COMMENTS ON 'WHY THE CIA'S ESTIMATE OF SOVIET DEFENSE PROCUREMENT WAS OFF BY 200%: THE ECONOMIC CONSEQUENCES OF QUALITY CHANGE' BY STEVEN ROSEFIELDE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80M00165A002400080004-7
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 76
• Document Creation Date: December 15, 2016
• Document Release Date: February 26, 2004
• Sequence Number: 4
• Publication Date: January 1, 1977
• Content Type: MEMO

Approved For ease 2004/03/15 : CIA-RDP80M0016502400080004-7
`,MEMORANDUM
EJECT: Comments on "Why the CIA's Estimate of
Soviet Defense Procurement was off by 200%:
The Economic Consequences of Quality Change"
by Steven Rosefielde
\Professor Rosefielde's paper r e :s n
able theoretical enquiry into a number of technical but
crucial &ements of dollar costing and some potential
biases which would result from a mishandling of these
elements. We appreciate Professor Rosefielde's inter-
est in and scholarly effort on these topics which are
rarely pursued by non-government economists,
Upon examination of his =arvr6n~`,'u~Ke_v~~, wit
is clear that Dr;. Rosefielde is v-ag familiar
with our costing\procedures. Because the crux of his
arguments is based o hn+" perceptions of
our procedures, hi s.,c~,nclusions on supposed biases are
not ditty relevant,,- .
Ma jor Is ues \
Costing Models
A. On page 9, Rosefielde poses the question "How
do CIA input cost indices of Soviet procurement take
account of technical progress in the form of new weapons,
and quality change expressed',,, by improved characteristics
of traditional weapons?" He then states that "an
exact answer to this question'would require an ex-
haustive analysis of the costing equations themselves
to ascertain how thoroughly they,. were updated and the
principles that were applied in the adjustment process.
Since the author has, for understandable reasons, been
unable to directly appraise the costing equations,
our analysis must be confined to the conceptual problem
of valuing systems in a period of rapid technical change."
4. Given this lack ofnformation,.Rosefielde postu-
lates two potential problem areas.
Approved For Release 2004/03/15 : CIA-RDP80M00165A002400080004-7
 Approved For Pease 2004/03/15 : CIA-RDP80M0016-*2400080004-7
-- Underestimating the technical characteristics
of Soviet weapons, and
-- Using "outmoded" cost equations.
The first problem cannot be addressed in detail
without discussing sensitive intelligence sources and
methods. We believe, however, that the intelligence
community's estimates of the characteristics of most
existing Soviet weapons are sufficiently reliable to
support our costing work. Furthermore, there is no
reason to expect on an apriori basis that intelligence
judgements would systematically understate (rather
than overstate) the perfo mance charact ristics of
these weapons.
0
C? Regarding the cost models, we maintain a con-
tinuing effort to develop and refine our techniques.
Almost every costing model for major weapons or weapons
components has been thoroughly revised within the past
five years. Finally, we are cognizant of the issue
raised by Professor Rosefielde regarding potential biases
introduced by technical progress and quality change. Ad-
justment of our models to eliminate these biases is a
major goal of our research.
Index Numbers
Rosefielde also addresses a problem inherent to
intertemporal and international comparisons of economic
activity known as the index number problem. He notes
correctly that the choice of weights can overstate or
understate a comparison over time or space. His commen-
tary on the index number problem per se is valid, but
once again his perception of the Agency's procedures is
*accurate.
2 Finally, the significant issues include not only
the type of index used (Laspeyres, Paasche or ideal),
but also the problems inherent in construction of price
indices (of any type) for products of rapidly changing
quality sold in a non-competitive market. We have given
careful attention to this problem and believe that we
would have useful insights to offer to Professor Rosefielde.
We are both gratified that Dr. Rosefielde has
such keen interest in this often ignored area of economic
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 Approved For Pease 2004/03/15 : CIA-RDP80M0016-*2400080004-7
C~Pot-U4~ OU 44,~, 0~?
research and d t, d that his lack of,b ound *Tr-
how we conduct our analysis has resulted in his qu -sa-ieft,-
. We believe there
is a reasonable solution to this state of affairs. We
would like to extend an invitation to Dr. Rosefielde to
meet with us and review our data and procedures. .
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 EXECUTIVE SECRETARIAT
Routing Slip
roved For Release 2004/03/15: CIA-RDP80M00165A p 04-7
307 M_77)
 Approved For ease 2004/03/15 : CIA-RDP80M0016V02400080004-7
NAVAL POSTGRADUATE SCHOOL
MONTEREY, CALIFORNIA - 93940
Admiral Stansfield Turner
Director of Intelligence
Central Intelligence Agency (CIA)
Washington, D.C. 20505
NC4(56Pr)/fl
27 September 1977
This is a somewhat belated follow-up to our conversation at Admiral
Holloway's house early in the summer in which I mentioned to you a very
able young Soviet economist, Steven Rosefielde, who has taken a serious
interest in understanding how the CIA estimates of Soviet defense expen-
ditures got out of wack. Although both he and I think much toomuch time
has been devoted to this subject in general, we both think that there is
a real possibility that the growth rate of Soviet defense expenditures
may be seriously underestimated at the moment and that that is important
to get right. To put the matter succinctly the CIA estimates may have
been quite good in the early 60's and off by about a factor of 2 by 1975,
and therefore Soviet Defense expenditures may be growing much more
.,which raises the estimate proportion-
rapidly then the present revision
ately throughout the entire period, suggests.
The matter obviously is not trivial. If Soviet defense expenditures
are growing at twice the rate of the Soviet economy, our interpretation
of Russian global political and military objectives would be seriously
affected.
I am enclosing a paper which Professor Rosefielde has written, out-
lining a procedure for getting at this matter. I think it deserves careful
attention and objective review. Dr. Rosefielde is in my view the best
young Soviet economist around.
On a more personal note you may be interested to know that Dr. Rose-
fielde will be a visiting professor here next summer, and so your son will
have a chance to take some work from him.
Patrick J. Parker
Professor and Chairman
National Security Affairs
Encl. Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 Approved For .ease 2004/03/15: CIA RDP80M00161N02400080004-7
ummary
An economic appraisal of the 200% error in the CIA's estimate of Soviet
weapons production for 1970 which takes technical progress and qualitative
change explicitly into consideration. indicates that the source of the
Agency's unprecedented error lies in its dollar estimates, and not as
officially claimed in its ruble-dollar conversion coefficients. Contrary
to the Agency's official claim that its dollar procurement estimates are
accurate within 15%, the true figure probably is worse than the typical
cost overrun discrepancy observed in the cost-estimation of domestic
weapons systems and may well be in the vicinity of 200% (the admitted ruble
underestimate of Soviet procurement). If this inference is even approxi-
mately correct, it implies that our basic perception of the Soviet defense
effort is grossly downward biased.
