RELEASE OF UNCLASSIFIED JEC TESTIMONY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80M00165A000500140002-3
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 98
• Document Creation Date: December 15, 2016
• Document Release Date: February 5, 2004
• Sequence Number: 2
• Publication Date: October 7, 1977
• Content Type: MF

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061,_
DDI # 3203-77
7 October 1977
MEMORANDUM FOR: Director of Central Intelligence
VIA Deputy Director for Intelligence
VIA : Legislative Counsel
SUBJECT Release:' of? Unclassified:'JE,C'" Testimo.ny )~+
1. Action Requested: Approval to release sanitized
testimony.
2. Background: Attached--s'the? sanitized testimony
of the Joint Economic Committee hearing on June 23. We
had agreed 'with .Senator Proxmire to do three- things:
--To, . permi.t._.himto release the paper on the
Soviet economy; , ;
--To'-.prov?d him- with a summary .of.the Director' s
statemexrt which could be released to the public;
and,
--To sanitize'' the full- testimony.
This- is stepr_ number three.
Please-note-(at tab) that-we. are providing some un--
classified data on-the Soviet civil defense-program. -lt...
has been gone over carefully and provides-no information on
;-the precise extent of the program nor on sources and methods.
3. Staff Position: The text has been examined by OER
and OSR. Sensitive matters were deleted; corrections and
updates were made where necessary.
UMT-RY FILE
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I"W
SUBJECT: Release of Unclassified JEC Testimony
4. Recommendation: I recommend this be released to
the Committee for publication by the GPO.
/01
Robert 9. tepworth
Chief, Congressional Support Staff, DDI
Remarks
4 to 5: Release of the-material one the
Soviet civic defense program could solve
the-problem-of publication of a paper. on
this--subject-,- especially irr view of the
attention given the cla.s sified report by
the press...;, It may raise queationa..or
coordination: with State and others how ver.
George Cary
FOLD HERE TO RETURN TO SENDER
FROM: NAME. ADDRESS AND PHONE NO.
DAT?
Robert E. Hepworth 7F30 Hcrs x590
Q
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~CONF
UNCLASSI 1ED
S:CH ET
FORM NO? 237 use previous editions
1-67
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 UNCLASSIFIED
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Joint Economic Committee,
Subcommittee on Priorities
and Economy in Government,
Washington, D.C.
Thursday, June 23, 1977
(10:06 a.m.)
CIA Briefing Soviet and Chinese Economies
Admiral Stansfield Turner
Director of Central Intelligence 4
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SOVIET AND CHINESE ECONOMIES
Thursday, June 23, 1977
Joint Economic Committee
Subcommittee on Priorities
and Economy in Government,
Washington, D.C.
The Subcommittee met, pursuant to notice, at 10:06 a.m.,
in Room 6206, Dirksen Senate Office Building, the Honorable
William Proxmire (Chairman of the Subcommittee) presiding.
Present: Senators Proxmire (presiding), Hatch, Sparkman,
Javits, Roth, and McClure.
Also present, Richard F. Kaufman, General Counsel, and
George D. Krumbhaar, Jr., Minority Economist.
Also present from the Central Intelligence Agency:
Admiral Stansfield Turner, Director of Central Intelligence;
Dr. Sayre Stevens, Deputy Director for Intelligence; Robert
E. Hepworth, Congressional Support Staff; Douglas Diamond,
Office of Economic Research; Robert Field, Office of Economic
Research; Donald Burton, Office of Strategic Research; George
L. Cary, Legislative Counsel; and Bernard McMahon, Executive
Assistant to Admiral Turner.
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Senator Proxmire. The Subcommittee will come to order.
Admiral Turner, we are very pleased that you are with
us this morning to make what has become an annual presentation
of the intelligence community's views of the allocation of resources
in the Soviet Union and China.
As you know, we are anxious to have a full discussion
of the substantive issues so that we might better understand
economic developments in the two largest communist countries.
We are also anxious to make this information available to the
rest of Congress and the public as,quickly as possible.
In the past, we have tried to publish the proceedings
as soon after the transcripts have been sanitized as we could.
We have done this, but it has taken several months from the
date of the initial presentation.
This year, in addition to publishing the full hearings,
we would like to be able to make public the dialogue between
you and the committee, and perhaps also a summary of the
presentation. Of course, these excerpts would have to be
declassified.
Do you think this can be done so that we can make
public at least portions of this hearing within the next
two or three weeks?
Admiral Turner. Yes, sir.
Senator Proxmire. Very good. That would be very helpful.
Senator Hatch, do you have a statement?
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Senator Hatch. I have no statement. I am just very
happy to welcome you here, Admiral.
Admiral Turner. Thank you, Senator.
Senator Proxmire. Thank you, Senator Hatch. We are
delighted to have you here this morning.
Let's proceed with your remarks, Admiral, and then we
will get into our questions.
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STATEMENT OF ADMIRAL STANSFIELD TURNER,
DIRECTOR OF CENTRAL INTELLIGENCE
Admiral Turner. Thank you, Mr. Chairman.
I am pleased to be here. I understand that the CIA
has been coming up here for several years to give this
kind of assessment and providing the Committee with economic
studies for 15 years. In addition, we have and will continue
to provide you with reports from time to time, as they become
available. As I mentioned to you. personally, I feel that is a
responsibility which we should continue and we should increase
the amount of information that is made available to the public.
We would like this morning to discuss the Soviet economy
and its prospects along with the defense sector. We will pro-
ceed from there to the Chinese economy and its defense sector.
I will be assisted by Dr. Sayre Stevens on my right,
who is the Deputy Director for Intelligence at the Central
Intelligence Agency.
(Slide GNP Growth)
Admiral Turner. Our review of the Soviet economy is a
particularly significant one for this year because we have
taken a look at the long-term prospects. It has been about
five years since we have taken this kind of perspective, and
we have come up with what Ithink. are some important and
different conclusions about the Soviet economy and its long-
term outlook.
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We have studied this and restudied it. We have called in
outside economic experts and we think we are on the right
track. We will be interested in your responses this morning, sir.
We think the Soviet Union is entering into a period
of reduced growth potential, due first to bottlenecks in key
commodities, especially crude oil., but also to a near certain
contraction in the growth of their supply of labor.
The basic problem is that the formula for maintaining
their level of growth over the past 25 years, which has
been to increase the inputs of labor and capital to make up
for the inefficiency in the way they utilize them, does not
appear to us to have long-term prospects. They are not going
to be able to continue to do this over the next ten years or
Up to 30 percent of their Gross National Product currently
goes into capital investment.
As a result, we think Moscow is going to be confronted
with some very difficult policy decisions, especially involving
energy use, imports from the West, relations with Eastern
Europe, and the size of their armed forces.
We think their policy options are limited, and we also
note that the responses which they are going to have to make
are likely to be complicated by the fact that when all these
economic problems come to the fore, they well may be facing a
change in political leadership and all of the uncertainties of
a post-Brezhnev era.
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Admiral Turner. Let me now go on in some greater detail
as to why I anticipate this slow-down in Soviet economic
growth.
I would start by saying that first, things have not :been
going well for the Soviet economy recently.
As shown on the left, GNP growth has been declining,
from an average of about 5 percent in the 1960's to about 3.7
percent in this decade.
In 1976, industrial growth, as shown on the center bar there,
was the slowest since World War II.
Finally, on the agricultural side, you can see what a. had
five years they had before 1976. It was in 1976 that they
really had a good year.
(Slide--Working Age Population)
The second factor working against them in the long run
which I mentioned previously is the expected sharp drop in
the rate of growth of the labor force, beginning in the late
1970's. This derives from a decline in the birthrate in the
1960's. It has already been reflected in a decline in the
number of new entrants into the labor force, but, as this graph
shows, it will become much more acute by the early 1980's.
The working age population by then will grow less than
1/2 percent annually, compared with about 1.8 percent during
the 1970's to date.
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A further complication is that those additions which
will be taking place to the labor force during this period
will come largely from the ethnic minorities from Central Asia,
who do not readily move to the labor short northern industrial
areas. They are not people who want to be displaced.
(Slide--Average Annual Rate of Growth in GNP)
Admiral Turner. Productivity gains in the Soviet Union
have been slowing for years, and in addition, there are new
problems today which are likely to depress productivity further.
The left-hand series of bars here are the Gross National
Product that we saw before, but added to it is the Soviet pro-
jection in their five year plan of a 5 percent growth over the
next five years.
The interesting point is that the middle bars show the
rate of growth of the inputs of capital and labor combined
and you can see that they themselves predict a drop in the
rate of growth in their five year program. Yet, the last bars,
which show the combined productivity of these factors, indicate
that they expect an unrealistic increase in productivity.
In short, even allowing for the fact that 1971-1975 in-
cluded some bad agricultural years, what they are expecting
over the next five years is more than they achieved even in the
1950's. We don't think they are likely to be able to achieve
this productivity with those inputs of labor and capital.
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Let me elaborate on some of the reasons for that.
The first is that the fuels and raw materials which
they are going to have to draw upon in the next decade are
simply getting more expensive. They have to go further east
of the Urals to get them.
Another is that the Soviet economy is simply becoming
larger and more complex and the mechanisms which they have for
centralized control of it are becoming less and less adequate
to the task.
Third is that in adding to plant and equipment, they have
to move into more technologically sophisticated areas and it
is more expensive to do so.
Perhaps most importantly is the looming oil shortages,
which, as you know, we have discussed in another report which
we sent out on an unclassified basis not too long ago.
If I may, I would like to elaborate on that because it is central
to our overall analysis here.
(Slide ---Soviet Oil Production)
Admiral Turner. This is our prediction of Soviet crude
oil production which, as you can see, is on a steep rise at
this point. We expect it to peak in the early 1980's and then
to decline.
The reasons for this are first that the Soviets today are
emphasizing current production, rather than development and
exploration. They are not discovering new oil reserves as
rapidly as they are depleting them.
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Secondly, while last year they produced 10.4 million
barrels of oil per day--and we think this is close to their
estimated maximum potential of 11 million to 12 million barrels
a day--we still expect that they are going to fall to between 8
and 10 million b/d by 1985, in large measure because the pro-
duction technique that is keeping their production high today is
a water flooding method which pushes the oil out, and that, over
time, simply leads to seepage with the end result that a very
large amount of fluid has to be pumped out to get a given amount
of oil.
Senator Hatch. Admiral, that is still quite a bit of oil
per day, though, isn't it?
Admiral Turner. Yes.
Senator Hatch. Isn't that a little bit more than ours?
How many million barrels of oil a day do we get?
Admiral Turner. We consume about 18 million barrels of
oil a day.
Senator Hatch. But we produce about 8 million of those,
don't we?
Dr. Stevens. We produce about 8 million.
Senator Hatch. So actually, we are producing less
oil today than the Russians with our much more highly mechanized
society.
Admiral Turner. There is no question about that.
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Senator Hatch. Thank you. I just wanted to get that
comparison so that I would have the right perspective.
Admiral Turner. In 1976, the Soviets were the largest
oil producer in the world in millions of barrels of oil per
day, slightly more than the Saudi Arabians.
Senator Hatch. I don't think a lot of people realize
By 1985, you expect them to be down to about 8 million
barrels of oil a day?
Admiral Turner. 8 million to 10 million by 1985, and
I will detail why I think that is going to have some
severe impact on them, even though it is nonetheless a large
amount of oil.
Senator Hatch. Are they getting most of their oil east
of the Urals?
Admiral Turner. They are getting most of their oil
west of the Urals. They are still tapping those fields, and
also a very giant field east of the Urals called Samotlor in
Western Siberia.
They are still tapping the Urals-Volga area but it is
running down, and they are having to move progressively
further east.
The giant Samotlor field we think will peak in about
a year or two, largely because of the use of water flooding.
They will have to go to either off-shore areas in the north
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or further out into Siberia, or hope to find extensive new
fields in the Samotlor region. But even in the Samotlor
area, they are in an inhospitable climate, and transportation
problems are going to grow as they move north and east.
