Industries
While the defense industries would not suffer the
absolute losses experienced by the military, their
executives might feel their careers threatened by the
shifts and by requirements to meet new schedules and
performance targets. They also would probably be
concerned about the disruption of selected networks of
contractors and subcontractors devoted to s ecific
types of weapon systems.
The Incentive System
The Soviet system of targets, bonuses, and rewards
that attempts to stimulate productivity would place
initial roadblocks in the way of shifting resources
from armaments production. Schedules and targets
necessarily emphasize short-run achievements. Dis-
ruptions caused by a resource conversion program
could mean some drop in bonuses, and both workers
and managers would resist changes. In the long run,
however, once the resources began to be employed
effectively and new targets and bonuses were insti-
tuted, their objection to resource shifts could weaken.
Gosplan
Gosplan's role in providing guidance and managing
the resource flow for a significant shift would be
important. Management of the thousands of supply
and demand balances would have to be efficient in
order to minimize the ensuing disruptions and to
lessen constraints because of the cuts. Planners of the
civilian economy, however, would welcome the oppor-
tunity to have additional resources at their disposal.
Civilian Industries
The civilian beneficiaries of a resource shift would
support the Politburo's policy because it would pro-
vide resources needed to eliminate bottlenecks and
improve economic performance. Moreover, a shift of
resources would give the civilian industries more
clout-including, perhaps, greater representation on
the Central Committee
Capacity of the Soviet System To Shift
Resources
The pace of conversion would be determined in large
part by the nature of the planning system. Changes
made in annual plans would probably be restricted to
 Approved For Release 2007/02116 :CIA-RDP83T00853R000100050004-7
raw material, semifinished goods, and current produc-
tion of the most readily convertible product lines.
Other conversions would have to be prepared in the
context of annual plans, as dramatic changes in the
middle of an annual plan would cause disruptions that
would outweigh the value of the small amount of time
Most fundamental shifts in facility use, tooling, and
capital investment would probably be made in the
course of staffing out the next five-year plan. If the
Soviets sought to make these shifts too quickly, the
result would be short-run waste and disruptions to the
economy. For example, the Soviets reprogramed more
than 17 billion rubles for the chemical industry in the
last three weeks of preparation for the 10th (1976-80)
Five-Year Plan. The resulting disruptions and sched-
ule failures only succeeded in earnin the res onsible
minister an official party reprimand.
In our judgment, the Soviet system is sufficiently
flexible to shift enough resources from military to'
civilian production to translate into a 10-percent
reduction of the defense budget in roughly three years
and a 20-percent reduction of the defense budget in
roughly eight years without large-scale economic re-
form. For example:
? A wide variety of materials could easily be trans-
ferred from the military to the civilian economy.
These include high-quality steels, nonferrous met-
als, construction materials, chemicals, and fuels.
? A large portion of the electronics and radio indus-
tries could be immediately converted from military
production. Microcircuit development and produc-
tion facilities within the Ministry of Electronics
Industry could continue to produce the same ad-
vanced electronic components for use in civilian
equipment. The same is true for computers and
many types of radios.
? Other dual-use production activities could be re-
directed to civilian uses with some redesign of
products. Aircraft and shipbuilding facilities could
retool within roughly a year for their respective
production of transport aircraft or heavy-lift heli-
copters and such ships as tankers and freighters.
Capacity currently used in armored vehicle and
tank production could be converted in roughly a
year by replacing jigs and fixtures to support in-
creased production of a broad range of civilian
vehicles. These could include tractors, medium
trucks, heavy mining and construction a uipment,
diesel-electric locomotives, and railcars.
Most dual-use production facilities would require 25X1
some major retooling. The essential skills and machin-
ery used in foundry, forging, and machining oper-
ations would be retained, however. Little manpower
retrainin or capital construction would be required.
25X1
The rate of conversion of dual-use production facili-
ties would depend on the demand within the Soviet
economy and its ability to absorb the increased output
quickly and efficiently. The Soviet economy could put
to immediate use railroad rolling stock and trucks to
overcome bottlenecks in transportation. While the
demand for computers and other civilian electronics is
great, the Soviets suffer from inefficiencies in the
actual use of this equipment. Thus increased deliv-
eries to civilian industries of computers, for example,
would probably not yield a corres ondin im rove-
ment in industrial productivity.