A reconsideration of the conventional wisdom regarding the probable
direction of index number bias in a period of rapid qualitative change re-
inforces this conclusion. Quality change, it is demonstrated, offsets and
may even reverse the usual expectation that dollar estimates understate
the Soviet defense effort. Likewise, quality changes intensify the degree
to which dollar measures of Soviet defense expenditure growth are under-
stated. If proper allowance is made for these widely unrecognized sources
of index number distortion, the Agency's 1976 estimate of Soviet dollar
expenditures, $40 billion, should be taken as a lower bound, not an upper
bound, and the real rate of Soviet procurement growth should more reasonably
be estimated in the 8-10% range than the 5-6% officially reported by the
Agency.
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 Approved For ease 2004/03/15 : CIA-RDP80M0016*2400080004-7
Why the CIA's Estimate
Of Soviet Defense Procurement Was Off by 200%:
The Economic Consequences of Quality Change
Steven Rosefielde
Associate Professor of Economics
Chairman, Slavic and East European Studies
ZINC, Chapel Hill ' _
First Draft
August 1977
Not to be quoted without written permission.
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 Approved F Teas 20OO3 I tIAi*8YM00'IW002400080004-7
Of so1AW Defense Procurement Was Off I11191 200%:
The Economic Consequences of Quality Change
I. Introduction
Few subjects are duller than the analysis of index numbers. Fortunately,
under normal circumstances, the strengths and weaknesses of specific indices
are sufficiently well understood that the fine points can be safely left
to specialists. This paper deals with an exception to this rule.
In 1976 the Central Intelligence Agency revealed that its ruble esti-
mates of Soviet defense expenditures were substantially in error.- The.
revised figure for total Soviet defense spending was 100% greater than
previously supposed and 200% greater for procurements (broadly defined-
including weapons and construction).) The basis for-this revision was also
extraordinary. The new data was obtained by an informant who had tran-
scribed them directly from the records of the Soviet Ministry of Defense.2
Given these circumstances, one might infer that the quantitative procedures
used by the CIA to compute Soviet defense expenditures in rubles were
seriously deficient. The Agency however has emphatically denied that this
is the case, and has attributed the entire discrepancy to the use?of,
faulty.ruble-dollar ratios.3
In the analysis that follows we will argue that no scientific evidence
has been put forward to substantiate the official explanation (rationaliza-
tion), and will attempt to show how failure to properly account for technical
progress and qualitative change in their dollar estimates could easily
explain why the CIA's estimates were so far off the mark. Moreover, to
clarify the controversy set off by the revised estimates of Soviet pro-
curement expenditures, an attempt will be made to identify those valuation
techniques which most accurately reflect the magnitude and rate of growth
Approved For Release 2004/03/15 : CIA-RDP80M00165A002400080004-7
 .ofSovieW ~Igdc Z00W0$1W: PC P80 JW2*WND 04dZveloped
here requires some understanding of measure theory, we begin with a dis-
cussion of the index numbers underlying the CIA's defense calculations.
II. Economic Theory and Index Numbers
An index is a mathematical procedure for measuring and evaluating
heterogeneous things. Its meaning depends on the rules of aggregation used
in forming the index and theoretical factors thought to govern the behavior
of the phenomenon under investigation.4 In the case of Soviet defense
expenditures, especially procurements, the things to be aggregated are
weapons and related military material. The main objective in forming'a
procurement index is to find a set of weights that properly reflect the
relative importance-of different types of weapons. This could be achieved
in principle by discovering the equivalent military worth of alternative
weapons, so that if the fire power of a tank were equal to four machine
guns, that fact would be accurately conveyed by the index. Economists
prefer a different weighting scheme. They desire to know the economic cost
of alternative weapons in terms of foregone production opportunities. That
is, they wish to employ a set of weights which describe the marginal cost
.of producing different weapons from the resources made available by con-
tracting one activity in order to expand another. Procurement indices
valued in this way allow us to infer that, if the resources used to produce
four machine guns costing 1,000 rubles were released, they could be re-
allocated to the production of a tank costing the same amount.
The equivalent production cost approach has several advantages over
indices. formed with weights purportedly reflecting combat effectiveness.
First, they depend on prices whose meaning is less sensitive to contro-
versial judgments about equivalent military worth under diverse combat
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 Approved Fo
elease 2004/03/15: CIA-RDP80M00&002400080004-7
6
conditions. Second, the economic approach actually subsumes the military
equivalence method because, given a fixed budget, Soviet defense planners
themselves have to decide the comparative worth of competing weapons
systems evaluated at fixed official prices. For a given amount of rubles
Soviet military planners can acquire tanks and machine guns in different
proportions, the mix actually selected reflecting their overall judgment
of relative military worth. Third, since civilian goods and military
weapons can be valued according to the same production cost standard,
employing price weights permits scholars to assess the sacrifice in
civilian consumption incurred for any given level of defense effort.
Although the merit of economic procurement indices ought by now to
be widely understood, a great deal of confusion still seems to exist on
this subject. Many analysts, failing to appreciate that the Soviet view
of equivalent military worth is built into value indices, often mistakenly
argue that such indices are only marginally relevant to an adequate.evalua-
tion of the Soviet defense effort. On the contrary, because economic pro-
curement indices reflect the terms on which planned civilian and military
decisions are made, they constitute a vital measure of the total value of
.the Soviet defense effort.
Of course, the fact that Soviet tanks and machine guns are properly
valued does not establish their comparative military value vis-a-vis their
American analogues. Since no market test exists to evaluate the relative
merit of Soviet and American weapons, judgments of this sort must be made
by military weapons experts. This additional calculation however does not
diminish the significance of the ruble measure of Soviet defense expenditure.