Senator Hatch. How much of this oil do they use per
day?
Admiral Turner. They exported nearly 3 million barrels
a day in 1976.
Senator Hatch. Do they utilize the rest or do they
conserve and save it?
Mr. Diamond. No. They are utilizing everything else.
Admiral Turner. An interesting aspect of this is that
as they use more and more water flooding, they get more and
more water out per barrel of oil. They are very dependent
upon high-speed, high-capacity submersible pumps, which at
this time they obtain only from the United States.
Now in the mid-1980s, they will surely look at ways to
find alternative energy sources: coal, water power, gas, and
so on. But again, most of these resources lie east of the
Urals and it is going to take heavy capital investment and high
transportation costs to exploit those.
Senator Proxmire. What you said is that all of this oi]_
is being used by the communist nations, by the Soviet Union and
the Communist Bloc nations.
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Admiral Turner. No. All but about 1.3 million barrels
a day.
Senator Proxmire. You said that they export about 3
million barrels a day in 1976, of which about 1 million went
to Communist countries. Where does the rest of it go?
Mr. Diamond. About 300,000 barrels a day goes to soft
currency noncommunist countries, and the balance of 1 million
barrels a day goes to the hard currency western countries.
Senator Proxmire. So, that would mean, if they are
going to have the same amount of oil go to Communist Bloc
countries, they would simply be unable to have the exchange
they would need to buy from the West.
They would not be able to meet their growth with additional
oil, the growth which you projected they would have. In other
words, you cannot say that they could get along with the amount
of oil that they have now if that is their only energy source
because they are growing, as you said. The other communist
countries are also growing, so they would need more to take
care of the needs of Russia and the needs of her satellite
countries, and they won't have that additional means.
Admiral Turner. That is correct. We have projected in
our energy study that for 1976-80 there will :beabout 3.5 to
4 percent annual increase in oil demand in the Soviet Union.
That, plus continuing to supply the Eastern Europeans, who
expect not the 1.4 million they got in 1976 but 1.6 million b/d
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by 1980, is going to tax them, let alone their being able to sell
this other million barrels a day, which currently brings them
about $4.5 billion of foreign exchange every year.
So, what I am getting to is that they are going to be
pressed either to meet their own domestic requirements for a
growing economy, or to supply the Eastern Europeans as pro-
jected, or to get the hard currency exchange to buy technology
and other goods from the West.
They have a crunch in one of those three areas. We
don't know how to predict which way they will respond to
those crunches, but we think each one has a very interesting
and significant aspect, not only from the Soviet point of
view, but from ours and that of the entire Western World.
Senator Hatch. I don't mean to keep interrupting you,
but the water flooding approach that you have indicated
really results in leaving a lot of the oil in the ground.
Admiral Turner. Yes.
Senator Hatch. Are they coming up with sophisticated
means of secondary recovery of oil over there?
Admiral Turner. They are talking about new means of
secondary and tertiary recovery.
Senator Hatch. Are we cooperating in helping them
to create secondary recovery measures?
Admiral Turner. There are several technical agreements
between the Soviets and US oil firms for cooperation in enhanced
recovery operations.
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Mr. Diamond. We are selling them a lot of equipment.
This fall they are planning to sign contracts for US equipment-
to start a gas lift operation. Instead of using water they
will use gas pressure to recover oil. In October contracts
may be signed for $1 billion worth of US gas lift equipment.
Unless they get access to that and to 1,000 submersible pumps
for lifting fluid in other fields, we feel they won't be able to
obtain the results shown in that production chart you saw
earlier; we feel they will not be able to work out that scenario.
We feel that as a minimum, they have to have access to US
technology of this kind.
Senator Hatch. I see. Have they tried nuclear methodology
over there, to your knowledge?
We tried it out in Colorado and it did not work very
well. I was wondering if they tried it with any success.
Mr. Diamond. The Soviets used nuclear detonation to
improve oil yields at a field in the Urals-Volga region in the
early 1970's. Some success was claimed.
Senator Hatch. Okay.
Again, I am sorry to hold you up on this, but I think these
are important questions.
Have they made any great strides in alternative forms
of energy, such as fusion, nuclear fusion?
Dr. Stevens. They have been very active in the develop-
ment of a fusion program, but it is all very definitely in the
development stage--really, in the research stages.
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Senator Hatch. So, they have not brought anything through
to fruition, but they are working hard, just as we are, in
this area?
Dr. Stevens. Right.
Senator Hatch. There are no advantages to them in the
alternative energy systems?
Mr. Diamond. Not between now and the mid 1980's.
We anticipate that by. 1985, 2 percent of their total energy
will come from nuclear sources.
Senator Hatch. Are they going ahead with their forms of
breeder reactors?
Admiral Turner. Yes, they are.
Senator Hatch. They will definitely be able to capture
that intensification of nuclear energy through the breeder
system that-we are now apparently phasing out, or phasing
down.
Dr. Stevens. They have a small breeder reactor. They
are preparing to build a large one, but they are still in the
stage of trying to investigate it.
Senator Hatch. They are not as far along as we are in
Dr. Stevens. Oh, no, they are ahead of us.
Senator Hatch. They are ahead of us in breeders?
Dr. Stevens. Yes sir, they are ahead of us in breeder
technology.
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Senator Hatch. So, you are saying that at their peak,
they hit 12 million barrels a day, and that is less than what
they really need if they are going to continue to service the
Eastern Bloc countries. They may have to pull back the
other 1,300,000 barrels a day from the West, is that it?
Admiral Turner. (Nods affirmatively.)
Mr. Diamond. 1,000,000 barrels to hard currency countries
and 300,000 to soft currency countries. They will pull that.
back.
Senator Hatch. But that will still not solve their
problems by the mid-1980's, will it?
Admiral Turner. No, and it will create other problems
for them.
Senator Hatch. Oh, sure.
Admiral Turner. These will be of considerable importance.
Senator Hatch. It means that they will have to have a
terrific capital outlay to keep their industrial economy
going by getting oil from either the Middle East or elsewhere,
or they are going to have to put pressure on to acquire oil
clandestinely.
Admiral Turner. Yes. We have observed in their country
as in most others, that the rate of economic growth is roughly
parallel to the rate of energy consumption growth. They face
this prospect. We feel that they do not have the opportunities
that the United States does to conserve energy. Most of their
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vehicles are industrial/commercial vehicles.
Senator Hatch. So, what it really comes down to is the
fact that the Middle East is going to be a hot center,
irrespective of the Palestinian/Israeli/Arab various crises
that already exist?
Admiral Turner. That is certainly true. There are
lots of reasons for that in this energy sphere, too.
If the Soviets become a net importer of oil, which we
think their demands will require--now we don't say that they
will import oil, but we say that the combination of what we
think they can produce--
Senator Hatch. If they want to grow, they are going to
have to.
Admiral Turner. If they want to maintain a reasonable
rate of growth and to service the Eastern Europeans, and to
earn hard currency, yes. But, of course, if they are going to
import oil, they will not be earning hard currency that they
earn from exporting oil. They are in a real crunch here.
As I was about to say, we don't think they can conserve
as readily as can we, or even the Western Europeans. They
don't have as much automobile and vehicular consumption. They
only use 3 percent of their oil today for household consumption.
Senator Hatch. So, this will deter modernization
throughout Russia and will keep them still almost a primitive
society--comparatively speaking, of course.
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Admiral Turner. That is certainly one of the conclusions
as to the possibility from this whole briefing, that is, that
a slowdown in their economy is forthcoming and this will be
reflected in a reduced rate of growth.
Senator Proxmire. Admiral, we do want to give you a
chance to present your whole statement. Can you tell us
how long it will take for you to present your. whole position,
both on Russia and China, if there are no interruptions?
Senator Hatch's questions have been excellent and very
helpful. But I would like to know-this so that we can time
the hearing properly.
Admiral Turner. I would think there is about another
25 minutes of presentation, sir.
Senator Proxmire. All right. Suppose you go ahead with
that, and then upon your conclusion we will each, in turn,
question you. We need to get a view of the picture as a
whole.
Senator Hatch. I would hope, Mr. Chairman, that we
might be able to ask you a quick question if we have one.
Senator Proxmire. Of course, for purposes of clari-
fication that would be fine.
Senator Hatch. Thank you.
Senator Proxmire. Go ahead, Admiral.
Admiral Turner. I think we have covered most of what I
wanted to say on oil.
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We think they would then have to look, because they
cannot do a lot of conservation, at whether they cut oil
exports to the Eastern Europeans, at whether there are other
ways to find foreign exchange so that they can perhaps buy
oil from outside. We think that they can do something to
increase their foreign exchange from non-oil exports, but that
probably will be only about a 10 percent a year increase as the
maximum, and this would not be enough to avoid an overall re-
duction in their hard currency earnings.
We think they could increase their gold sales, because
their production of gold is going up. On the other hand, they
would meet a point of diminishing returns as the market price
of gold will go down if they put too much on the market.
We think they could try to sell more high-cost, sophis-
ticated armaments, as they have been doing. But here again
we are talking about a 10 percent growth rate, which would not
be a sizeable addition to their foreign exchange.
We think they are going to find it difficult to obtain
oil from the Middle East by barter because they do not have
that much to offer to people who have lots of hard currency
available. Their goods are simply not that competitive. The
Middle Eastern people would prefer to buy from the West in
general.
The Eastern European question is going to be a big one
for them, and Moscow is going to have to carefully weigh the
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trade-offs of continued economic support to their satellites
and their desire to use some of that oil for export for hard
currency. They may ask the Eastern Europeans to share some
of the burden of their oil shortage, but this, of course,
would make the Eastern European economic situation more
difficult than it is today, and would possibly threaten the
stability of the linkage between those people and the Soviet.
Union.
I will move now from oil to agriculture and that aspect.
of the Soviet economy.
Agriculture will, we believe, continue to be a major
headache for the Soviets. Soviet farm production has in-
creased far above the level of a decade ago, but still cannot
provide the quality diet that the Soviet population desires.
The demand for meat is rising faster than production,
placing a severe strain on the Soviet grain-livestock economy.
Although much of the additional farm output reflects a
massive infusion of investment and industrially produced goods,
good luck with the weather has also been important. For the last
decade or so we believe the Soviets have enjoyed above-avera.ge
weather conditions in their main grain producing areas.
According to the law of averages, they should have more below-
average years sometime in the future.
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But, even under favorable weather conditions, their
imports of farm products have accelerated in recent years,
and their program for dampening the sharp fluctuations in
grain output by shifting production to lower risk weather
areas has made farm products increasingly costly.
Well, if the weather does turn against them to what
would be a more normal condition, we expect they will con-
tinue to have sizeable requirements for importing grain,
in particular.
Looking at the overall economic forecast, we must take
into account the uncertainty in the future trends of the
policy options available to the Soviets. These are limited,
but which ones they select will have an important effect on
us as well as on themselves.
If they can avoid these serious energy bottlenecks
about which we have been talking, they can probably achieve an
overall economic growth rate of about 4 percent a year through
1980, and perhaps 3 percent during the first half of the 1980's.
To do this, there are several things that they may want
and be able to do to try to maintain their growth rate near 3 1/2
to 4 percent.
(Slide--Annual Rate of Growth of Inputs to Economy)
Admiral Turner. This chart shows that the growth in sown
acreage of the Soviet Union is going to remain about the same.
We don't expect them to bring sizeable new land areas into
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production. The chart also shows that their growth in avail-
able man-hours, given the problem I mentioned before of declin-
ing inputs of labor, is going to decline.
The same holds true for the capital stock, and that means
that the combined growth of total inputs of stock of plant
and equipment and labor will decline.
The red lines indicate what they might do if they put in
special measures. The bottom red line is what we call a manpower
program. There are a number of actions which they could take.
They could create additional incentives so that people do not
retire as early. While current incentives exist for workers
to stay on the job after reaching retirement age, only one
quarter of them do. It would be possible to increase this
number by raising financial incentives or by raising the relatively
low retirement age.
They could also change their educational policy. They
have a full secondary education program now and they could get
people out into the labor market earlier by reducing the
number who get a full secondary education.