Individual missile and munitions development and
production establishments might have to be idled
after conversion to civilian production. At a minimum
they would require far more capital construction,
machinery, and labor retraining than would the dual-
use production facilities. As a bonus, however, the
Soviets would be able to phase out inefficient facili-
ties, thereby raising the overall efficiency of the
defense industry. The basic machine shops might
fog m the nucleus for a different civilian production
program, but much of the highly specialized fabrica-
tion, assembly, and testing operations in missile,
nuclear weapons, and munitions factories would have
to be discarded.
If the conversion program is driven by the need to
strengthen particularly critical civilian activities
(rather than to find a useful role for existing defense
plants), technical requirements could force significant
Approved Far Release 2007/02116 :CIA-RDP83T00853R000100050004-7
 Approved For Release 2007/02116 :CIA-RDP83T00853R000100050004-7
Secret
"upstream" changes in capital and operations. For
example, major changes in capital equipment would
probably be required before assets in the defense
industries could contribute to the production of ener-
gy-related equipment such as drilling rigs, platforms,
or pipe. High-temperature components made by the
aircraft industry could more readily contribute to the
production of compressor equipment for the gas pipe-
line projects. Increased production of turbines and
transformers for electrical power would also require
shifts of skills and machinery to the civilian electrical
equipment producers from the defense industries.r
Even though the conversion of facilities not "dual-
capable" would involve the sacrifice of machinery, the
materials used by these facilities could be redirected
to alternative civilian production with greater ease.
Conventional materials such as steel, basic chemicals,
and aluminum could be reallocated immediately to
alternative civilian uses. Powder metallurgy used in
the production of munitions..could be redirected to t;he
production of drill bits for petroleum extraction. This
would involve little change in the manpower, machin-
ery, and facilities used in the preparation of materials.
Limitations in demand would probably only affect the
redirection of truly exotic materials unless, for exam-
ple, civilian space exploration was also a benefici
of the redirection of resources.
Where manpower would have to be shifted, features
of Soviet industrial practice suggest that extensive
retraining would not be necessary. The Soviet use of
general purpose machine tools and a high degree of
standardization in much of the production of weapons
systems facilitates the direct use of defense industrial
labor on the same processes for civilian goods. Where
defense industrial manpower would have to shift to
new civilian processes, the higher skill levels found in
productive, and the laboratory equipment and materi-
als in his facility might be of little use to the economy.
On the other hand, an electronics engineer who
designs circuitry for missiles could adjust fairly easily
to work on numerically controlled machine tools-an
area of backwardness for the Soviet machine tool
industry
25X1
A resource shift along these lines is unlikely either to
require or to precipitate a fundamental reform of the
Soviet economy. In fact, it might ease pressures for
reform, since the transfer of resources would relieve
some tautness in the economy. On the other hand, the
post-transfer period might be a propitious time for
reform, since reforms are more easily implemented
when an economy is relatively free of strains.
25X1
Economic Impact of a Resource Shift
The impact on overall economic growth would prob-
ably be moderate, but the redistribution of resources
implied by a 20-percent cut in defense spending could
have a sizable impact on per capita consumption. We
have examined the impact on GNP and per c ~'tya 1
consumption using four different assumptions~N?~Cti
respect to labor and capital productivity and energy
availability. The increases in GNP growth by the end
of the decade vary from around 0.2 to 1.2 percentage
points, depending on the amount of productivity as-
sumed for the released defense resources. Our judg-
ment is that a gain in GNP growth in the range of 0.2
to 0.5 percentage point is most likely. The ultimate
effect of lower defense spending on the Soviet econo-
my would be an increase in availability of goods and
services for household consumption; a gain in per
the defense industries would minimize the retraining capita consumption growth of up to
vary from industry to industry somewhat in the same The greatest and most immediate impact of a defense
fashion as production facilities. The more exotic the cut and the resultant resource shift would occur at the
ment personnel and facilities to civilian tasks would
1 percent a year
required-though at a sacrifice of some skill levels appears likely. Further details on the four casa35X1
considered in this analysis are presented in the appen-
The transferability of military research and develop- dix. 25X1
R&D effort, the more difficult it would be to convert microeconomic level.
the resources productively. For example, a physicist
working on nonacoustic ASW sensors probably would
need a period of acclimatization before becoming
 Approved For Release 2007/02116 :CIA-RDP83T00853R000100050004-7
The resources most readily transferable-high-
quality steels, construction materials, chemicals, fuels
-are some of the ones most needed to alleviate or
eradicate bottlenecks in such critical economic sectors
as energy, agriculture, and transportation.