In order to achieve a realistic scale measure of aggregate Soviet military
capabilities, the relative merit of individual weapons must be used
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 conj unc't_JBRr9wag1FK I*asg 2004/03/15: CIA-RDP80M0016!02400080004-7
ve o the Soviet military a rt to compute the
total magnitude of "effective" Soviet effort relative to the American
capability. For example, if the share of Soviet GNP devoted to military
expenditures were twice ours, and the quality of their weapons were half
ours, it could be inferred that the military value of both countries'
defense effort were roughly equivalent. If contemporary Soviet weapons
were about equal to ours in quality, it follows that their annual procure-
ment is twice our own. Thus it should never be misunderstood that economic
procurement indices constitute an indispensible measure of the aggregate
magnitude of the Soviet defense effort which,.in conjunction with estimates
of comparative international weapons quality, allows us to gauge the relative
military worth of the aggregate Soviet and American defense'programs.
The theoretical significance of economic procurement indices is perhaps
obscured for the nonspecialist by a variety of practical problems that arise
in the calculation of.value indices. Soviet prices more nearly represent
average than marginal production costs. Prices change over time and a
choice must be made between base and final year price weights. And in the
absence of adequate domestic Soviet price data, Soviet weapons are usually
.valued first in dollars rather than rubles, and only subsequently converted
to ruble valueswith the aid of ruble-dollar ratios computed from a small
sample of goods where both dollar and ruble prices can be determined.
Although these complications lend some substance to those who argue
that economic procurement indices are an ambiguous measure of Soviet defense
capabilities, this position is greatly exaggerated. Average cost prices,
especially when adjusted for turnover taxes, provide an adequate impression
of Soviet production feasibilities, given prevailing institutional con-
straints. Moreover each particular price set used to value Soviet weapons
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 Approved Foslease 2004/03/15: CIA-RDP80M001 002400080004-7
can be given a specific behavioral interpretation with the assistance of
neoclassical production -theory easily summarized as follows:
1. For purposes of static international comparison of American
and Soviet procurement, ruble prices understate the relative
magnitude of Soviet military expenditure because advanced
American weapons, which bulk large in our arsenal, are valued
at high Soviet production cost prices. Likewise dollar price
comparisons overstate the relative magnitude of Soviet
military expenditures because low technology weapons which
dominate the Soviet arsenal are valued at high American,
production cost prices. - -
2. For purposes of computing rates of military expenditure
growth, base year prices overstate the growth rate (Lespeyres
indices) and final year prices understate the growth rate
(Paasche indices) given the reasonable assumption that prices
and quantities are inversely correlated.
Since the CIA only computes input cost procurement indices in dollars (ruble
estimates are obtained from the dollar indices with ruble-dollar ratio
coefficients), it follows directly that measures of comparative inter-
national magnitude overstate the Soviet defense effort. Similarly, because
the use of dollar prices affect the procurement index in the same way final
year prices do, and because a Paasche dollar price index is employed instead
of a Lespeyres index, it follows that CIA estimates of Soviet procurement
growth are understated.5
These inferences are conventional and appear to be accepted by the CIA.6
Over the years they have had a strong impact on how the intelligence
community has interpreted Soviet defense expenditure data. In particular
Approved For Release 2004/03/15 : CIA-RDP80M00165A002400080004-7
 off iciaApp1SQirfi@d for *1se 4&:Yl fiiebQ- A- n8QM@ql QI 4w4 -soviet
defense expenditures have exceeded US levels, even though the disparity
was substantial. Nor have they shoran any willingness to seriously question
whether their estimates. of Soviet procurement growth were significantly
in error, in part because index number relatively was not thought to be a
very great problem where dollar valued indices were concerned.7
III. Index Numbers and the Great CIA Miscalculation
But if all were really under control, how could the procurement estimates
in rubles be off by 200%? Three possibilities exist.
1. The CIA has misestimated the number of weapons in the Soviet
arsenal.
2. The input costing equations used to value Soviet weapons in,
3. The ruble-dollar ratios used to convert dollar values to rubles
were only one third the real order of magnitude.
All three factors of course could be partially responsible for the dis-
crepancy. For reasons the author does not understand, most experts seem
to agree that the Soviets have been unable to conceal significant numbers
of?rockets, planes (in underground storage areas), tanks, etc. from the
American satellite detection system. Accepting expert opinion, this leaves
only two alternatives with very different implications.
On one hand, the input cost equations used to obtain the dollar value
of Soviet weapons may be defective. If this were the case, it would mean
that American intelligence estimates of Soviet defense expenditures would
be grossly misleading, since both our dollar and ruble calculations would
be wrong. On the other hand, the dollar values might be accurate, but. the
Approved For Release 2004/03/15 : CIA-RDP80M00165A002400080004-7
 Approved Folease 2004/03/15: CIA-RDP80M001002400080004-7
ruble-dollar ratios used to convert dollar to ruble estimates could be at
fault. In this instance the dollar estimates and the conventional inter-
pretation placed on them remain as before, and the disease is isolated to
the infected ruble values. The only novel effect of such a revision. would
be to double the defense share of Soviet GNP (including manpower) to ll%
13%. 8
Since the spector of the first alternative threatens the overall
credibility of American estimates of Soviet defense expenditures, the CIA
rather unastonishingly has embraced the faulty ruble-dollar ratio explana-
tion of the discrepancy between the facts and their past estimates.9 The
argument put forward is disarmingly simple. The Agency had mistakenly
supposed that production costs were falling more quickly in the defense
sector than in the civilian sector generally. This interpretation seemed
plausible because it was consistent with the fact that the published Soviet
defense budget remained relatively constant while procurements rose. In
other words the arithmetic checked.
New evidence however, it is claimed, suggests that the defense sector
really was not more efficient than the civilian sector (the arithmetic no
longer checked since the true Soviet defense budget turned out to be many
times greater than the published figures), and the higher ruble-dollar
ratios conveniently permit accounts to be balanced again.
Even ignoring the low scientific credibility of arithmetic as opposed
to statistical confirmation, the ruble-dollar ratio argument put forward
by the Agency is suspect because the CIA does not know how much capital
and labor are allocated to defense production in the USSR and therefore
could not possibly have made their efficiency determination on acceptable
econometric grounds. What little evidence exists in this regard is equivocal.
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 Approved Forilease 2004/03/15: CIA-RDP80M001 002400080004-7
On one hand input-output data derived from Soviet sources indicate that
average factor productivity in military machine building for the year 1966
was not very different from civilian machine building .la This implies
that ruble-dollar ratios may well have been underestimated. However, an
elaborate sectoral CES production function study of postwar Soviet industrial
output showed that the machine building sector is the most efficient sector
in the Soviet economy and that the efficiency advantage of machine building.
has grown steadily. 11 This suggests that the ruble-dollar ratio of military
machine building could well have been falling relative to the economywide
average as the Agency had formerly surmised.