And, of course, they could cut the armed forces if they
felt it was mandatory to tap that sizeable pool of manpower.
We don't think that these measures could have more than
a one-time effect, as we show here, to offset the decline
in the additions to the labor force which we earlier described.
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In investment programs, they have a number of options.
The principal ones relate to the defense field. They could
shift defense industrial capacity to production of invest-
ment goods. However, as we all know, defense production is
what the Soviets do best, and they might be reluctant to fore-
sake that. Also, as we all know, resources that have been
traditionally invested in defense are not as easily trans-
ferable to civilian sectors as are some others.
They could also in the investment program stretch out
research and development and production schedules in defense
oriented industries. They could also try to improve their
overall productivity by reforms of economic management. But
here, as we are all aware, the centralized bureaucracy has its
interests and there are also political and ideological factors
involved as'to how far-reaching the reforms are they could
make in the way they manage their economy.
What we are saying, then, is that in the middle line
here, even with a good, tough manpower program and with as
much effort as they can make to arrest the lower rate of growth
of investments, the combination is not going to have, in our
view, a substantial impact over the next decade.
Perhaps they could keep their economic rate of growth
up to about 4 percnet, as I suggested, but then it looks to
us as though at best it is going to be below 4 percent.
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On the other hand, if they do not take these corrective
measures, particularly with respect to their oil program, their
economic growth may drop even lower, to 3 1/2 percent in the
near term and to 2-2 1/2 percent in the first half of the 1980's.
Let me emphasize that we are talking about average
figures here. Performance in some years could be better or
it could be worse.
(Slide--Ability to Absorb Imports)
Admiral Turner. These economic problems awaiting the
Soviet Union in the 1980's will strongly affect its relations
with us and with the entire Western World. Even under the
most favorable assumptions we have displayed here for hard
currency earnings, including cutting their exports to Eastern
Europe, the Soviet Union will experience a hard currency
squeeze in the early to mid-1980's.
This chart shows their ability under two estimates to
continue the rate of non-grain hard currency imports at a
ratio of Gross National Product that they are doing today.
It shows that we think it will have to fall below the current
ratio at some time in the future.
This may mean that the Soviet Union will turn to us in
the next decade for substantial long-term credits, especially
those needed to develop their oil and gas industries. They
need US technology, as I have indicated, to develop those
industries, and they may well need US credit with US
Government guarantees to achieve that.
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Finally, turning to the critical area of defense, a
slowdown in economic growth is likely to trigger debate
in Moscow over the future levels and patterns of military
expenditures. Yet, as we all know, military programs have
considerable momentum and powerful political and bureau-
cratic support.
We do expect defense spending to continue to increase
during the next few years at something like the recent
annual rates of 4 to 5 percent because of this built-in
momentum. However, as the economy slows, ways to reduce
growth of defense expenditures should become increasingly
urgent to major elements of the Soviet leadership.
Internally, the reduced growth potential means that
the Soviet'consumer will fare poorly during the next five to
ten years, relative to his gains under the current leader-
ship. With the overall economic growth rates that we
consider likely, per capita consumption could grow by no
more than 2 to 2 1/2 percent a year, compared with about 3
percent since 1965.
As a result, we do not anticipate any closing of the
gap in living standards with the West, or for that matter,
even with Eastern Europe.
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We believe that on balance, consumer pressures will
remain manageable nonetheless, although worker incentives
may be adversely affected.
As Soviet leaders obtain a better perception of the
resource problems ahead, they will be led to consider policies
rejected in the past as too contentious or lacking in urgency.
Some might be persuaded that basic organizational and
management reforms in industry are necessary, but that will
raise the spectre that such reform would threaten political
control.
Consideration of other options, such as accelerating
investment at the expense of defense or consumption, or
reducing the armed forces to enhance the civilian labor
force, could also result in strong leadership disagreements.
In concluding, i would like to stress the vast uncertainty
facing the Soviets and us as new leaders inevitably come for-
ward in the 1980's to cope with these economic problems which
we have been discussing.
We will be watching these developments closely and we
stand ready to support you, Mr. Chairman, and your committee
in any way we can in this area.
Now I would like to turn the floor over to Dr. Stevens
to talk about Soviet defense costs, if you would like, sir.
Senator Proxmire. Very good. Go right ahead, Dr. Stevens.
Dr. Stevens. Thank you.
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As you know, the security that surrounds Soviet defense
spending makes it very difficult for us to get very good
figures on their spending.
Moscow announces only one statistic, which is a single
line entry for defense, in the annual state budget. There
has never really been a successful method for determining
precisely what activities they are covering with this budgetary
figure.
It serves a political purpose, and we have found it
useless as an indicator of either the magnitude or the trend
of defense spending in the Soviet Union.
For example, the announced budget cuts since 1972 are
simply incompatible with the growth in Soviet forces that
we have seen take place.
We estimate the costs of Soviet defense activities really
by putting price tags on observed and estimated Soviet defense
programs and then aggregating all of that information to deter-
mine total figures.
We estimate, first of all, the cost in rubles, so that
we can measure the impact of defense on the Soviet economy
as a whole. We can look at the economic considerations that
affect Soviet defense planning, and finally, we can get-an
idea of the relative priorities that the Soviets assign to
various defense activities and programs.
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We also estimate the costs in dollars to provide a
simple comparison between the Soviet programs and US
defense program. Each year we completely review all of our
data and we endeavor to improve the methodologies that we
use and take into account any new information that we get in
the course of the year so as to produce a new estimate.
First of all, I would like to review our current ruble
estimate of Soviet defense spending. This is, of course,
particularly important because it sizes the defense burden
that the Soviets feel in their economy as a whole.
As you will recall, the ruble estimate we presented
last year was substantially higher than our previous
estimates. The reasons for this change and its significance
have been widely misunderstood. We raised our estimate because
we discovered that in the past we had underestimated the prices
of Soviet defense goods. This was due primarily to lack of
understanding of the price inflation in the USSR and a change
in pricing policy that occurred in 1967, which led to the removal
of what in the past had effectively been a subsidy on defense
purchases.
The increase in our ruble estimates did not represent a
change in our estimate of Soviet defense activities or Soviet
military capabilities. It was really based upon these price
discrepancies that we discovered.
Senator Proxmire. I hesitate to interrupt, but I think
this is so important.
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Are you saying that your estimate did not indicate a
step-up in Soviet investment in resources in defense, but
simply a reassessment of the prices, of the inflationary
effect?
Dr. Stevens. The dramatic increase in the ruble costs
of the Soviet program, as we estimated it, was due primarily
to this change in pricing.
Senator Proxmire. So, it did not mean as much of an
increase in resource allocation to defense as it seems?
Mr. Diamond. That's right.
Admiral Turner. The percentage of their Gross ?National
Product going to defense increased in our estimate not because
their defense programs are larger than we thought, but because
the efficiency of the defense sector of their industry is much
less than we had believed.
Senator Proxmire. I see.
Dr. Stevens. There was some growth in the hardware
estimate, but it was small as compared to the change in the
ruble estimate.
This change did carry with it some important intelligence
judgments, and these, of course, are reflected in this pricing
change that we have identified. The first, as Admiral Turner
has pointed out, is that the Soviets are far less efficient at
producing defense goods than we had previously estimated them
to be. Of course, it is clear that the impact of the defense
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program on the economy is greater than we had previously
estimated it to be. All of this emphasizes the preparedness
of the Soviet leadership to accept those burdens and it
reflects their deep commitment to defense programs.
The work that we have done in the past year in making
that change has strengthened our confidence in the revisions
that we made. This year we find no big changes in either
the overall magnitude of their program, as we see it in
ruble terms, or in the trends that it is taking.
(Slide - Soviet Defense Spending in Rubles)
Dr. Stevens. This chart shows the ruble estimate for
the years 1970-76. The blue band reflects our estimate in
1970 rubles with "defense" defined according to the U.S.
definition of what activities are in a defense program. The
width of the band represents the uncertainty that we have in
making this estimate. The red band above it reflects how the
Soviets might view their defense costs if they do not look
at the defense program in precisely the same terms as we in
the United States look at ours.
There are other costs, for example, a number of space
costs, space program costs, which the Soviets might identify
as being part of their defense programs.
As you can see, using a definition which encompasses
a range of activities comparable to those in the U.S. defense
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program, we estimate Soviet spending at some 40 to 45 billion
rubles in 1970. By 1976, the total outlays for these purposes
had grown to somewhere between 52 and 57 billion rubles. Using
the broader definition, which I pointed out the Soviets might
use, that amount has risen from 45-50 billion in 1970 between
57 and 62 billion rubles in 1976.
I should point out again that these estimates are cal-
culated in terms of 1970 ruble prices. This use of a constant
price base has a dual purpose. First, using this basis enables
us to reflect only real changes in-the level of Soviet military
activities, rather than monetary changes which might result from
price inflation.
Secondly, our estimates on the Soviet economy as a whole
and our estimates of its economic performance are calculated
on the same basis, that is, on the basis of constant 1970
prices. This enables us, then, to compare directly defense
costs with other sectors of the Soviet economy.
No single'measure adequately describes the economic impact
of the Soviet defense effort. Defense spending, as a share of
Gross National Product, can of course be used for this purpose.
Using the estimates that we have made, the Soviet defense
effort absorbs some 11 to 12 percent of the Soviet GNP. if
you were to base this on the broader definition of the defense
program, that share would rise to somewhere between 12 and 13
percent.
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Because the rate of growth in defense spending and in
GNP were roughly the same during 1970 to 1976, there was
little change over period in the share taken by defense.
The percentage of machinery output allocated to defense
is another economic aggregate of some importance. You can use
that to describe the impact of defense programs on the economy
as a whole. Soviet defense takes about a third of the output,
of the machine-building and metal-working sector, and this,
of course, is the sector which produces investment goods as
well as military weapons. _
A comparable figure in the United States in the post-
Vietnam period is about 10 percent. So, as you can see,
there is a significant difference.
The defense bite is also large in metallurgy, where it
takes about one-fifth, in chemicals, where it is about one-
sixth, and in energy, where it also consumes about one-sixth
of the total in those areas.
Even these measurements tend to understate the impact on
the Soviet economy because they fail to take into account
qualitative considerations. Most importantly, defense takes
the lion's share of the high-grade scientific, technical,
and managerial talent that exists in the Soviet Union. It
similarly draws heavily on the output of scarce and high
quality materials, components, and equipment that are pro-
duced in the Soviet Union.
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As Admiral Turner mentioned earlier, we expect the long
term growth in defense spending to continue into the 1980s at
an annual rate of about 4 to 5 percent. Programs for the
next generation weapon systems are now under development.
These new weapons will be more complex and more costly, and
we simply do not see any indications that the Soviets are
dismantling their defense research and development or industrial
capacity to divert it to. other issues. The Soviets, of course,
have made a tremendous commitment to the development and to
the maintenance of these capabilities.
Let me now turn to the dollar estimates, for a more
direct comparison with our defense program.
Our estimates of the Soviet program in dollar cost terms
are intended to provide a general appreciation of the magnitude
of the program and the activities. We developed these estimates
on the basis of what it would cost in the United States to
develop, procure, man, and operate a military force of the
same size and with the same inventory of weapons as that
fielded by the Soviets.
We also incorporated what it would cost to operate that
force as the Soviets operate it.
The dollar costs that I am about to describe are expressed
in 1975 prices. A constant price is again used so that real
changes in military forces are not masked by inflation.
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This year, for the first time, our figures on U.S.
spendings are in outlay terms, rather than in Total
Obligational Authority. Because we have priced the Soviet
defense program effectively in outlay terms, we are getting
a better comparison by making that change. .
Our indicators of the relative levels of U.S. and
Soviet defense activities present basically the same picture
which we have described to this committee in the past.
(Slide - Dollar Cost Comparison-Total)
Dr. Stevens. As you can see from the chart, this is a
dollar cost comparison for the 1966-1976 period as a whole.