In the energy sector, increased availability of steel for
drilling rigs and tubular goods, as well as specialty
steels (for example, powder metallurgy now used to
produce munitions) for drill bits, production equip-
ment, and submersible pumps, could slow the immi-
nent decline in oil production and help the Soviets
meet their gas output targets. In addition, special
steels for the manufacture of turbine blades could
increase the reliability of gas turbines used to power
electric generators and pipeline compressors. Con-
crete, asphalt, and other construction materials would
help to overcome the serious lack of infrastructure
(all-weather roads, housing) in crucial areas of energy
development such as West Siberia. Transfers of fuels,
particularly petroleum products, from the military
would also ease production bottlenecks.
Soviet agriculture would benefit from infusions of
specialty steels to increase the availability of certain
agricultural equipment. Chemicals for fertilizer and
pesticides could increase production of food and in-
dustrial crops
The transferred materials turned into producer dura-
bles could be used to improve the transportation
network. The transportation sector's most serious
bottleneck is insufficient railroad rolling stock. Spe-
cial high-strength steel is the key material which
could be transferred for the manufacture of railroad
cars (wheels and axles). Much of this equipment is
produced in dual-use facilities that also manufacture
military vehicles, tanks, and other hardware. An
increase in rolling stock would go a long way in
solving distribution problems plaguing innumerable
sectors of the Soviet economy by boosting delivery of
grain, lumber, fuels (especially coal), and other needed
materials and semifinished products. The highway
network also could be improved by the infusion of
roadbuilding and grading equipment.
Examples of other, less critical, commodities that
could be quickly diverted from military to civilian
application include synthetic rubber (for tires and
drive belts), aluminum (for construction, machine
building and metalworking, and high-voltage power
lines), and ferroalloys, particularly tungsten and nick-
el. Advanced plastics, fibers, and rare metals would
undoubtedly serve civilian requirements as well.
Reallocating resources from defense to civilian uses
could stimulate lagging factor productivity-the effi-
ciency with which labor and fixed capital are used.
First, the freed resources might well go into higher
quality machinery and equipment, which is crucial to
any rise in productivity. Second, to the extent that
some of the released goods and services were immedi-
ately devoted to increased production of consumer
goods, the morale of the populace might be improved,
with beneficial effects on labor productivity.
Though it would increase total civilian output, a
simple increase in investment in the civilian sector
unaccompanied by improvements in technology and
customer use might not lead to improved productivity.
Computers inefficiently used would not yield dramat-
ic improvements in industrial productivity.
A transfer of military R&D resources to the civilian
sector could improve the current slow rate of innova-
tion and technological change, which has seriously
impaired Soviet economic growth. Modernization
could also be enhanced if released resources went into
exports, which in turn would enable the Soviets to
increase their hard currency purchases of certain
Western equipment and technology.
 Approved For Release 2007/02116 :CIA-RDP83T00853R000100050004-7
Secret
Table 2 illustrates our best assessment of how the cuts
might be allocated across different resource catego-
ries, assuming a decision by the leadership to make
the cuts rou hl ro ortional to total military expen-
ditures
25X1
The categories of procurement and research, develop-
ment, testing, and evaluation (RDT&E) are roughly
two-thirds of Soviet defense costs and would thus bear
the brunt of reductions. Substantial cuts in the other
categories could be made by 1985, but their contribu-
tion to overall economic improvement would not be
significant, and overall they might do more harm than
good. Debates on where to make the cuts might
involve the following:
? With a reduction in RDT&E, development of weap-
ons that did not show near-term promise would be
slowed or halted by 1985. Work on systems already
well along would continue, but, as they eventually
were deployed, the pace of research on successor
systems would be slowed. Exotic research on areas
with speculative payoffs probably would be halted.
Even by 1990, however, there would be sufficient
resources to continue major, though scaled back,
R&D on systems that show promise.
? Ships and aircraft account for about half of procure-
ment, and their production would probably have to
be greatly cut back to achieve the assumed savings.
Cutbacks in armored vehicle production would not
provide substantial savings, but the resources could
be transferred relatively easily and could be used to
alleviate major bottlenecks in the Soviet economy.
? Operations and maintenance are a small part of the
services budgets. National command and support
functions consume about one-third of all O&M, but
they would probably be relatively immune from
cutbacks, thus limiting even further the scope for
cuts in this category.