Given the equivocal nature of the evidence, which the Agency did not
have in its possession anyway, the ruble-dollar explanation must be inter-
preted more as a rationalization than as a serious scientific model because
no mechanism has been put forward by which putative but erroneous facts
could be falsified. This of course is not to say that the past ruble-
dollar estimates were not too low. They probably were. 12
But were they
low enough (compared with the real values, not the Agency estimates) to
account for the discrepancy between past and present intelligence estimates?
While no definite answer can be given to this question, it is easily seen
that the Agency has provided no scientific evidence to sustain such a
conjecture. As a consequence, it must be inferred that the discrepancy
remains an open issue, or to put the matter more forcefully, that current
dollar estimates of Soviet defense expenditure may be drastically too low.
IV. Technical Progress, Quality Change and the Costing of Soviet Defense
Expenditures
A plausible case supporting the argument that erroneous dollar estimates
of Soviet procurement may be the real source of the discrepancy between the
Approved For Release 2004/03/15 : CIA-RDP80M00165A002400080004-7
 Approved For ease 2004/03/15: CIA-RDP80M0016SP02400080004-7
old and new ruble a mates can be constructed by f using attention on-the.
issue of technical progress and quality change.13 How do CIA input cost
indices of Soviet procurement take account of technical progress in the
form of new weapons, and quality change expressed by improved characteristics
of traditional weapons? An exact answer to this question would require an
exhaustive analysis of the costing equations themselves to ascertain, how
thoroughly they were updated and the principles that were applied in the
adjustment process. Since the author has for understandable reasons been
unable to directly appraise the costing equations, our analysis must be
confined to the conceptual problem of valuing weapons systems in a period
of rapid technical progress.
Although details of the CIA methodology for computing Soviet defense
expenditures are highly classified, the basic concept is public knowledge.
The Agency collects data on countable weapons, tries as best it can to
discover the technical specifications of these weapons which are then sent
to American defense contractors for cost.estimates that serve as prices in
aggregating total Soviet procurement. If the Soviets were kind enough to
cooperate with the American intelligence. effort by sending detailed blue-
prints of all their weapons to the appropriate American authorities in a
timely way, and these blueprints were costed annually at current prices,
the established method would be accurate and would necessarily incorporate
Soviet technical progress and quality change. Comparisons of the US and
Soviet defense efforts in current dollars would still overstate the
magnitude of Soviet expenditures, but this would be the expected theoretical
outcome and therefore would pose no difficulties..4
Official costing practice however inevitably deviates from the ideal.
First, assuming that the weapons count is correct, American defense analysts
Approved For Release 2004/03/15 : CIA-RDP80M00165A002400080004-7
 Approved For ease 2004/03/15: CIA-RDP80M001602400080004-7
still do not know the technical specifications of most Soviet procurement.
This is especially true for new and improved weapons which have not fallen
into our hands. As a consequence, cost estimators are compelled either to
use old weapons whose characteristics may be better known,. civilian analogues
such as tractors, or even vintage American weapons as their costing standard.
Adjustments for hypothetical improvements may be quite arbitrary or may not
be made at all. For example, it is very difficult just looking at a Soviet
ship, plane, missile or tank to ascertain the number of improved subsystems
it may contain. Undetected but important qualitative improvement therefore
may well be a source of considerable costing undervaluation.
Second, it is often uneconomical to have modified weapons completely
recosted by civilian defense contractors. Factors are therefore established
for adjusting prior estimates in the light of changes in a variety of
technical characteristics. This approach,if carried on for long periods,
leads to outmoded cost equations which no longer correctly reflect American
costs, and which may ignore production complementarities that make the cost
of the modified weapon deviate from a linear sum of their component parts-
Third, even when subsystems are detected or new weapons appraised, it
is very difficult to ascertain precise performance characteristics. Small
changes in performance capabilities however may have disproportionately
large cost effects suggesting further how rapid Soviet technical progress
and quality change could if inexactly perceived cause our dollar estimates
of Soviet procurements to be understated.
This inventory of costing deficiencies makes it plain that even without
considering index number bias there is ample reason for suspecting that
technical progress and quality change may have contributed to the. discrepancy
in the CIA ruble estimates of Soviet procurement. An explicit appraisal
of * index biAOpF $B'r-WeI9~&? 2bMYW&ItorG IA-RDP80M00165AO02400080004-7
 Approved Folease 2004/03/15: CIA-RDP80M001002400080004-7
V. Technical Progress, Quality Change and Index Number Bias in Dollar
Estimates of Soviet Procurement
Perhaps the classic inference drawn from index number theory regarding
Soviet defense expenditures is that dollar estimates overstate the compara-
tive value of Soviet armaments. If Soviet procurement plus construction
in 1976 as reported by the CIA is $40 billion, dollar estimate bias suggests
that the true value is. below this and probably lies much closer to the $20
billion the US spends on the same items. When technical progress and quality
change are taken into consideration however this inference may no longer
be valid, and may even be reversed.
Proposition 1: As the technological level of Soviet weapons rise,
the size of the dollar estimate bias must decline.
Proof: The dollar estimate. bias is based on the assumption that
the price of conventional weapons is relatively high in the US,
and that the share of conventional weapons in the Soviet arsenal
is relatively large. Even if Soviet prices remained unchanged,
the distortionary effect of high conventional weapons prices must
be reduced as the composition of Soviet weapons divided between
advanced and conventional weapons comes more and more to approx-
imate the US mix. Moreover, if as is likely, relative Soviet
prices on average approach US relatives as the weapons mix
changes, then the bias must diminish further. As to the possi-
bility of bias reversal, all that would be required is that the
share of advanced weapons in the Soviet arsenal exceed that of
the US, while the relative price of advanced armament remained
lower in the US because America was further down its advanced
technology learning curve. Under these circumstances, an index
Approved For Release 2004/03/15 : CIA-RDP80M00165A002400080004-7
 for Aporb Fbti.edmeZM4/0 /o-SetClAc llllO431-*0?,4q@WQ a to
weight the relatively abundant supply of advanced weapons would
yield a higher index value than if American price weights were
employed. This reversal of the traditional direction of the
bias is due to the fact that prices and quantities would be
directly instead of indirectly correlated. 15
Under present circumstances where the share of advanced Soviet weapons is
rising and their average quality is converging towards ours,' it is -
becoming progressively misleading to insist that the dollar bias signifi-
cantly overstates the Soviet defense effort.16
Another hoary artifact of index theory is the inference that the rate
of Soviet procurement growth evaluated in dollars is downward biased.