It is not shown on this chart, but the total costs of the two
programs in dollar terms through this period are roughly
equal.
The estimated dollar costs of Soviet defense activities
grew steadily over the period at an average rate of about
3 percent, while U.S. outlays declined after 1968 and from
1972 on are lower than they were in 1966.
As aresult, the estimated dollar costs of Soviet defense
activities exceeds the U.S. by a widening margin in every
year after 1971, and by 1976, as you can see, they are about
40 percent higher.
If we add the costs of military retirement programs to
both these estimates, the Soviets still exceed the U.S. by
about 30 percent.
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Finally, if costs for military personnel are subtracted
from the basic estimates on both sides, then the estimated
costs for the Soviet program are nearly 30 percent higher
than in the United States.
(Slide - Soviet-US Investment & Operating Costs)
Dr. Stevens. For 1976, the estimated dollar costs of
Soviet programs exceed U.S. defense outlays in all major
categories.
In the case of investment, which includes procurement
of new weapons, equipment, spare parts, and construction of
facilities, you can see that the Soviet figure is about twice
that of the United States in 1976. This, of course, reflects
the steady buildup of the Soviet forces over the entire period,
and the even sharper decline in U.S. investment after the peak
of the Vietnam buildup in 1968.
The estimated dollar cost of operating a force is almost
15 percent higher in the Soviet case than for the U.S. In
the area of personnel, the larger component of operating costs,
the estimate for Soviet programs exceeds the U.S. by more than
60 percent, reflecting the large Soviet manpower base.
In 1976, although Soviet military manpower levels are about
twice those of the U.S., the dollar costs of their personnel are
only 60 percent greater. A major reason for this apparent
anomaly is the significantly different structures of the two
forces.
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We have, as well, a good deal of information on military
activities according to the mission that they are designed
to fulfill. Because of the detail involved in that, I would
propose to submit that for the record, if that is agreeable
to the committee.
Senator Proxmire. Yes, without objection.
(The information referred to follows:)
COMMITTEE INSERT
PART II: Soviet Defense Costs
(Slide - Dollar Costs by Mission)
Another way to compare costs of military activities
is by the mission they are designed to support The mission
definitions in this report accord with the guidelines outlined
in the Department of Defense's Planning and Programming
Categories (DPPC).
Strategic forces include all those forces assigned
to intercontinental and peripheral attack, strategic defense,
and strategic command, control, and warning. Over the 1966-1976
period, the level of Soviet activity for strategic forces
measured in dollars has been nearly two,and one-half times
greater than that of the US. In 1976, the Soviet level is over
three and one-half times that of the US.
Intercontinental attack forces include ICBMs, submarine
launched ballistic missiles, and bomber aircraft. Over the
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1966-1976 period as a whole, the level of Soviet activity
as measured in dollars is 50 percent greater than that of the US.
In 1976, it is over 100 percent greater.
Within the respective intercontinental attack forces,
the relative activity levels are mixed. The Soviets' emphasis
has been on ICBMs and SLBMs. The estimated dollar cost of
Soviet ICBM programs over the entire period is almost 4 times
cumulative US spending and over 6 times the US level in 1976.
For SLBMs, the Soviets lead by 1.5 in both time frames. In
contrast, in relative terms the US.has emphasized its bomber
forces. Over the 1966-1976 period, US spending on intercon-
tinental bombers has exceeded dollar cost of Soviet activities
by 300 percent and for 1976 by almost 200 percent.
(Slide--Dollar Costs: General Purpose Forces)
General purpose forces include all ground tactical air,
naval, and mobility forces (airlift and sealift). Over the
1966-76 period, cumulative US outlays for general purpose forces
exceed estimated dollar costs of Soviet activities by about 10
percent. Since 1971, however, the Soviet level is larger
than that of the US and is one-third greater in 1976.
Within both the US and Soviet general purpose forces,
land forces take the largest share of the costs. Outlays for
US land forces decrease after 1968, however, while the estimated
dollar costs of Soviet activity increase steadily. In 1976, the
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Soviet level of activity for these forces, measured in
dollar terms, is about 90 percent greater than that of
the US.
The second largest share of general purpose forces,
in terms of dollar costs, is for what is classified as General
Purpose naval forces (not including carriers of SSBNs). The
costs of these forces remain relatively constant for both
countries over the period. In 1976 estimated dollar costs
of Soviet activities are about 20 percent higher than US out-
lays.
The US outlays for tactical air forces (including naval
attack carriers) are greater than the estimated dollar costs
of comparable Soviet forces. Soviet activities are increasing,
however, while US outlays have been decreasing since 1968.
US outlays in 1976 are about 20 percent greater than dollar
costs of the Soviet forces.
Dr. Stevens. As you have indicated in past years in our
discussions of costing these military programs, our use of
dollar cost comparisons do have a systematic bias favoring the
Soviets. This bias reflects what economists term the index
number problem.
Different countries use more resources and mix them in
a fashion that will reduce the costs overall. In other words,
they tailor their programs to take advantage of the relatively
cheap resources and capabilities of their countries.
So, a bilateral comparison drawn in terms of the prices of
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of course, is common to all international comparisons of
economic activities.
In order to look at the extent of this problem we
have made some rough calculations of the ruble value of the
US program. There are some real difficulties in doing this.
We have little direct information with regard to
estimated Soviet costs of producing US military equipment.
Rough ruble cost estimates are derived by applying a few highly
aggregative ruble-dollar ratios to the US expenditure data.
We also had problems converting US cost categories as
"contingency funds" and "other" into rubles.
These problems are complicated by the fact that whereas
in the United States we had the technological capability to
produce almost all types of Soviet equipment, there is some US
equipment that the Soviets do not have the technology to pro-
duce. In such cases we follow accepted economic procedures by
using the dollar-to-ruble conversion rate applicable to the
closest substitute goods produceable in both countries.
Our tentative calculation suggested the comparison in
rubles is not radically different from that in dollars.
Comparing the two, we find that the "index number" effect is
discernible, but not extreme. For the comparison in dollars,
the ratio is 1.4 to 1 in favor of the Soviets; in the case of
our ruble comparison, it is 1.25 to 1.
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mw~
So, we believe that there is some difference in the two
comparisons, but that it generally supports the kind of figures
and the kind of trends that we have been developing through
the years.
Admiral Turner. Mr. Chairman, we are running well over my
time estimate. I wonder if this next item, which is miscellaneous
questions which you submitted, could be placed in the record and
we could go on. Of course, if you prefer, we would be glad to
discuss them.
Senator Proxmire. Suppose you give us the section on
quality control, which I understand follows this, and then we
can go ahead with our questions. Ithink that is important
and should not be omitted.
Admiral Turner. All right.
Dr. Stevens. Mr. Chairman, the Soviets clearly feel a
good deal of pressure to do a better job of quality control.
The approach that they are using is essentially one of brute
force. It is an inefficient method that relies upon producing
a high output of goods and then simply rejecting a good deal of
what is produced.
This is really the only feasible course of action given
the labor-intensive approach which they take to their weapons
production.
They depend on what we call the Voyenpred system and on
a system of fines for faulty production to ensure quality control
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for military hardware.
The Voyenpreds are military representatives who are located
at the plants who monitor weapons production in all of its
phases. They have three major functions: to prevent production
bottlenecks by being expediters for the necessary material in-
puts; to police the pricing of military products; and finally,
to ensure that products sold to the military meet all the quality
standards required.
Management is also motivated to enforce quality control
because they are potentially liable should the product fail
to perform adequately.
This represents their approach to the quality control
problem, which is, as I said, pretty much of a brute force
tactic.
Admiral Turner. May I move on to Soviet civil defense,
Senator Proxmire. Yes, sir.
Admiral Turner. We have done an extensive review in this
area in this past year. It is not completed yet. We are not
ready to estimate the magnitude in dollars or rubles of their
effort, nor give a comprehensive assessment of its effectiveness.
We do believe that theSoviets have been gradually, but steadily,
increasing their civil defense effort. Their program is ambitious,
it is not apparently a crash effort.
It appears to us that in the late 1960's or early 1970's
there was a shift of emphasis, particularly when it came under
military direction.
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 UNCLASSIFIED 42
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Mr. Chairman, there are three elements to any civil
defense program. The first is your ability to protect leader-
ship; the second is your ability to shelter and protect the
population in general; the third is to protect some economic
capability for a post-attack or post-war recovery.
I would like to discuss each of these briefly in turn.
With respect to protecting the leadership in the Soviet Union,
we believe the Soviets have a reasonable opportunity, with
warning, to protect a large percentage of their key military
and civilian leadership.
As far as the overall population is concerned, there are
four elements to protecting a population. One is urban
shelters, two is evacuation procedures, three is reserve of
essential supplies to support the population, and four is some
form of indoctrination and training in the necessary procedures.
The Soviets have a shelter program, although we do not
know the total number of shelters.
Despite the shelter program we believe the Soviets will
still rely heavily on dispersal and evacuation to protect
their urban population.
Soviet plans call for the key workers and essential
personnel to travel to dispersal sites that are outside the
cities, but close enough that they could commute back. Non-
essential personnel we expect would be evacuated up to 300
kilometers away.
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In this connection, the third point, stocks of supplies,
we do feel that they have large stocks of food, water, fuel,
and medicine located outside the urban areas. Supply levels
are sufficient for minimum subsistence needs for weeks or
perhaps months; but they might well face problems in distri-
buting these supplies in the face of a major attack.
Fourth and finally, we see little evidence today of
serious efforts at mass indoctrination of the population or
in actual exercising of the evacuation procedures.
The third element of civil defense is protecting some
portion of the economy. Here the Soviets include dispersal
of their plants, hardening measures, and industrial civil
defense units, and strategic reserves of essential materials.
The civil defense program calls for locating new
industries outside the urban areas, and for increasing the
space between buildings within industrial complexes to reduce
potential damage.
In point of fact, industrial expansion during the past
15 years has not significantly reduced the overall industrial,
vulnerability. Heavy industry remains concentrated in large
urban areas.
Building patterns in many industries have become more
dense rather than more spread out as intended.
Overall, we do not believe that the existing preparations
could prevent a general breakdown in the economy in the event
of a US retaliatory strike.
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In conclusion, we believe the Soviets do not possess
a civil defense capability that would enable them to feel
that they could with reasonable expectation absorb a re-
taliatory strike at levels of damage that would be acceptable
to them.
Yet, Soviet civil defense is an integral part of their
military strategy for the conduct of nuclear war, and the
Soviet Union is making more progress and effort in civil
defense today than is the United States.
We do not interpret this as meaning that the Soviets
are planning to initiate nuclear warfare, but they do appear
to be thinking through its consequences should it occur,
and their need to plan for survival and post-attack recovery.
Now we are ready to move on to China, sir.
Senator Proxmire. Suppose we do this. I know that the
Senators would like to ask questions. China is certainly
very important, but the Soviet Union is of such overwhelming
significance that unless other Senators object, perhaps we
could proceed to questions now.
Would that be all right?
Senator Roth. May I ask how long the China portion would
take? I would like to ask some comparison questions about
China and the Soviet Union.
Senator Proxmire. How long would you take to review
China for us, Admiral?
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Admiral Turner. It would take us about 12 minutes, sir.
Senator Roth. I will go along with the Chairman in what-.
ever he wants.
Senator Proxmire. All right, Admiral, why don't you go
ahead with China.
Dr. Stevens. I will run through this very quickly if
I can, Senator.
1976 was, of course, a very momentous year for China
because of the deaths of both Mao Tse-tung and Chou En-lai,
the arrest of Mao's widow and the "gang of four," and the
massive earthquakes which really had an impact on the economy,
in several different ways.
(Slide -- Growth of GNP)
Dr. Stevens. We have made some rough estimates of
economic performance in 1976, though it has been very difficult
to do because of the small amount of official reporting that
we get. Our estimates for 1976 indicate a slight gain in
agricultural output and a small decline in industrial produc-
tion, with the net result that there was no growth in the
Gross National Product last year.
There were, as I said, a number of problems. Political
factionalism disrupted production in industry and elsewhere.