? The assumed 2-billion-ruble cut in personnel costs
corresponds to a reduction in manpower of 1 million
men. Total uniformed military manpower currently
Assumed Reductions in Soviet Defense Spending
Resource
1982
10-Percent
20-Percent
Category
Spending
Overall Cut
Overall Cut
Estimate
by 1985
by 1990
Research, development,
19
-1.5
-4.0
testing, and evaluation
makes up only 3 percent of the working-age popula-
tion. Thus, a reduction of 1 million men could be of
some, but not a major, help to the economy.
? Military construction is likewise a small part of the
Soviet defense budget. The contribution of these
resources to the civilian economy would probably be
small but could be useful in freeing construction
material and equipment needed for Soviet agricul-
ture and energy. 25X1
Within the resource categories of RDT&E and pro-
curement of military hardware, the choice of which
forces to cut would depend almost entirely on Soviet
perceptions at the time the Politburo decision was
made. Based purely on economic rationality, choices
might be made on the following grounds:
? Facilities for conventional weapons production
would be most easily converted. Many shipyards
and plants producing naval ships and armored vehi-
cles are dual-use facilities which already have civil-
ian product lines. Moreover, nearly all plant space,
 Approved For Release 2007/02116 :CIA-RDP83T00853R000100050004-7
tooling, materials, and manpower in these facilities
are suitable for civilian ships or vehicles. Many
plants now producing military aircraft also produce,
or have produced, civilian aircraft.
? Facilities for the production of strategic weapons
probably would be more difficult to convert than
those devoted to conventional weapons. Plants pro-
ducing strategic weapons use highly specialized
processes and tooling, generally dissimilar to those
for civilian products. Nevertheless, some manufac-
turing and fabrication capabilities could be used for
products such as refrigeration equipment, and con-.
version would release energy and critical products
such as high-strength steels for uses such as turbine
components and cutting tools. In addition, the qua!-,
ity resources (manpower and equipment) used in
R&D for strategic weapon programs could be used
to increase the technical level of some sectors of the
civilian economy.
Conclusions drawn from cuts based on military im-
peratives are largely compatible with those based on
economic rationality. A simulation exercise conducted
by intelligence analysts and a panel of experts in 1980
sought to rank the programs most likely to be affected
by one of several budget reduction scenarios, based
solely on their relative military usefulness to the
Soviets. It was concluded that an absolute reduction
in defense expenditures would require a restructuring
of roles and missions of general purpose forces, but
would have a more limited impact on Soviet strategic
force structure and capabilities. The most destabiliz-
ing strategic systems-such as the SS-18 heavy mis-
sile program and an invigorated ABM program-
would remain essentially intact
Within the ground forces, lower weapon production
rates after several years would begin to degrade the
operational readiness of Soviet forces and to affect
modernization programs. The average age of equip-
ment in unit inventories would increase, resulting in a
greater maintenance burden. (Even at current produc-
tion levels, the avera a age of Soviet naval ships is
increasing.
The Role of the West in the Current
Allocation Scheme
It is now recognized that a key element of the Soviet
leaders' ability to keep their country's faltering econo-
my going has been help from the West in the form of
credit, goods, and technology. Dissatisfied with the
nation's economic performance but unwilling to im-
prove it quickly through afar-reaching program of
domestic reform, Moscow has sought relief through
East-West trade and technology transfer. In particu-
lar, Moscow has sought help in:
? Raising the technological level of Soviet fixed
capital.
? Relieving industrial supply bottlenecks.
? Increasing living standards.
Accordingly, imports of machinery, ferrous metals,
and foodstuffs have dominated Soviet-Western trade
(table 3).
Although the USSR has had difficulty in assimilating
the equipment and technology acquired from the
West, imports from the West unquestionably have
helped the USSR deal with some critical problems,
particularly in certain manufacturing sectors:
? In the 1970s, imported chemical equipment, ac-
counting for about one-third of all Western machin-
ery purchased by the Soviets, was largely responsi-
ble for doubling the output of ammonia, nitrogen
fertilizer, and plastics and for tripling synthetic
fiber production.
? The Soviets could never have accomplished their
ambitious 15-year program of modernization and
expansion in the motor vehicle industry without
Western help. The Kama River truck plant, which
was based almost exclusively on Western equipment
and technology, now supplies nearly one-half of the
Soviet output of heavy trucks.
? Large computer systems and minicomputers of
Western origin have been imported in large num-
bers (1,300 systems since 1972) because they
(a) have capabilities that the Soviets cannot match, 25X1
(b) use complex software that the Soviets have not
developed, and (c) often are backed up by expert
training and support that the Soviets cannot dupli-
cate.