Proper account of quality change does not reverse this effect, but it does
intensify the magnitude of the downward bias.
Proposition 2: Quality adjusted dollar indices necessarily impart
a downward bias to the effect of qualitative improvement in Soviet
weapons.
Proof: To form an index new and improved weapons must be expressed
in terms of a numerically equivalent amount of their base year
counterparts. Equivalence is determined by the marginal rate of
prevailing product transformation between the old and the improved
weapon. Since new technologies will lie higher on the Soviet
learning curve than the American, dollar prices of advanced Soviet
weapons will understate domestic Soviet production costs and thereby
understate the change in Soviet production potential represented
by the introduction of advanced armaments. This underestimate of
the growth increment imputable to qualitative improvement is
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 expenditures attributable to the dollar bias in the base year when
Approved Fo lease 2004/03/15 : CIA-RDP80M00140002400080004-7
compounded by the overestimate of the magnitude of Soviet defense
Soviet armaments were substantially inferior to our own. The
combined effect of understated increments and overstated base year
defense expenditures necessarily biases our perception of Soviet
qualitative weapons change downward.17
Proposition 3: The understatement of the qualitative improvement of
Soviet weapons is further biased by the CIA method of price deflation.
Proof: To eliminate the effect of inflation a Lespeyres price index
with base year quantity weights is used to deflate a value index
of current procurement producing a Paasche quantity index with
final year price weights. Since Paasche indices except in extra-
ordinary circumstances understate growth by overstating the'base,
it follows directly that American dollar cost estimates using
final year price weights bias Soviet defense expenditures even
further below the levels acknowledged conventionally. 18
Propositions 1,_ 2 and 3 taken together with the deficiencies cf the
direct costing method regarding technical progress and qualitative change
demonstrate that the reliability and conventional interpretation of dollar
estimates of Soviet procurement are hardly sacrosanct. A great deal depends
on how effectively technical progress and qualitative change are handled in
measuring the Soviet defense effort, and in the absence of concrete evidence
that the problem is adequately understood by American authorities, it is
difficult to accept the Agency's claim that "On balance, we believe that
the overall dollar cost estimate for Soviet defense activities is unlikely
to be in error by more than 15 percent."19
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 Approved Foelease 2004/03/15: CIA-RDP80M00~A002400080004-7
The Real Magni. and Rate of Soviet Postwar 1 cerement Growth:-
A Geometric Interpretation
Attention thus far has been focused on dollar estimates of Soviet
defense expenditures because they are the only independent defense statistics
officially published by the American intelligence community. Official
ruble estimates are computed derivatively with the aid of ruble-dollar
ratios. Until recently it was generally assumed that these derivative
estimates provided a reliable ruble profile of Soviet defense expenditures,
but this is no longer tenable. The only ruble figures we know with any
certainty are those obtained for 1970 through covert intelligence. This
is particularly unfortunate because the ruble values undoubtedly would
convey a superior picture of the change in production potential that has
accompanied the rapid growth of Soviet defense expenditures.
An impression of how these rubles estimates. might diverge from available
dollar calculations however can be achieved by applying the conventional
geometry of index number analysis. Diagram 1 presents a series of points
which indicate how the dollar observations probably deviate from true
measures of Soviet production potential.
In 1950 conventional weapons ql constituted the preponderant share of
the output mix, v1950' By 1977 the composition of Soviet weapons represented
in American costing equations changed with both the share and absolute
quantity of advanced armaments q2 increasing compared with conventional
procurement. However because of the deficiencies of the costing procedure
point B understates the real magnitude of Soviet defense expenditures-
Many weapons and weapons subsystems which have benefited from technical
progress and quality improvement are simply not reflected in the costing
equations. Geometrically the true situation can be expressed by the re-
classification of-some weapons from the conventional to the advanced
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 Approved FoTIP?9go(OO04fD31'45kiC1y4-RDftW8B1f&02400080004-7
Dollar Estimate of Soviet Production Potential
Diagram 1
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 Approved For Sase 2004/03/15: CIA-RDP80M0016,002400080004-7
category (a horizon shift to the left) and an increase in the number of
advanced weapons and weapon subsystems (a vertical shift). Point C there-
fore represents the quantity and composition of Soviet procurement adjusted
for omitted technical progress and quality improvement. However point-C
itself understates the real change in production if as in our example
improved weapons are converted into old weapon equivalents with American
prices which according to index theory place a lower relative value on
advanced weapons. Replacing American prices weights with Soviet price
weights for the commensuration of old and new weapons therefore necessarily
increases the numerical quantity both of advanced and conventional quality
improved weapons. This additional adjustment is represented by point D in
Diagram 1. The distance B'D/OD indicates the degree to which the American
costing equations and quality adjustment procedures understate the real
change in Soviet procurement production potential. According to the existing
measure standard Soviet weapons-production potential has risen OB'/OA',
while the real change is actually OD/OA'.
Although the understatement of both the level and rate of change in
Soviet production may be quite serious as illustrated in Diagram 1, index
number distortion further exacerbates matters. This is shown in Diagram 2
which can be used to depict two alternative index measures of postwar Soviet
procurement-growth, one with 1977 American price weights (CC 1977), the
other with 1950 Soviet price weights (p 1950), both using official American
estimates of Soviet procurement in 1950 and 1977 (points A and B). The
choice of 1977 American prices reflects existing practice, the selection
of 1950 Soviet ruble weights the fact first demonstrated by Moorsteen that
a Lespeyres index most accurately characterizes the change in an economy's
production potential during periods of rapid structural transformation.20
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 Approved Fo lease 2004/03/15: CIA-RDP80M001 002400080004-7
The Effec of Quality Change and Technic Progress
On Observed Index Bias in the Measurement
Of Soviet Defense Expenditures
42
Diagram 2
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 ase 24/03/15: CIA-RDP80M0016~02400080004-7
Aoarroved For*e
As ca be easi served the use of American price weights indicates
that production potential has increased OB/OB', compared with the much
larger change OA/OA', obtained with Soviet base year price weights-
Neither measure however approximates the real change in Soviet production
potential OD/OD'. To obtain a measure of growth commensurate with the
real change, Soviet base year prices would have to be applied not to the
official US weapons count, but to the true quality adjusted procurement
quantity at point D. This yields the estimate OA"/OA, which is similar
to OD/OD'.