The earthquake in the Peking-Tientsin-Tang-shan area caused
enormous loss of life and extreme damage, both in industrial
output of such things as coal and in transportation.
(Slide--Per Capita Grain Production)
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Dr. Stevens. Agricultural performance was disappointing;
grain output was 280-285 million tons, the same as in 1975,
and cotton production was down.
(Slide--Grain Imports)
Dr. Stevens. Until late 1976, China drew down its
grain reserves to avoid spending hard currency for new grain
imports. Peking then accelerated purchases of grain, and you
can see that this year China will import a good deal of grain
from the Western World.
(Slide--Trends in Foreign Trade)
Dr. Stevens. China's foreign trade fell by about 10 per-
cent in 1976, the first decline since 1968.
As you can see, for the first time since the early 1970s,
China moved into a surplus situation in its trade balance.
Trade with Japan, which is China's prime trading partner,
was down about 20 percent.
(Slide - US-China-Trade)
Dr. Stevens. US exports to China dropped dramatically
in this period, as you can see from this chart, which shows
the fluctuations caused by various export programs beginning
and ending through the period.
Senator Proxmire. That is really amazing.
Dr. Stevens. This year, 1976, was the first year that
US imports of Chinese goods exceeded our exports since 1972
when export controls were lifted.
If I may now move on to the economic prospects for 1977,
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as a year of readjustment and are putting high priority on
restoring the economic order.
In industry and transportation, sizable gains over last
year's poor performance can be expected. Recent official
claims have noted month-to-month increases in industrial
output and railway performance.
In agriculture, on the other hand, the prospects are
not good. A drought in the north China plain has reduced
winter wheat production. This could be made up by a good
fall harvest, but it has again aggravated the problem of
tight supply in grain.
In foreign trade, 1977 will be a year of adjustment with
only moderate growth.
A new round of plant purchases will not begin before
late this year and may be delayed if the agricultural per-
formance is such as to require them to import additional grain
from abroad.
China's new leadership began its term in October with
economic issues clearly high on its docket. After a series
of national conferences to consider economic problems and
prospects, the present leaders have revived the long-term
modernization program announced by the late Premier Chou En-lai
in 1975, and apparently are using this as the basic blueprint
for how they intend to proceed.
Agricultural modernization is clearly going to be given
top billing. With cultivable land already under intensive use,
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China must increase yields by greater use of modern inputs
such as chemical fertilizer and new seed strains.
In industry, Peking will devote more resources to
raising the level of technology and restoring balance,
particularly in heavy industry. Structural imbalances. in
the steel sector and capacity shortages in mining must be
straightened out. Peking must also pay greater attention to
improving efficiency throughout the economy, which will require
reforms in planning and management, and a strengthening of
worker incentives.
The new leadership is keenly aware of the importance of
scientific and technical work to its plans for modernization.
It is facing now the problem of restoring an educational system
severely weakened by the Cultural Revolution.
China will also look more closely at the modernization
of its national defenses. The pace of military modernization
has been the subject of considerable debate over the past
several months. There are indications that the civilian
leadership would prefer to hold back on modernization until
some basic economic problems can be taken care of.
There are two particular obstacles that the Chinese face
in improving economic performance. The first of these is the
inability of the central government to effect real control
over provincial and county resource allocations. The second
is labor unrest, which has occurred as a result of dissatis-
faction with the lack of wage increases over the years.
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Neither of these problems is going to be easy to solve.
Both constitute difficult problems for the new leadership.
Admiral Turner. Very quickly, on the Chinese defense
side, we have a lack of good information on their defense
expenditures. We are able to keep a pretty good count on their
hardware, not on their manpower and support costs and other-
wise. We do believe that they spend 8 to 10 percent of their
Gross National Product on their defense. We believe that
because of the elementary nature of their economy, this is a
far larger drain on their advanced-industries, their sophisticated
industries, than it is in either the Soviet Union or the United
States.
(Slide --- Estimated Military Expenditures -Index)
Admiral Turner. The history of Chinese defense expendi-
tures, as we best estimate them, is a considerable rise, peaking
in 1971 and dropping sharply and levelling off to a plateau
ever since. We think this reflects a reduced estimate of the
probability of war with the Soviet Union after this drop in
1971; continuing intense competition for economic resources;
and difficulty simply in developing follow-on military systems
that are up to date.
We don't think that this reflects a marked drop in the
size of the Chinese armed forces, but rather a slowing in the
modernization of them. In short, basic policy today in the
defense spheres in China appears to be a priority towards
agriculture and industry, with a gradual but reduced level of
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modernization and upgrading of the military forces. In
short, they are holding military spending in check and are
doing only selective improvements on it, but they are main-
taining their overall force levels.
That, sir, completes our prepared presentation.
We are happy to respond to your questions.
Senator Proxmire. Thank you, Admiral.
That concluding remark that you made on the Chinese military
suggests to me that it is a very, very limited kind of threat.
After all, their Gross National Product is about 10 percent of
ours, and if they are spending 8 percent of their Gross National
Product in defense, it means a very small military force, at
least in terms of modern strike force, as compared to ours, or
to that of the Soviet Union.
Admiral Turner. Yes, Sir. They have a very limited
nuclear intercontinental strike capability. In fact, they are
just bringing on their first weapon that could even reach the
United States.
As far as ground warfare is concerned, our only real
potential point of contact at this stage or potential would
be Korea. I think they do have some potential there with
a repeat of the massive human attack.
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51.
Senator Proxmire. One of the sections of your excellent
testimony which you had to skip over in the interest of time
concerned Soviet technology, their technology as compared to
ours.
One of the most startling revelations that we had last
year when Director Bush came up to testify before us was his
argument that Soviet military technology was behind ours.
He put it this way. He said that there was no significant
area where they were ahead of us and many significant areas
where they were behind us.
In the two pages you have which deal with Soviet and
US technology comparisons, you indi_c,.7.6 ': areas where
they trail us, such as electronics, cor..:t:`2 s, design and
manufacturing technology incorporated into the Soviet air-
craft and missiles. Is the picture still the same as far
as technology is concerned, that we are ahead of the Soviet
Union in important respects and that they are not ahead
of us in any? Is that a fair statement?
Admiral Turner. I would be a little loath to make a
categorical statement that they are not ahead of us in
any. They are certainly ahead of us in some areas of
application.
Senator Proxmire. Such as?
Admiral Turner. In some areas of command, control
and communications of military forces I would say they are
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ahead of us in application more than in technology; that is,
they put more resources into that area.
Senator Proxmire. Can you give us an overall assessment?
Admiral Turner. An overall assessment would be that we
are well ahead of them in military technology. With brute
force techniques, however, they do achieve about the same
end result in many areas that we do with much more sophisticated
techniques. For example, they will put multiple computers in
a system, each of much less sophistication than the one we
put in ours.
Senator Proxmire. It shows a higher cost, but not
necessarily a higher effectiveness, right?
Admiral Turner. That's correct.
Senator Proxmire. Are you saying that the USSR defense
spending exceeds ours in 1976 on a dollar basis by 30 to 40
percent and if so, I just wonder what that means? What you
are saying, as I understand it, is for us to reproduce the
Soviet defense establishment, it would cost 30 to 40 percent
more than we spend on our own defense.
Is that right?
Admiral Turner. Yes, sir.
Senator Proxmire. However, much of that Soviet defense
establishment would be irrelevant for our needs. They have a
large number of troops on the Chinese border, for example,
right?
Admiral Turner. That's correct.
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Senator Proxmire. They have a problem of suppressing
dissent in the satellite countries, so they quarter substantial
troops in that area.
Admiral Turner (nods affirmatively.)
Senator Proxmire. Does it allow for their lesser effi-
ciency, their lesser technological development than ours, or
not?
Mr. Burton. Sir, actually it is US technology and pro-
duction that enter into these estimates, so it is what it would
cost us to reproduce the Soviet design.
Senator Proxmire. Then there is one other element here.
Perhaps I am wrong, but I have heard and I get the impression
that the Soviet Union has very much more of a concern with
defense, defense against air attack, the civil defense which
you mentioned, that they are defense-minded or defensive-minded,
as compared with offensive-minded, much more than are we and
other countries. Would that not account for some of the dif-
ference?
What I am trying to say is in comparing the Soviet Union
with us, the relative force, effectiveness, and efficiency of
the Soviet Union, we don't have the concern,for example, with
a bomber attack that they seem to have. I understand that they
have the most heavily defended air space in the world. Of
course, that is enormously costly and would account for part
of their immense expenditure, would it not?
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UNCLASSIFIED
Admiral Turner. Yes sir. The Soviets have deployed a much
more ambitious air defense system than the US.
I think you can look at the history of the Soviet armed
forces since World War II and in all categories they began with
a quite defensive orientation. I, of course, am most familiar
with the naval sphere, and I would say that the origin of their
navy was to protect against incursions from the sea towards
their homeland.
I think that in all areas in the last decade we see this
merging into a much more offensive potential. Whether that
is their intent or not, I don't know. But it certainly is not
a defensive move to build up their tank inventory and their
artillery on the western front of Europe as much as they have.
Similarly, with their airforce, they are going largely from
fighter interceptor defensive aircraft to multipurpose attack
and fighter aircraft. Similarly with their navy, they are
going from short-range capability to defend their coastal
waters to a worldwide demonstrable capability, including even
small aircraft carriers.
Senator Proxmire. I only have time for one or two more
questions. I have only 2 or 3 minutes left.
Let me ask you this.
This whole presentation has been fascinating, but one
of the interesting elements was the one you started off with
on which Senator Hatch had some very good questions. This
concerns me.
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You talked about the Soviet oil oroduction and the effect
that that is going to have on the Soviet economy, perhaps even
on the Soviet military as time goes on. You do concede un-
certainty in some of your facts, including the amount of proved
reserves, estimated by you at 30 to 35 billion barrels.
In view of our own uncertainty about U.S. reserves, what
is the margin of error in your estimate? Could it be off by
a factor of two or more, and if so, isn't it possible that the
rest of the analysis is flawed?
Admiral Turner. I hesitate to say how much the estimate
of reserves could be off without asking anybody else if he
wants to guess about that.
Mr. Diamond. Senator, that is true, but you have to
remember the definition of what we mean by "reserves." These
are not what is in the ground. These are recoverable reserves
and what we consider to be at a reasonable economic cost.
Senator Proxmire. So do you agree that they could be
twice as high as is estimated?
Mr. Diamond. That is true. It could be tremendous.
For example, in this country we claim 30 to 35 billion barrels
of recoverable oil but total reserves may exceed 100 billion
barrels. The experts believe that with current technology
only about one-third of these reserves are recoverable.
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Admiral Turner. Even if they have twice as many re-
coverable reserves as we think, in the next decade they
cannot turn that into oil on the surface of the earth.
Thus we do not think that invalidates the analysis which
we have been presenting to you today, sir, because we are
saying that in the next decade, the pressures which we
tried to demonstrate this morning are going to exist.
Senator Proxmire. Are you saying that you are sure
that they will not be able to produce, say 12 million
barrels a day in 1985?
Admiral Turner. Yes, sir. That is our prediction,
that they cannot even sustain the 10 million that they are
doing today.
Senator Proxmire. But they have the reserves in the
ground, so why not?
Admiral Turner. Because if they have not made suf-
ficient progress towards developing those reserves, they
cannot get it out by 1985, particularly in the inhospitable
and remote areas in which they have to work.
Senator Hatch. Admiral, as I see it, at your highest
estimate they have 12 million barrels a day. Now we have
presently a need in the United States for about 18 million,
considering no gain or no particular growth.
They have a lesser industrialized economy than we do.
They have what, 50,000 manufacturing facilities in Russia
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as compared with 295,000 in this country. I don't see how
they can use 10 to 12 million barrels a day. I am wondering
if they are storing that.
Admiral Turner. In 1976 they exported about 3 million
b/d. Half went to other Communist countries; half to other
areas. That means that they used about 7-1/2 million
barrels a day, which is little less than half of ours.