Approved Far Release 2007102!16:CIA-RDP83T00853R000100050004-7
 Approved For Release 2007/02116 :CIA-RDP83T00853R000100050004-7
Imports from the West also played a key role in
supporting the energy and agricultural sectors. Be-
cause of Soviet deficiencies in drilling, pumping,
and pipeline construction, the USSR bought about
$5 billion worth of oil and gas equipment alone in the
1970s. Such purchases covered a wide range of equip-
ment that will add substantially to future energy
production. US submersible pumps are estimated to
have added roughly 2 million barrels per day to Soviet
oil production in recent years. Similarly, the Soviet
offshore exploration effort would not be nearly as far
along as it is without access to Western equipment
and know-how. West Germany and Japan have pro-
vided most of the large-diameter pi a needed for gas
pipeline construction.
As for agriculture, Soviet grain imports averaged 14
million tons per year in the past decade. In 1981,
grain purchases coupled with record imports of meat,
sugar, vegetable oil, and soybeans and meal totaled
about $11.5 billion, accounting for 40 percent of hard
currency expenditures. Without Western grain, Soviet
consumers would not have had the increase in meat
consumption that they received in the early 1970s,
and the fall in per capita consumption of meat in the
late 1970s would have been far worse.)
Western imports have also contributed to Sovie~X1
defense capabilities. Some products of the imported
equipment and technology are used by the Soviet
military-for example, trucks from the Kama River
plant. Other imports help in the production of impor-
tant inputs for defense industries-for example, nu-
merically controlled machine tools, specialty s~f1
and plant and technology to produce them. Fifra
because most defense industries also produce for the
civilian economy, purchases of Western machinery for
the civilian sector help ward off the encroachment of
civilian requirements on the roduction schedules of
defense plants. 25X1
 Approved For Release 2007/02116 :CIA-RDP83T00853R000100050004-7
Prospects for a Resource Shift
To be sure, on a "micro" level the Soviet military-
industrial complex has on occasion been directed to
help reduce Soviet dependence on Western imports by
shifting resources to the civilian economy. We have
information that suggests the defense industries are
now charged with helping to modernize the civil gas
turbine industry so that the Soviets will be able to
produce their own efficient turbines for gas pipelines.
The Soviet economic predicament is in many ways a
product of Moscow's own choosing. By placing a
priority on military research and production, the
leadership has slighted the civilian sector, thus help-
ing to create pronounced imbalances in the economy.
Although the Soviet economy is in deep trouble, the
country's present leaders do not believe the time has
come for drastic action. They are convinced-and we
concur-that some growth remains to be squeezed
from the present resource-allocation scheme. In a
sense, Soviet leaders have reached the point of bang-
ing and shaking the ketchup bottle to get out a few
more drops-the effort is tremendous and the return
is small, but at least there is a return. The Soviet
economic bottle is not yet empty-so to speak-and
until it is, the leaders are likely to remain unwilling to
launch a program designed to improve economic
performance by shifting resources
United States, and continuing hostility with China
will maintain the pressure for continued high levels
of military outlays.
? Given the current support within the Soviet elite for
maintaining a strong military position, advocacy of
deep cuts in military spending would necessarily
involve formidable political risks for any faction
within the Politburo inclined to move in this direc-
tion. This would be particularly true during a
succession period, when those maneuvering for pow-
er would be reluctant to advocate major changes in 25X1
defense policy.
No faction would propose a resource shift, and the
Politburo as a whole would be unlikely to authorize a
shift, unless in the judgment of the Soviet leadership,
a resource shift were economically necessary. More-
over, Soviet leaders would resist the idea of a resource
shift unless and until they had reason to believe that
the West would not seize the opportunity to forge
ahead militari while the Soviet Union "stands
down.' 25X1
Nonetheless, the Soviets could at some time feel
impelled to reduce defense expenditures if:
? Economic conditions in the USSR turn out to be
poorer than we currently project (for example, a
series of disastrous harvests causing an actual re-
duction in economic output).
? Extraordinary political shifts occur, such as a Sino-
Soviet rapprochement, a general lessening of ten-
sions with the West, or a move by West European
Any near-term decision by the Soviet leadership to
shift resources from the military to civilian investment
is unlikely for other reasons as well:
? The Soviets recognize that military power is their
principal currency as an international actor and that
continued high levels of defense investment are
necessary to sustain the present dimensions of Mos-
cow's global role.
? The Soviets' assessment of their security require-
ments for the 1980s would probably hold little
prospect for reduction in defense spending. The
recurrence of instability in Eastern Europe, the
prospect of an increased arms competition with the
countries away from US influence.