For those unfamiliar with index number analysis these distinctions may
be somewhat perplexing. The important points to note though are quite
straightforward. First, the downward bias introduced into the measurement
of Soviet procurement by the use of final year American prices to adjust
for technical progress and quality change is compounded when American
price weights are employed to compute a Paasche index of Soviet procure-
ment growth. Second, a Lespeyres index calculated with Soviet prices
produces a much greater rate of weapons growth, but the true magnitude
of the change in Soviet- procurement potential can only be eetermiiv d if
Soviet prices replace American prices in adjusting armaments for quality
improvement, and all sources of ommitted technical progress are properly
accounted for.
VII. The Deficiency of Dollar Cost Estimates of Soviet Defense Expenditures
and the Great CIA Miscalculation
Agency spokesmen in their writing and testimony affect a studied
languague which invites knowledgeable professionals in other walks of
life to have confidence in the thoroughness and accuracy of their work. 21
Those unfamiliar with the enormous difficulties involved in measuring
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 Approved Foralease 2004/03/15: CIA-RDP80M0010002400080004-7
Soviet defense expenditures given the fragmentary data at hand are.often
lulled, as the Agency perhaps itself is lulled into believing that dollar
estimates of Soviet defense spending are accurate within 15%, or more
preposterously still, that "procurement of weapons and equipment and con-
struction" are the most reliable components of the entire estimate. 22
When it is recalled that American defense contractors with -the best avail
able information are lucky to cost their own weapons systems within 100%,
the foolishness of pretending that Soviet procurement can be estimated within
a margin of error substantially less than 15% should be manifest to all
objective analysts. -
One might have supposed that the Agency's exaggerated sense of its
own infallibility (within 15%) would have been diminished by the fact
that its ruble procurement calculations (derived from dollar estimates)
were inaccurate in excess of 200%. The claim of a 15% accuracy margin
however was made more than a year after the true facts about Soviet
procurement expenditures came to light.
The analysis developed in this paper suggests that the Agency's
confidence in its dollar estimates is probably misplaced. The difficulties
of dollar cost estimating in a period of rapid technological progress,
combined with the systematic index number biases associated with quality
change, appear likely to have been the primary factors contributing to the
great discrepancy between the facts and the Agency's former ruble estimate
of Soviet defense expenditures.
Without direct access to the dollar costing equations, it cannot be
contended of course that the case for quality improvement as the primary
cause of the Agency's great miscalculation has been empirically confirmed.
The burden of proof however now rests with the Agency which has access to
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 18
Approved For .ease 2004/03/15: CIA-RDP80M0016002400080004-7
the data, but which up to the present offers no explanation at all for the
discrepancy other than the analytically unsubstantiated claim that the
ruble costs of high technology items were greater than previously thought,
in exactly the right proportion to make the Agency's arithmetic tally.
The strong possibility that dollar estimates of Soviet defense expenditure
are significantly understated is a very-serious matter. Since this paper
has shown precisely how and why our dollar estimates may well be signifi-
cantly understated, a close rethinking of Western defense perceptions is
clearly in order.
VII. Conclusion
The discovery of a 200% error in the ruble estimate of Soviet procure-
ment for 1970 has called into question the adequacy of the dollar cost
estimates of Soviet defense expenditure from which the ruble estimates
themselves were derived. An analysis of the costing methodology used to
compute dollar estimates revealed many potential deficiencies which could
easily account for a large portion of the ruble procurement discrepancy.
The deficiencies it was shown moreover are compounded by the substantial
downward index number bias associated with measuring rates of growth in
dollars. Although the author does not have access to the costing equations,
he has been told by sources he considers reliable that they are grossly
inadequate and have not been systematically updated. This raises the
following possibilities:
1. Dollar estimates of current Soviet procurement no longer
significantly overstate and may even understate Soviet
weapons production.
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 -I9
Approved Forleease 2004/03/15: CIA-RDP80M0010 02400080004-7
2. Dollar estimates of Soviet procurement are understated by the-
omission and undervaluation of qualitative improvements in
Soviet weaponry.
3. Dollar measures of Soviet procurement growth are not only under-
stated for the usual reasons, they are seriously understated
because of the additional influence of technical progress and
qualitative change.
More specifically,
1. The.40 billion dollar CIA estimate of Soviet procurement and
construction for 1976 should not be discounted. for the purported
upward bias in dollar estimates.
2. The figure of 40 billion dollars may significantly understate
the real, quality adjusted level of Soviet weapons production.
3. The quality adjusted dollar rate of Soviet procurement growth
may be considerably in excess of the 5-6% unadjusted rate
currently being estimated.
4. The quality adjusted rate of procurement growth could easily be
in the range of 8-10%.
Needless to say these conclusions are conjectural. It cannot be too
strongly emphasized however that the analysis developed in this paper is
testable. A major review and evaluation of the dollar cost estimating
equations with special attention paid to the problem of qualitative change
would go a long way towards verifying or falsifying the contention that
the discrepancy in the ruble estimates lies in the underestimation of the
dollar estimates of Soviet procurement, not in faulty ruble-dollar
ratios asApthe poved For Release 2004/03/15 : CIA-RDP80M00165A002400080004-7
 Likewise a study of ruble price trends could b used to assess whether
Approved For ase 2004/03/15: CIA-RDP80MOO16002400080004-7
the index phenomena uggested above are likely to be observed in . practice.
Although enough ruble price data doe's not exist to allow the dollar pro-
curement indices to be recomputed in rubles, by aggregating weapons into
major components, available ruble data could shed significant light on the
comparative behavioral properties of dollar and ruble indices. However
these studies turn out, they should help clarify the source of the great
discrepancy between the old and new CIA ruble procurement estimates.
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 Approved Folease 2004/03/15: CIA-RDP80M001 002400080004-7
Notes
1. Estimated Soviet Defense Spending in Rubles, 1970-75 (1976), p. 1.
"The new estimate is about twice the previous estimate of total ruble
spending for defense in 1975." The term procurement is used here in
a broad sense to encompass all nonmanpower expenditures including
weapons, construction, RDT & E and maintenance. The increase in this
factor is inferred from information provided in the Agency's document
which asserts that 20% of Soviet defense expenditures are devoted to
manpower, or 10 billion rubles in 1970 (pp. 1 and 13). Since almost
all of the upward valuation is attributable to nonmanpower, the lower
limit of the increase in the nonmanpower estimates can be computed -
as follows:
1) ax + y = 25
a40 = 25 - 10
a= 2.67
where x represents nonmanpower expenditures in 1975,
y represents manpower expenditures in 1975,
a is the coefficient by which nonmanpower expenditures must
be increased for the terms on the lefthand side-of equation
1 to equal 1/2 of the 1975 Soviet defense expenditure estimate,
$50 billion.