Senator Hatch. I see. That would correspond with the
differences in the economies.
You suspect that for them to have any type of growth
at all they have to keep energy production going.
Admiral Turner. Yes, sir. That is the record; their
economic growth and their energy use have been in parallel
all these years.
Senator Hatch. To change the subject, when I first
came to the Senate, we were told that they did not have very
much of a civil defense system. Now you have told us today
that they have a civil defense system, one of such a nature
that if we had a retaliatory attack, the majority of their
people would survive, and much of their leadership would
survive.
Is that correct, or have I misconstrued what you said?
Admiral Turner. Assuming some hours of warning, the
majority of their leadership would survive.
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I think the ability of their population to survive is
very much in doubt. There is considerable uncertainty that
they could hope to protect a reasonable percentage of their
population at this time.
Senator Hatch. And just as much uncertainty that they
could protect their industrial centers.
Admiral Turner. There is very little probability, in
my opinion, that they could protect their economic base.
They have not followed through on their plans to space and
relocate their industry.
Senator Hatch. What about the tensions between China
and Russia, on the Manchurian borders, for instance?
Admiral Turner. The tensions there are pretty deep-
rooted. The Soviets have indicated a willingness to nego-
tiate, but there is little sign of give on the Chinese side.
The Chinese say that the Soviets must evacuate the islands
in the Amur River and acknowledge that they were granted
to the Soviet Union under an unjust treaty before they will
even negotiate on whether the islands belong to one side
or the other.
In addition, there is a large island opposite the city
of Khabarovsk, which the Soviets would not give up for
strategic reasons.
Senator Hatch. Just this past week I read some articles
where it was suggested that we are dropping the ball economically
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and strategically in not strengthening relationships with
China which would bring concomitant pressure on the Soviet
Union.
Are you of that same opinion?
Admiral Turner. Senator, you are taking me into the
area of policy-making for our government, and as an unbiased,
objective purveyor of intelligence, I would rather stay out
of that if I may.
Senator Hatch. But it still has a relationship to
this area, because our trade, you have indicated, has gone
sharply down below what it was just a few years ago. We
were at a very high peak and then all of a sudden we have
dropped to the point where we import more than we export
with regard to the People's Republic of China.
What I am concerned about is this. Should we be
fostering a program where we increase our trade with the
Peoples' Republic, which would also unsettle the Russians,
and is there any way that we can increase our trade since
we have had such a drastic fall-out? Is that strictly because
their economy has bounced up? Just what are the reasons?
Admiral Turner. I believe that we have seen a deliberate
effort on the part of the Chinese to get their overall trade
back in balance.
Senator Hatch. To be self-contained?
Admiral Turner. Yes. Although the Chinese have made
greater use of foreign trade in recent years to spur economic
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development, self-reliance remains. their stated policy. For
example, the imports of complete plants over the past several
years will enable the Chinese to reduce, or at least hold
down, imports of such items as steel, fertilizer, and textile
fibers in the future.
Senator Hatch. Is there any indication that they are
willing to increase trade relations with us so that we can get
back to where we export more than we import?
Admiral Turner. I see little indication of that. They
will increase trade with the US when it suits their purpose,
but Peking's policy has been to limit purchases from the US
when alternative supplies are available. The rapid rise of
the US to the position of China's second largest trading
partner was, of course, the result of large-scale Chinese
purchases of agricultural products in years when world supplies
were tight and China's traditional suppliers could not meet
its needs. For the peak trade years 1973-74 agricultural
commodities accounted for more than 80% of US exports to
China.* Other Chinese purchases have been items such as Boeing
* Data supplied for the record:
Million US dollars
1972
1973
1974
1975
1976
US Exports to China
63
690
819
304
135
Of
which:
Agricultural
commodities
61
578
688
80
0
Other exports
2
112
151
224
135
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aircraft, fertilizer plants, and oil drilling and exploration
equipment where US technology excels. Factors impeding trade
include limited US demand for Chinese goods, lack of MFN-status
for Chinese exports, US controls on strategic exports, and
the absence of direct banking and shipping facilities due to
the still unresolved frozen assets/claims problem.
Senator Hatch. I have one other question and that is
this. Since coming to the Senate, I have had occasion to talk
to some of our military people who are concerned that the Soviets
may be developing these special high-technology weapons that
your report indicates they have not developed, such as the
particle beam weapon, various sensor devices, various forms
of monitoring technology, et cetera. Is there any reason for
that disparity? Some of these people seem to talk very
intelligently about it and I have heard both sides. Some
decry everything that others cite.
Admiral Turner. We have analyzed the particle beam weapon
in particular in some detail. It is our belief that the com-
ponent technologies that would be required to build that sort:
of capability are not advanced enough in the Soviet Union to
give them the prospect of being anywhere close to developing
such a weapon. Most of the evidence adduced to the contrary
is based on the assumption that a particular facility in the
Soviet Union is dedicated to this purpose, and additional
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assumptions about their state of technology. We think all of
these assumptions are questionable. Further, we don't see
signs of those efforts required for pulling this together.
Senator Hatch. Are they working on particle beam weapons
or something close to it?
Admiral Turner. I cannot either confirm or deny that as
I don't have positive evidence that they are not.
Senator Hatch. We really do not know, then.
Admiral Turner. We really do not know.
Senator Hatch. But you do question seriously whether or
not they have reached that form of technology at a high state
of art?
Admiral Turner. We don't know that they are doing it,
but we have fair confidence that they don't have the required
technologies at a sufficiently advanced stage yet.
Senator Hatch. I see. Thank you.
Before I leave, Admiral, I want to compliment you and
your staff for the excellent presentation we have had today.
It has been very enlightening today and I personally appreciate
Thank you very much.
Admiral Turner. Thank you, Senator.
Senator Proxmire. Senator Sparkman.
Senator Sparkman. Admiral, I shall be very brief.
I want to say that I thought that was a masterful presentation
that you gave us today.
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Admiral Turner. Thank you, sir.
Senator Sparkman. Of course, we have been dealing with
part of that part of the world in the Foreign Relations
Committee. I want to say just this, with reference to a
question asked by Senator Hatch just before he left. it
deals with the confrontation, if we can call it that, between
the Soviet Union and the Peoples' Republic of China.
Back in 1973, I believe it was then, I was in China and
I had a conference with Chou En-lai, who was still living
at that time. I remember quite well, during the discussion
he expressed the hope that the United States would maintain
its strength in Western Europe, particularly with the NATO
nations, as opposed to the Warsaw Pact nations. He said that
if we kept them busy there, they could not carry on as well
as otherwise on the northern border. Now remember, he made
this statement. He said, just think how you would feel if
you had an enemy army of a million men on your northern
frontier.
I have often thought of that with reference to the
relationship between the two countries.
Admiral, I greatly enjoyed your statement. I appreciate
it and want to thank you for it.
Admiral Turner. Thank you, sir.
Senator Sparkman. I just don't see how you get all
of that information. I am not going to ask you how, of course.
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(General laughter.)
Senator Proxmire. Senator Roth.
Senator Roth. Thank you, Mr. Chairman.
I, too, want to congratulate the Director. I think it
was a very fine presentation.
There is one question that I have.
As I understand your testimony in the case of China,
they are really placing defense as a last priority, they
place agriculture and industry ahead of their defense and
military needs; whereas in the case of the USSR it is pretty
much the opposite in terms of their top priority. The Soviets
are placing their consumer needs way down on the list.
Now if that is accurate, it would appear that the
imbalance, if we can call it that, between the USSR and China
is going to grow. I have heard it said that some people think
for that reason the military in China may desire some kind
of accommodation with the USSR.
Is there any evidence or any reason that you can see
that there may be an effort for rapprochement or accom-
modation between those two countries?
Admiral Turner. I see no evidence of any current
moves in that direction or inclination to move in that
direction.
Senator Roth. The Soviet Union, according to your
prediction, faces very serious economic problems. I suspect
that one of the problems we face on the Hill is to what extent,
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if at all, should we provide economic assistance in one form
or another. One example that we have worked with in the past
is to help them develop their natural oil and gas, particularly
in Siberia. If we, say, together with the Japanese join in
helping that development, would that substantially change the
energy picture as far as the USSR is concerned?
Admiral Turner. Well, the word "substantial" is a problem
for me. It certainly is apparent that the Soviets today need
help to hold their own, let alone to proceed, and that if they
are going to develop new fields in Siberia, they are going to
need outside financing as well as outside infusions of tech-
nology.
So, while we do not believe that kind of assistance will
appreciably change the predictions I have given you between
now and the mid-1980s, it certainly could be an important factor
in whether they begin to come back up this downward slope that
we showed you after the mid-1980s. That kind of help is not
likely to start producing oil for probably another decade.
Senator Roth. Do you have any predictions as to what
recovery could be under a large scale program, say of 20 or 25
years? Do you have any prediction on the number of barrels
a day?
Admiral Turner. I don't think so, but there is no
doubt that there is lots of oil out there, right, Doug?
Mr. Diamond. Yes, sir.
There are no predictions. One of our consultants
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feels that unless massive infusions of investment and
technology are poured in, not only from the US but also
from Western Europe, production may not turn up in the
last half of the 1980s or early 1990s.
The required investment effort boggles the mind. For,
example, in this 1976-80 five year plan, they are putting
in 20 million tons of pipe or 24,000 miles of oil and gas
pipeline, just in this five year plan. The Alaska pipeline
is only 300 miles long. To accomplish this goal, the
Soviets would have to lay an Alaskan pipeline every six to
eight weeks, under comparable or even more inhospitable
conditions. This is an indicator of required effort for
investment in the transmission system alone.
So, when you talk about overall magnitude of outlays
of investment for capacity to develop and transport oil
for 1976-80 beyond, no expert would hazard a guess as
to how many billions of dollars of Western help would be
required to run production of oil up.
Senator Roth. I believe at one point you said the
Soviets may seek assistance from us. Would you be a
little more specific about the kind of assistance they
might want?
Admiral Turner. I think it is primarily our techno-
logy they are after and that they can only get if they
have hard currency or credits in hard currency areas;
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specifically, we have referred several times to the tech-
nology for oil development. Today it is techniques for
getting it out of the ground under existing conditions.
But as they move into the frozen north more, I think they
will be looking to us for all kinds of technology in
pipeline development, exploration techniques, and so on.
Senator Roth. Thank you.
I have one last question, Mr. Chairman.
With respect to civil defense, is there any possibility
that these efforts might be directed towards protection in
a conventional war if they decided they might want to move
in Europe? Could these facilities be useful?
The Chinese have warned us that the Soviet Union is
going to move in Europe. Could this be the purpose behind it?
Admiral Turner. There is no question that these shelters
would be even more effective against a conventional attack.
Senator Roth. Thank you, Mr. Chairman.
Senator Proxmire. I have one question at this point
and then I will yield to Senator Javits. I know that he has
been waiting very patiently.
Is there any possibility that the civil defense effort
is an effort designed not to protect themselves against an
attack by us, which as you said would seem to be pretty
devastating, but against a nuclear attack from the Chinese?
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Admiral Turner. I think that the Soviets have consid-
erable concerns about that, yes, sir.
Senator Proxmire. And it would probably give them that
protection against the Chinese pretty effectively, wouldn't
it--in view of the fact that they have less megatonnage, less
accuracy, less precision, far fewer warheads, less follow-on
capacity, and so on?
Admiral Turner. Yes. There is no question that the
Chinese do not have the capability today to take out a sub-
stantial percentage of the Soviet population or leadership
or industry simply for a lack of weapons. So yes, civil
defense becomes proportionately more useful under those
circumstances.
Senator Proxmire. Thank you.
Senator Javits. I have two questions and I will ask
them separately. You spoke of per capita consumption
diminishing to a 2 percent annual growth rate for the
individual in the Soviet Union. We constantly hear that
every once in a while they have to divert from their funda-
mental concentration of roughly 13 percent of the GNP on
military weaponry, et cetera, in order to do something
for the civilian sector. What causes them to do that?
There is no public opinion, there are no elections, there
is no press, there is no radio, no television. Why do
they have any need to respond at all to the individual?
