GORBACHEV'S MODERNIZATION PROGRAM: A STATUS REPORT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89T01032R000100050019-5
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 69
• Document Creation Date: December 23, 2016
• Document Release Date: May 24, 2012
• Sequence Number: 19
• Publication Date: March 19, 1987
• Content Type: REPORT

Declassified and Approved For Release 2012/05/24: CIA-RDP89TO1032R000100050019-5
Gorbachev's Modernization Program: A Status Report
A paper presented by the Central Intelligence Agency
and the Defense Intelligence Agency for Submission to
the Subcommittee on National Security Economics
of the Joint Economic Committee,
Congress of the United States
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Gorbachev's Modernization Program: A Status Report
Table of Contents
Introduction ....................................................1
Gorbachev's Challenge: Accelerate Growth. Upgrade Technology...1
Gorbachev's Economic Agenda .....................................4
1986 Economic Performance .......................................7
Growth Good, but Some Problems ...............................9
Trends in Resource Allocation ...............................12
1987 Plan: Full Speed Ahead ...................................17
Priority For Investment .....................................18
Maintaining Momentum ........................................18
Prospects for Modernization Over the Longer Term ...... .........19
Emphasis on Supply ..........................................22
Growth Through 1990 .........................................24
.
Coping with Shortfalls
Allocation ............................28
Battles Over ver Resource
Seeking Foreign Economic Support ............................31
Impetus For Economic Refora- .................................35
Gorbachev's Political Standing........?????????????????????????37
Appendix A: 1986 Economic Performance: A Good Showing......?.39
Appendix B: Tables on Soviet Economic Performahce.............49
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Introduction
Since coming to power in March 1985, Mikhail Gorbachev has put forward
the most ambitious program for economic, political, and social change since
Nikita Khrushchev, often linking the USSR's ability to maintain its status as
a military "superpower" to the success of his efforts. This joint CIA-DIA
report provides an initial evaluation of Gorbachev's program. It begins by
describing Gorbachev's policies and assessing their impact on the economy's
performance in 1986. The paper then analyzes the future direction of his
economic modernization program in light of the 1987 Plan and the demands for
continued military force development. Finally, the paper addresses Soviet
economic prospects over the longer term, highlighting problems the USSR will
face if Gorbachev's program fails to bring about the Intended acceleration in
economic growth.
Gorbachev's Challenge: Accelerate Growth, Upgrade Technology
At the time Gorbachev took over, the Soviet economy was In the midst of a
decade long slump, averaging just over two percent GNP growth per year in
1976-85. Of the other major industrialized countries, only the United Kingdom
had a lower average growth rate during this ten-year period. Although Soviet
economic growth after 1980 was as good or better than that of most other major
industrialized nations except for the United States and Japan, this was more a
reflection of a slide in economic growth in Western nations than a recovery of
the Soviet economy (see table 1). Indeed, it was clear at the time Gorbachev
became General Secretary that overall GNP growth during the 1981-85 Five-Year
Plan (FYP) was going to be the smallest percentage increase of any FYP
period. In fact, GNP had increased by less than 1.5 percent in 1984, and
during the first quarter of 1985--just before Gorbachev took over--production
was .ssentially flat.
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Table 1
Average Annual Growth Rates of Real GNP
(percent)
1961-65
1966-70
1971-75
1976-80
1981-85
USSR
5.0
5.3
3.4
2.3
1.9
US
4.7
3.0
2.5
3.4
2.4
Japan
10.0
11.0
4.3
4.0
3.9
France
5.8
5.4
4.0
3.3
1.21
West Germany
4.8
4.2
2.1
3.3
1.2
Italy
5.2
6.2
2.4
3.8
0.81
UK
3.2
2.5
2.1
1.6
1.71
1Data are for gross domestic product (GDP). The difference between GNP and
GDP, net factor income from abroad, is small.
Note: Growth rates are measured in national currencies.
Sources: USSR: CIA estimates
Western countries: 1961-80, OECD, National Accounts
1981-85, IMF, International nancial Statistics
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Growth rates by themselves do not reflect the scope of the USSR's
problem. Low growth in the Soviet Union was occurring in an economy that did
not compare favorably in size or technological level with that of the United
States. Soviet GNP in 1960 was roughly half that of the United States. After
narrowing the gap during the 1960s and 1970s and peaking in the early 1980s,
Soviet GNP as a percent of US GNP fell to about 55 percent in 1985 (see figure
1). Even more striking, both the USSR and its East European allies continued
to lag far behind major Western countries in terms of per capita GNP (see
figure 2).
One reason for the economy's comparatively poor showing is the USSR's
relatively antiquated industrial base. According to one estimate, for
example, the average length of service of Soviet industrial equipment is about
20 years, compared with average use times of 10 years in France, West Germany,
and Italy, and 12 years in the United States. In contrast to the West, where.
the rapid introduction of advanced manufacturing technologies has sustained
productivity growth, the combined productivity of labor and fix-ad capital in
the USSR has declined in absolute terms over the past decade.
We believe Soviet leaders worried about the implications of these trends
for the USSR's future military strength. By dint of two decades of a
sustained, costly military buildup, the USSR has secured its position as a
military superpower whose global interests were increasingly recognized. In
the past ten years alone (1977-86), more than 22,000 tanks, 21,000 infantry
fighting vehicles, and 27,000 armored personnel carriers and like vehicles
have been delivered to the Soviet ground forces. Soviet strategic forces
received over 3,200 strategic missiles and about 20 new and converted
ballistic missile submarines, and Soviet air power was augmented with over
7,100 new fighter aircraft and almost 4,600 helicopters.
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Figure 1
Gross National Product, 1985
Index: USA = 100
100
90
80
70
60
50
40
30
20
10
0
Note: The data in this figure and figure 2 are in 1985 US
dollars. Estimates for the USSR were derived as a geometric mean
percentage of a CIA US-Soviet purchasing power parity comparison
carried out in rubles and dollar!. Estimates for Western Europe
were derived using purchasing power parities calculated with
international price weights. We United Nations, World
Comparisons of Purchasin Power and Real Product (or 1980, United
Notions. New York, N.Y., 186. Estimates for Hungary. land,
and Romano are based on benchmark figures from Irving Kravis,
Nan Heston, and Robert Summers, World Product and Income:
-international Comparisons of Real Gross roduct Johns Hopkins
University Press, Baltimore, M.D., 1982. Benchmark estimates
for 1970 for Bulgaria. Czechoslovakia, East Germany, and
Yugoslavia were taken from the UN Economic Bulletin For Europe_
vol. 31 no. 2. 1980. These figures were brought forward using
estimates of real growth rates and adjusted to reflect
differences with the 1975 ICP results for Hungary. Poland, and
Romania.
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