Since there is some ambiguity in the CIA explanation of how the error
was distributed, in this paper we use and estimate 200% as.the lower
limit of the procurement error instead of 267% obtained from equation
1. For a more detailed discussion of the inadequacy of the CIA ruble
data see Lee (1977b).
2. "Assessing the Soviet Economy: The CIA's Giant Goof," p. 97; Allocation
of Resources in the Soviet Union and China - 1976, p. 82. Joseph Alsop
(1977).
3. The revised ruble estimates do not affect the Agency's "appraisal of the
size or capabilities of Soviet military forces," or ..."the dollar
cost of reproducing Soviet defense programs in the U.S.," because
."...the changes are largely the result of estimates of higher ruble
prices rather than discovery of larger programs." Quoted from Estimated
Soviet Defense Spending in Rubles, 1970-75 (1976), pp. 1-2. See also
Allocation of Resources in the Soviet Union and China - 1976 (1976),
pp. 14-20. The testimony is by George Bush. -
4. These simple strictures underlie what can best be described as the
economic approach to index number theory.. For a thorough discussion
of its relative advantages see Paul Samuelson and Subramanian Swamy
(1974), Abram Bergson (1961, 1975), Moorsteen (1961), Nutter (1966)
and Rosefielde (1975).
The economic approach to index number theory however is assailable if
the factors underlying the theoretical analysis differ from what they
are supposed to be. In this paper we assume that the economic approach
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 Approved For Wase 2004/03/15 : CIA-RDP80M0016*02400080004-7
is applicable for the interpretation of Soviet production behavior.
For an alternative view which can be traced to Walsh, Jevons, Lespeyres,
Paasche, Sauerbeck, Edgeworth and Irving Fisher see Yrjo Vartia (1976a,
1976b) and Irving Fisher (1922).
5. Daniel Yergin has recently suggested that ruble indices of Soviet
defense expenditures are suppressed by the intelligence community
because they would exaggerate the size of the American defense effort
and thereby diminish the force of the "arms coalition's" case for in-
creased defense spending. Even ignoring the argument developed in this
paper that the index bias supposed by Yergin is no longer important,
he ignores the fact that ruble estimates greatly increase the growth
rate of Soviet defense expenditures which presumably would buttress
the "arms coalition's" case. I agree however with his assertion that
ruble indices should be computed and published. See Daniel Yergin
(1977), p. 73.
6. See for example, A Dollar Cost Comparison of Soviet and US Defense
Activities, 1966-76 (1977), p. 4. I have not however been able to
determine whether the Agency believes that ruble rates of procurement
growth derived from dollar estimates through a ruble-dollar ratio
conversion behave like a ruble valued procurement index. If growth is
measured in constant rubles (i.e. ruble-dollar ratios), the dollar and
ruble growth rates computed by the Agency should be identical since
the base and the increments of the ruble estimate are merely scalar
transforms of the dollar estimates. The true ruble index however will
exhibit a higher rate of growth.
7. "On balance, we believe that the overall dollar cost estimates for
Soviet defense activities is unlikely to be in error by more than 15 percent.
This judgment, while informed, is nonetheless subjective and not the result
of statistical measurement." See A Dollar Cost Comparison of Soviet
and US Defense Activities, 1966-76 (1977), p. 3.
8. Estimated Soviet Defense Spending in Rubles, 1970-75 (1976), p. 2.
The real figure for 1975 is probably closer to 15% because the CIA
still insists on using dollar rates of Soviet defense spending growth
to compute the ruble burden. Since the only valid ruble number the
-CIA possesses is for the year 1970, if the 40-45 billion figure were
projected at a rate of 8-10% instead of 4-5%, the Agency's 1975 esti-
mate would rise to 59-72, instead of 50-55, making the burden 13-17%
For a similar view derived from other methods see William T. Lee
(1977a).
9. Less ungenerous interpretations can also be placed on the CIA's pref-
erence for the faulty ruble-dollar ratio-explanation. Since the
covert source of the new ruble defense estimates did not become public
knowledge until long after the Agency released its report, the CIA may
merely have been protecting its sources. Now that the real story is
out however, I am unaware that the Agency has revised its original
explanation.
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 Approved Fo lease 2004/03/15: CIA-RDP80M0010 002400080004-7
10. The exact figui s are:
Capital-Output and Labor Output Ratios
Computed in 1966 Adjusted Factor Costs
On a Sector of Delivery Basis
(Assuming at 12% Rate of Return on Capital)
Capital/Output
Labor/Output
Agriculture
1.3271
.4590
Construction
1.3852
.3874
Trade
1.4706
.4204
Civilian Machinery
1.5783
.2605
Food
1.5896
.4379
Light
1.6261
.3355
Construction Materials
1.8492
.3017
Military Machinery
1.8700
.2743
Chemicals
1.9938
.2010
Metals
2.3148
.1892
Transportation and Communication
2.5128
.2278
Fuels
3.0540
.1583
Capital/Output measured in rubles per unit of output.
Labor/Output measured in man years per unit of output.
They were computed by the author from data published in Vladimir Tremi
(1972). '
11. Steven Rosefielde (1977, 1978).
12. William T. Lee (1977b), p. 15. For a detailed discussion of ruble-
dollar methodology and their reliability see Vladimir Tremi and Dimitri
Gallik (1973).
13. A rapidly growing literature exists on how to treat technical progress
and quality change with index methods. Most of the material on
"hedonic" indices however requires market price determination and is
.not applicable for present purposes. See Franklin Fisher and Karl
Shell (1972), Zvi Griliches, ed. (1971), Zvi Griliches and Dale
Jorgenson (1967, 1971). For a more conventional treatment of quality
see Edward Denison (1957). Note also that the term technical progress
used in this paper refers to new types of weapons and not to increased
factor productivity. Technical progress in the sense of improved
factor productivity does not apply here because we do not explicitly
analyze the relationship between factor productivity and relative
production cost. .