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I have been to the Soviet Union on a number of occasions.
The people seem to be fairly well shod. I am told that they
eat adequately--after all, you can live on pretty little
compared to the way we operate around here.
What is the pressure on them to do anything for the
consumer?
Admiral Turner. Let me ask some of the Soviet experts.
Doug?
Mr. Diamond. Senator, there are really three types of
pressures. As we measure Soviet per capita consumption,
it is roughly one-third of the US, perhaps half that of Western
Europe, and 70 percent of that of Hungary and Poland.
Secondly, in particular areas, such as quality of
diet, one out of every two calories they consume is still
from starchy staples, such as grains and potatoes. Their
starchy-staple ratio is the highest of any advanced industrial
country in the world. Meat consumption is 40 percent of ours
and 70 percent of that of Poland and Hungary. The queues for
certain kinds of goods, especially selected high quality foods,
are long. Perhaps you may have seen them.
We have had reporting over the last year of consider-
ably more discontent in the mid 1970s than there was at
the end of the 1960s. This does not show in rioting,
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as it did in 1962, when Khrushchev raised prices on some
foods, but it may show up in a lower level of productivity,
for example.
Senator Proxmire. Did you say a lower level of
productivity?
Mr. Diamond. A lower rate of growth in labor producti-
vity, and that includes absenteeism.
Thirdly, it is widely believed that Russians are more
stoic than their counterparts in Eastern Europe. The Poles
will take to the streets more quickly. But, when Brezhnev
and his colleagues observe what happened in Eastern Europe
over the last 20 years, especially widespread demonstrations
in Poland in 1970 and 1976, this causes them concern.
Because of these kinds of pressures we judge that the
leadership will feel that some growth in per capita con-
sumption is required although they will be unable to prevent
a slowdown.
Senator Javits. For me, the most important part of
what you have said has been the figures, that they live
only 70 percent as well as the Hungarians and the Poles,
and 50 percent as well as the West Europeans.
I think that is all extremely important. I think
that we, in the Congress, should be very interested in
to what extent the public is manifesting its will some-
how, even in a country which is held in such an iron grip
as this one. I gather, as a necessary corollary, that as
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UNCLASSIFIED
far as the military people are concerned, they eat all
right and sleep all right if they are not subjected to any
of these problems. Is that correct?
Mr. Diamond. Yes, sir. They get their daily rations.
Senator Javits. The Russian soldier in my father's
day was very expendable. He ate almost anything, he slept
anywhere, and he was literally a slave. But that is no
longer true.
Admiral Turner. But his pay is not good if he is a
conscript, and you are aware, sir, of the signs of dis-
content we have had, such as the pilot who flew the aircraft
to Japan.
I do not want to portray that as a major problem at
this point, but at least it is interesting as an indicator.
Senator Javits. On the positive side you are able
to testify that they are taken pretty good care of, isn't
that right?
Mr. Diamond. That is right, sir, in a comparative
sense, inside their own economy, but not by our standards.
Senator Javits. I understand that, of course. I
just told you about Russian soldiers from my personal
experience. I know from whence they come.
But I was interested in where they are now.
The other thing that interests me is your statement,
which I want you to confirm, that the USSR will experience
a hard currency squeeze in the 1980s. This means that
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UNCLASSIFIED 72
they may have to turn to us even more for credits and
technology.
This is a critical point for this reason. The USSR
and the Eastern Bloc owes Western Europe about $30 billion
right now, and the United States is only in for about
$5 billion, that is, United States banks. As a matter of
fact, it is only about $1.5 billion to the USSR.
There is a big policy question which you may not even
want to answer at this time. You may wish to think about
it. There are certain factual questions which relate to
this question of policy.
Should we continue this policy of relatively easy
access to the credit markets of the world by the USSR?
Or, should we turn against it in a very affirmative and
decided way and use that, by linkage, with Angola, the
Middle East, or any other place?
The same is true of technology over which we have
surrendered control.
On the other hand, it is said that the Russian hardness
on the Jewish emigration question was attributable to the
limitation of $300 million in Export-Import Bank lending,
which is meaningless to them now, except as a matter of
respectability, which was imposed by the Congress.
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73
This to me is the critical area, these economic
questions. The question I would like to ask you Admiral,
is what facts do you have to cast light on this question.
This is what I would like to get at. This is to me
the basic question: what leverage is there in the economic
and technology relations between the United States and the
Soviet Union that if, as a matter of policy, we wish to
employ--and that is not your business, it is our business
and the President's--we could? We have to know what are
our capabilities. And I ask you, are we abreast of that?
Admiral Turner. My best response to that at the
moment, Senator Javits, is that I feel a great responsi-
bility to provide you the factual information that would
help you approach that decision. I feel that one of the
most significant things about this long-term forecast
of the Soviet economy that we have presented today is that
it highlights that the Soviets have a limited number of
options for what we think is a serious problem.
Senator Proxmire. Senator McClure.
Senator McClure. Thank you, Mr. Chairman. First let
me apologize for coming in late. There is nothing more
important to me than this, unfortunately except for this
particular morning.
I have only two questions and perhaps you have already
touched on these.
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UNCLASSIFIED
Do you note any diversion within the Soviet economy
away from military production and toward energy production?
With reference to all of the demands on pipeline building
and the rest of it, I have not seen any diversion away
from military production in order to meet that energy need.
Admiral Turner. No, sir, we do not either.
Senator McClure. It would seem to me, then, that
the corollary is that if they have this tremendous problem
confronting them, then military preparedness has all of
the priority which we have attributed to them in that
area in the past.
Admiral Turner. That is our view, though we don't
know how they will weigh that if and when this prediction
really dawns upon them.
Senator McClure. So we don't know for sure whether
we can supply the technology or the economics for that
energy production. It would certainly reduce the pressure
for diversion of those things from energy production, but
it might not result in any difference except increased
energy capacity?
Admiral Turner. Yes, sir.
Senator McClure. The other question is in regard to
the point, a very cogent point, that Senator Javits made
about the relative standard of living of the Russian people.
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If they are only at 70 percent of the Eastern European
countries and at 50 percent of Western Europe, that is
significant, but it is significant only if they conceive
it in that way. If they are nevertheless moving up, if
their standard of living is rising each year and they feel
relatively better off this year than last year and they
don't know that they are worse off than someone else, that
would have little significance, wouldn't it?
I believe that what you are
saying is certainly the right perception; that what the
Soviet consumer sees of his relative position if probably
more dominant in his thought than any hypothetical com-
parison with outside. However, I don't think we can
discount outside influence completely because of the
increasing amount of communication in the world today.
Even the Soviets are travelling more than they used to.
Senator McClure. That would than indicate that in-
creased contacts between countries might exacerbate that
domestic problem for them?
Admiral Turner. It certainly would have some input.
Senator McClure. Thank you very much.
I have no f ur ether questions.
Senator Proxmire. Admiral, do you have any preliminary
estimates of Soviet grain production this year, what their
targets are and what they are likely to achieve?
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Mr. Diamond. The target is 213.3 million tons this
Senator Proxmire. Just what does that mean? How
much of a dropoff is the expectation?
Mr. Diamond. Last year's production was 224 million
metric tons and that was a record. Moscow would probably
consider anything over 200 million to be quite satisfactory.
The Department of Agriculture has a preliminary
estimate of 225 million tons. We agree with that estimate,
although it must be stressed that it is very early in
the season. Much of the grain remains unripened, very
little has been harvested. Right now, however, growing
conditions are very good.
Senator Proxmire. An article in "The Washington Post"
about six weeks ago reports that the figures for meat
production for the Soviet Union are lower than for the same
period last year and that the planned industrialization of
agriculture is not likely to succeed unless the resources
allocated to the military are reduced.
Can you comment on that?
Mr. Diamond. Meat production in the first quarter
of this year remained below the first quarter of 1976. It
is just starting to turn up as the result of a sharp
upturn in use of feedgrains from the record 1976 crop.
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77
Senator Proxmire. Well, is there a connection--have
they reduced in any way their military expenditures?
Mr. Diamond. Oh, absolutely not. There is no direct
relationship.
Senator Proxmire. Are they using troops in the fields
at all?
Mr. Diamond. Yes.
Senator Proxmire. More than usual?
Mr. Diamond. We don't have a measure.
Senator Proxmire. Admiral, I would like to ask you
about some criticisms of the CIA. I am sure that you
remember the controversy over the so-called Team B review
of last year's National Intelligence Estimate of Soviet
strategic capabilities.
At that time I made a public comment that criticism
of the intelligence process was healthy and that conflicting
ideas made good estimates. At the same time, I was highly
critical of having one ideological group with one viewpoint
represented as the only outside critical review body.
Do you intend to have intelligence estimates reviewed
by any outside panels, and if so, will you insure that a
wide body of opinion is represented?
Admiral Turner. Yes;: sir. I am moving toward that.
Senator Proxmire. It was a view that was very good
and intelligent. I think that General Keegan is a man of
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UNCLASSIFIED 78
great ability and I admire his ability. But he represents
a particular viewpoint, and the other viewpoint, which it
might be also wholesome and healthy to have, did not seem
to be represented.
Admiral Turner. I think an ideologically structured
Team A-Team B thing is not a normally good idea. I would
not reject it entirely, but I think it is something upon
which I would look with suspicion.
I think Teams A and Teams B can be good. My first hope
is to put into the process that we have as a standard matter,
enough divergent opinions that we do not have to go out and
get Teams A and Teams B. I would hope that we have that
interplay right within our organization, possibly by bring-
ing in outsiders on an ad hoc basis, if particular skills
or viewpoints are needed.
Senator Proxmire. I can understand that and I think that
makes for a neater operation. But at the same time I would
think that some people outside, who are not subject to the
discipline. or the inhibitions that any person in the organi-
zation is likely to be, would be freer to be more aggressive
and more critical in suggesting areas where the CIA may be
off base.
Admiral Turner. I think that is basically true. I am
planning to create a group of consultants. We will look at
a particular estimate that is being done, such as this one
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UNCLASSIFIED 79
on strategic forces, and we will call from that group the
right'mix of people to join in the estimate. This would not
be on a full-time basis, but we would ask them to come from
the beginning of the exercise and to follow it right through
and to critique as we go along.
Senator Proxmire. The public debate over the Team B
episode seemed to indicate that the so-called hard-liners
won the day and forced the CIA to re-evaluate its opinions
about Soviet military strength.
Did that in fact happen?
Admiral Turner. I really have not dug into that, Senator.
But the CIA people assure me that that is not the case.
In addition, the story got vastly distorted in the press.
Senator Proxmire. As I remember the articles--which I
thought were real shockers--in the "New York Times," there
were 25 specific points covering a wide spectrum of differ-
ences of opinion voiced by General Keegan. I wrote a letter
to the head of the Joint Chiefs of Staff asking him to
comment on each one. But it was not just a narrow area,
at least not according to General Keegan's criticisms. It
was rather broad.
At any rate, General Keegan has publicly taken the CIA
to task for a variety of mistakes, ranging from myopia to
deliberately hiding the facts from the policy-makers. For
example, he suggested that: the CIA has considerably
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underestimated the Soviet threat; the CIA contrived to
reduce the estimated range of the Backfire bomber in order
to salvage the SALT II accords; the CIA has become politi-
cized; the intelligence community has been wrong about
parity and wrong about virtually every great Soviet scien-
tific and military advance since World War II.
Let's take those in order.
Has the CIA consistently underestimated the Soviet
threat?
Admiral Turner. I don't believe so, no.
Senator Proxmire. Has the CIA contrived to reduce the
estimated range of the Backfire bomber in order to salvage
the SALT II accords?
Admiral Turner. No.
Senator Proxmire. What about the argument of politi-
cization of the CIA? What is your answer to that?
Admiral Turner. I won't speak for the past, but I will
defend to the death that we are not politicized today, sir.
I feel that my responsibility is to stand clear of the
policy-makers and to give the President, the Senate, and
the House objective, unbiased intelligence to the best that
a human being can do that.