? Soviet political leaders who are sympathetic to
consumer needs come to power.
 Approved For Release 2007/02116 :CIA-RDP83T00853R000100050004-7
Secret
Since the credit, goods, and technology provided by
the West have helped Moscow to maintain its current
allocation scheme, it follows that if the West were
able to deny or limit Moscow's access to these forms
of assistance, pressure would be increased on the
Soviet leadership to shift resources from arms produc-
tion to the civilian economy
The action that would impinge most quickly t e
resources available for military production wee ~e a
denial of machinery and materials used either to
produce machinery or to supplement domestic ma-
chinery production. For example: .
? An embargo on specialized oil and gas production
equipment would force Moscow to allocate military-
oriented metallurgical and machine-building facili-
ties to produce such equipment; reduced Soviet
 Approved For Release 2007/02116 :CIA-RDP83T00853R000100050004-7
petroleum output in the interim would aggravate
civilian industrial problems and might, therefore,
cause additional civilian encroachment on defense
production.
? An embargo on large-diameter gas pipe and other
high-quality steel products could possibly cut into
production of such military items as submarine
hulls.
? An embargo on equipment for plants manufacturing
cards, trucks, and mining and construction vehicles
(as well as an embargo on such vehicles themselves)
could increase the pressure in the Soviet Union to
produce these items in military plants
Western denial of grain and other agricultural prod-
ucts would also hamper the Soviet military effort. For
example, to increase domestic farm output, Moscow
might have to allocate more factory space to produ-
cing farm machinery instead of tanks and armored
personnel carriers. A Western embargo on selling
farm machinery or on building the facilities that
manufacture such machinery would also put pressure
on existing priorities. Reduced per capita food con-
sumption would work against Soviet efforts to raise
worker productivity, increasing the problems facing
industry
By curtailing the Soviets' import capacity-primarily
by restricting credits but also by hampering their oil
and gas production and thus their hard currency
exports-the West would further raise the cost to the
USSR of maintaining its present policies on resource
allocations.
It is, of course, impossible to say for certain that the
Soviet leaders would respond to Western pressure by
shifting resources. However, it is important to note
that in some instances they have deemed a shift to be
in their best interests and have directed the military-
industrial complex to support the civilian economy
(see page 12).I
As stated earlier in the discussion of a hypothetical
20-percent reduction in defense expenditures, the
ability to monitor the resulting shift of resources to
civilian production would be difficult. Obviously a
shift resulting from a smaller cut in military spending
would be even more difficult to verify. Indeed, it is
highly probable that in the event Soviet leaders do
order a res we would not know it for uite
some time.
 Approved For Release 2007/02116 :CIA-RDP83T00853R000100050004-7
Secret
Appendix
The Impact on the Economy
of Cuts in Defense Spending
To estimate the impact of a shift in resources from
defense to the civilian economy, we analyzed the
impact of the assumed reductions in Soviet defense
spending on our microeconomic model of the Soviet
economy, using four postulations of labor and capital
productivity and energy availability. The results are
shown in the figure on page 16. The four cases
considered are as follows:
A. Reduced Defense Spending
This case assumes that the extra investment resources
from reduced defense spending have the productivity
characteristic of the overall economy. It also reflects
the period since 1975, which has shown especially low
productivity of additional investment.
B.-Plus Higher Productivity of Defense Capital
This case assumes that the extra investment resources
from reduced defense spending have doubled the
productivity of those resources usually devoted to the
civilian sector.
C.-Plus Fewer Bottlenecks
In the period of 1966-74, the Soviet economy did not
suffer from as significant energy and raw material
shortages as it does now and probably will in the
future. This case estimates the impact of lower de-
fense spending, assuming that the extra investment
resources allow a return to earlier levels of overall
productivity.
D.-Plus No Energy Constraint
Finally, this case assumes that extra investment is
enough to remove any remaining constraint on pro-
duction due to energy problems.
 Approved For Release 2007/02116 :CIA-RDP83T00853R000100050004-7
Impact of Lower Soviet Defense Spending: Alternate Cases
a -Baseline growth with current estimate of defense spending.
A -Reduced defense spending.
B -Reduced defense spending and assuming higher productivity
of capital shifted from the defense industries.
C -Reduced defense spending and assuming higher productivity
of defense capital shifted from the defense industries and
fewer bottlenecks in the economy.
D -Reduced defense spending and assuming higher productivity
of defense capital shifted from the defense industries, fewer
bottlenecks in the economy and no energy constraints.
25X1