Senator Proxmire. What about the charge that the
intelligence community--not just the CIA, but the whole
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intelligence community--has been wrong about parity and wrong
about virtually every great Soviet scientific and military
advance since World War II? What is your answer to that?
Admiral Turner. I think that that is an incorrect
generalization. I cannot imagine that the intelligence
community, or the CIA, has been wrong on every advance that
the Soviets have made.
Senator Proxmire. Exactly the opposite has been my
impression. Of course the CIA has made mistakes; what
institution does not make mistakes? But at the same time,
according to hindsight, it would seem that you have been
more accurate than the other agencies have been.
Admiral Turner. I believe we have been generally
accurate and objective.
As a military officer, I have always valued the CIA
estimates.
Senator Proxmire. Last year the JCS Chairman, General
Brown, said that our strategic targeting plans, "to take
Soviet civil defense into account," instead of targeting
population per se, are now targeting primarily Soviet
military targets, command posts, and military-related
industry.
If that is the case, do we need to be concerned about
Soviet population protection measures, and if so, why?
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Admiral Turner. To the extent that one considers that
the Soviet Union's decision on whether or not to initiate
strategic warfare takes into account what their population
loss will be.
Senator Proxmire. So this may be a tipoff as to whether
or not they are interested in a first strike?
Admiral Turner. Yes, sir.
Senator Proxmire. But obviously, if we are not shooting
to kill people but to knock out military targets, command
posts and military-related industries so they would have no
military capability, it is irrelevant whether they have
shelters or evacuation plans, isn't it?
Admiral Turner. Well, sir, strategic nuclear warfare
would not be so neat that you would get only the factories.
Senator Proxmire. Of course. That would not be our
principal objective.
Can you give us figures for total Soviet arms exports
during the past five years?
Admiral Turner. Yes, sir, I am sure we can. Can't
Mr. Diamond. Yes, sir.
Senator Proxmire. Would you get that to us for the
record?
Admiral Turner. We would be pleased to do so, Senator
Proxmire.
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Soviet Military Deliveries to the Third World
1972-1976
1972
1973
1974
1975
1976
Total
1,205
3,010
2,250
1,685
2,190
Africa
55
75
235
600
1,070
Latin America
..
10
25
55
80
Near East
970
2,655
1,785
850
830
South Asia
180
270
205
180
210
This table reflects a substantial upward revision of the
dollar value of Soviet arms exports and agreements in 1972-75
made possible by new information on Soviet prices for major
items of equipment.
Senator Proxmire. What is the confidence level of margin
of error for the figures in that area? Are the estimates
reliable to within 10 percent, or to a factor of two or
three--in the Soviet arms exports?
Mr. Diamond. Yes, sir. We will make that a part of
the record, too, Senator. I cannot answer that right now.
Senator Proxmire. All right.
COMMITTEE INSERT
Soviet delivery values are considered to be reliable
within 20 percent. In fact, they should be considered
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UNCLASSIFIED 84
a minimum figure; undetected shipments of weapons systems
and related equipment and unknown additional price increases
could raise the total values by as much as 20 percent.
Senator Proxmire. Does the latest information suggest
that at the present time they are exporting more. What
does your most recent data indicate?
Mr. Diamond. I think the facts are that it has levelled
off. There is a change in the mix, a change in the compo-
sition.
Admiral Turner. There is another point that I have
asked to have studied very carefully, Senator, and that
is the difference between aid agreements and aid deliveries.
Generally speaking; their deliveries are considerably
behind their commitments.
Senator Proxmire. Do the estimates include spare
parts, military. construction, supporting equipment, and
supporting services, as well as weapons? -
Admiral Turner. Let me check on that, Senator, and
answer later if I may.
COMMITTEE INSERT
The data on Soviet military deliveries include military
hardware (land armaments, aircraft, missile systems, and
naval boats); support equipment such as radar, communications
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gear, and vehicles; and an estimated allowance to cover
ammunition, spare parts, and unidentifiable support items
that normally are received by military forces. Excluded
are the costs of military construction, training, technical
assistance, and supply operations. While this aspect of
the Soviet program is relatively small, it could increase
delivery levels by 10-15 percent annually.
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Senator Proxmire. Would you agree that Soviet weapons
possess less sustainability and reliability than U.S.
weapons? For example, is it correct that Soviet logistics
are not too good, that they do not have good turn-around
capabilities, that they have a kind of throw-away philosophy
with regard to many of their combat units and weapons?
Admiral Turner. I am reluctant to go quite that far.
There are lots of elements to logistics. In terms of
quantity I think there is evidence in Europe, for instance,
that Soviet logistics are not bad, particularly in the
Warsaw Pact arena.
Senator Proxmire. What about reliability?
Admiral Turner. Soviet equipment tends to be more
simplistic in design than is ours, but it is generally
reliable for the purpose for which it is intended.
Senator Proxmire. How about turn-around capabilities?
Admiral Turner. By turn-around, do you mean if it is
broken down, can they repair it and bring it back again?
Senator Proxmire. That's right.
Admiral Turner. I don't really have a specific
opinion on that. I will try to see what we can give you.
Sayre, did you want to say something?
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Dr. Stevens. Well, as the Director mentioned, their
design is often focused on simplicity.
Senator Proxmire. That should be helpful to them.
Dr. Stevens. Yes, indeed. It often is. The very
lack of sophistication in Soviet equipment makes many
items easy to repair by relatively unskilled personnel.
Senator Proxmire. Would you agree that due to the
lack of precision engineering and quality control in their
defense production that there is a likelihood that many
of their weapons will not fire? Do they have a serious
reliability problem in that sense?
Admiral Turner. I would not be willing to agree with
that right off hand, Senator. Their equipment is in many
cases more elementary than ours, but it usually does the
job.
Senator Proxmire. Have analyses of Soviet weapons
such as the MIG-25 disclosed problems of sustainability
or reliability, or any other problems concerning the
quality of production?
Admiral Turner. Sayre?
Dr. Stevens. The people who have looked at that equip-
ment feel that if the design were taken one step further
and a production engineering job were done on it, it would
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be possible to make it more effective and cheaper to pro-
duce than is now the case. The emphasis now is often on
ease of production and the use of interchangeable parts.
The ability to perform the design mission is never com-
promised, however.
Admiral Turner. Overall, Senator, I have had the
impression over the years that the Soviets could not main-
tain their equipment in as high standards of year-round
reliability as can we; but that if they knew when war was
going to start, they could peak at a very high level of
readiness and reliability.
Senator Proxmire. Did the analysis of the MIG-25
show it to be less technologically advanced and more
expensive than we had thought it was?
Admiral Turner. I will ask Dr. Stevens to supplement
my thoughts on this because he has been in on this in
greater detail, I am sure. My reaction to your question
is a qualified yes. That is, the internals of the airplane
were not as sophisticated as they would have been had we
designed the aircraft, but the overall capability is there.
Sayre?
Dr. Stevens. That is right. It is a design choice.
Senator Proxmire. That would increase its cost,
wouldn't it? My question was two-fold. First, it went
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to the effectiveness of the weapon, of the MIG-25 and the
technological advancement of the MIG-25; second, it went
to the cost.
You wouldn't say that it cost more, or that it
probably performed reasonably well because of the redundancy
they have built in at considerable cost, would you?
Dr. Stevens. That is right. The use, for example,
of tubes in the electronics of that aircraft may have
surprised some people. The use of integrated circuits,
of solid state stuff, would produce more reliable electronics,
and probably cheaper electronics--if that were the only
comparison to be made.
Senator Proxmire. Do you mean that they are still
using vacuum tube technology?
Dr. Stevens. There was vacuum tube technology in the
MIG-25.
Admiral Turner. But there were other things, such as
steel, in it, too, right?
Dr. Stevens. Right, stainless steel instead of
titanium.
Admiral Turner. Of course, working titanium is
frightfully more expensive, but it gives you a real payoff
in performance. This is true today,, so you can imagine
the differences in cost when the MIG-25 was designed--1961-
1963.
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Senator Proxmire. I have only a few questions on China.
To what extent was the poor performance in China due
to earthquakes and other natural disasters, and would there
have been growth but for the natural disasters?
Admiral Turner. Would you tackle that one, Mike?
Mr. Field. Poor performance in China last year was
due both to one-time factors and to longer-run ones. The
earthquake was certainly one of the most serious in the last
century. It ranks with the great Tokyo earthquake of 1927.
The loss of life was very severe, and it was in a highly
industrialized area in North China. The earthquake alone
might have taken 1 to 2 percentage points off the rate of
industrial growth.
A second factor in the low rate of growth was the
political disruption connected with the deaths of Chou and
Mao and with the throwing out of Mao's widow and the rest
of the "gang of four." When we look at the output by
province--those for which we have some information--we see
a definite correlation between the degree of political
disruption and the economic performance. This is a second
reason for the poor performance.
Then there are long-run factors. Problems in the
allocation of investment over the last five to ten years
resulted in bottlenecks. The whole extractive industry is
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underdeveloped. For example, the demand for nonferrous
metals for which they have ores is higher than their ability
to produce. So they have had to import, to spend hard
currency to import nonferrous metals.
In the iron and steel industry, emphasis has been too
much on the crude steel capacity and not enough on the
iron ore extraction or rolling. So, these problems in
the allocation of investment have created bottlenecks.
The last factor I would say that is a long-run factor
is productivity. There has been very little improvement
in the wages or the standard of living for the industrial
labor force. In times of political disruption, when the
Chinese workers have had a chance to express their opinions,
they have demanded higher wages. This dissatisfaction
with wages, of course, gets translated into poor morale
and low productivity.
So, the poor performance is therefore a combination
of the earthquake and the political disruption that are
one-time, short-term factors, and then of various under-
lying problems, such as allocation of investment and problems
of handling incentives.
Senator Proxmire. Thank you very much.
It would seem that the Chinese represent a very, very
powerful force on the continent around China, particularly
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in Korea and in Vietnam and other parts of the Asian land
mass, but that they are of virtually no military significance
elsewhere. That is just my instinct in view of their size
and in view of the kind of force that they have.
You conclude that the Chinese rely on copies of Soviet
weapons developed in the 1950's. Would you summarize to
what extent Chinese aircraft, missiles, ships, and ground
equipment are basically copies of Soviet designs of the
1950's.
Admiral Turner. They are very largely copies of those.
They are about 20 years behind
the Soviet Union, let alone ourselves, technologically,
isn't that so?
Admiral Turner. Yes, I would say 15 to 20 years.
Dr. Stevens. They have, for example, built a fighter
aircraft, a Chinese version of the MIG-21, which is in
very limited production.
Senator Proxmire. When was the MIG-21 first built
in the Soviet Union? Was it in the 1950's?
Dr. Stevens. It was the late 1950's.
Senator Proxmire. And China's MIG-21 is in only limited
production? It is evidently not a great success.
Dr. Stevens. That's right.
On the other hand, they apparently have built a nuclear
submarine and they are capable of production advanced radars.
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But in general, when it comes to aircraft, ships, and
so on, what they have done is taken the equipment that the
Soviets gave them before the break and improved upon it.
But it is equipment of older Soviet design.
Admiral Turner. But they are developing their own
strategic rocket force, their own intercontinental missile
force. They are doing that on their own.
Senator Proxmire. Admiral and gentlemen, thank you all
very, very much. I want to echo what other members of this
committee have said and I want to emphasize it. You have
done a superlative job. This has been a very, very fine
briefing and I am most impressed. We would appreciate it
if you could sanitize as much of this record as possible
and make as much as you can available in two or three weeks.
I recognize that you cannot do it all, but we would
appreciate your doing as much as you can.
Admiral Turner. We would be happy to do so.
Senator Proxmire. Thank you very much.
This committee will stand adjourned.
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DATE
TRANSMITTAL SLIP
TO,
ROOM NO.
BUILDING
REMARKS:
File copy of JEC
testimony (unclassified)
FROM:
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EXTENSION
FORM RFES M 55.24 I REPLACES FORM 36-8
WHICH MAY BE USED.
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