14. It will be demonstrated shortly however that even under these ideal
circumstances Soviet technical progress and quality change will be
biased downward when procurement growth is measured in dollars.
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 15. Thea dpPa'2G0Jt1*t-WCUAgI O 'I ( QQ4a1gative
do r bias de ds on the price ratios in America and the SoviettUnion.
For example suppose that the ratio of conventional to advanced weapons
prices in the US and the USSR were respectively
2) Pia/Pj a = 2/1; pir/Pjr = 1/4
The dollar weighted index, la, would exceed, equal or understate the
ruble weighted index, Ir, depending on the conventional-advanced weapon-
ratio, qir/qjr, in the index expressions below.
2a) Ia > Ir
Since for any set of ratios pia/pj a = n/l, pir/pj r = 1/m bias is a mono-
tomic function of the quantity ratio, qir/q1?r a point of index neutrality
will always exist. In the example above, if the American conventional-
advanced weapons ratio qia/qja were 1:1, index number bias reversal would
occur long before the Soviet and American weapons mix converged. For
less divergent price ratios, index number bias reversal would be deferred
until the US-USSR arsenals were more alike. It should however be clear
that as the Soviets have modernized their weapons systems, the standard
assumptions concerning index number bias have become progressively more
tenuous.
2b) piagir + pjagjr < pirgir + pjrgjr
2c) 2gir + qjr qir + 4gjr
qir/qjr 3:1, then Ia Ir.
qir/qjr < 3:1, then Ia < Ir
16. For an econometric analysis of the rate of aggregate technical progress
in the Soviet Union see Desai (1976), Gomulka (1976), Rosefielde and
- Lovell (1977) and Weitzman (1970). On sectoral productivity see
Rosefielde (1977, 1978). For a study of the quality of Soviet output
see Spechler (1970, 1975). On the general issue of technology in the
USSR see Berliner (1976), Granick (1975). An impression of the pace
of improvement.in Soviet arms can be effectively obtained from Lee
.(1978), Luttwak (1977), Nitze (1977), Parker (1978), Pipes (1977),
Polmar (1977) and Wohlstetter (1977). More technical evaluations appear
in Parker (1978).
In appraising the welter of evidence supporting the view that the Soviets
have achieved rapid technical progress and qualitative advance in the
production of civilian and military goods, it should be recognized that
the index number analysis carried out here depends only on absolute
technical progress, not technical progress relative to the US.
Approved For Release 2004/03/15 : CIA-RDP80M00165A002400080004-7
 17. From ~8 ?M wF~ ef?leat20Pa/4s/3x i prf Pc 99Ql~qo o -~ieapc3ns
qir/qjr is somewhat greater than the US mix, and Pia/PJ'a > Pir/P1'r-
To transform improved weapons into their base year analogues, old
weapons are multiplied by prices representing prevailing marginal rates
of transformation:
1) qjr = p/P qjr
where the asterisk signifies the new model. Since America is undoubtedly
further along its technology learning curve, the quality improved weapon
t r will probably be relatively cheaper in dollar than ruble prices so
that
2) P. pja qjr < pjr/pjr qjr
and therefore the dollar quality improved growth index must understate
both the ruble adjusted growth index where all other goods are weighted
in dollars and the pure ruble adjusted index.
pja dq-ir < Pir/Pjr dgJr < p;~r/pjr dq: r
3}
Ia Ia Ir
18. Consider a simple two good index valued in money prices. The money
price level in the base year is 1 and n in the final year. Assume
moreover that relative prices also change between the two periods.
Measured in current values growth is
1) Ic = up11g11 + pp12g12/p01g01 + p02g02
where the first subscript indicates the year, the second the product.
To adjust for money inflation Ic must be deflated with a price index,
conventionally with base year quantity weights
2) IP = pllg0l
p12p02/p01g01 + p02g02
which yields a Paasche quantity index with final year price weights
3) 1q = Ic/Ip
pllgll + p12g12/p11g01 + pl2g02
plgl/plg0
19. See note 7.
20. Moorsteen (1961).
21. Allocation of Resources in the Soviet Union and China - 1976 (1976),
pp. 17-20.
4w tt- TTTTY~ ~q g f}- v r_Te:z,.1966-1976
C'oot' - '
(1977), p. 2.
 Approved Foreease 2b 3PWa f -RDP80M0016602400080004-7
Allocation of Resources in the Soviet Union and China - 1976, Part 2. Joint
Economic Committee of Congress, Executive Session, Washington, D.C.,
May-June 1976.
Alsop, Joseph. "A Cautionary Tale." Washington Post, #92, March 7, 1977,
p. A-21.
"Assessing the Soviet Economy: The CIA's Giant Goof." Business Week,
Vol. 2472, February 28, 1977, pp. 96-103.
Bergson, Abram. The Real National Income of Soviet Russia Since 1928.
Harvard University Press, Cambridge, 1961.
. "Index Numbers and the Computation of Factor Productivity."
Review of Income and Wealth, #3, September 1975, pp. 259-78.
Berliner, Joseph. The Innovation Decision in Soviet Industry. MIT Press,
Cambridge, 1976.
David, P. A. and van de Kiundert, T. "Biased Efficiency Growth in the US."
American Economic Review, Vol. LV, #3, June 1965, pp. 357-394.
Denison, E. F. "Theoretical Aspects of Quality Change, Capital. Change and
Net Capital Formation" in Franco Modigliani (ed.) Problems of Capital
Formation. Conference on Research in Income and Wealth, Princeton
New Jersey, 1957, pp. 215-261.
Desai, Padma. "The Production Function and Technical Change in Postwar
Soviet Industry: A Reexamination." American Economic Review, Vol. 66,
#3, June 1976, pp. 372-81.
A Dollar Cost Comparison of Soviet and US Defense Activities, 1966-76.
Ceut::al Intelligence Agency, Washington, January 1977, document.
SR77-1000010.
Domar, Evsey. "On the Measurement of Technological Change." Economic
Journal, Vol. LXXI, December 1961, pp. 709-29.
Estimated Soviet Defense Spending in Rubles, 1970-75. Central Intelligence
Agency, Washington, May 1976, SR76-10121U.
Fisher, Franklin and Shell, Karl. The Economic Theory of Price Indices:
Two Essays on the Effects of Taste, Quality and Technical Change.
Academic Press, New York, 1972.
Fisher, Irving. The Making of Index Numbers. The Riverside Press, Cambridge,
1922.
Gomuika, Stanislaw. "Soviet Postwar Industrial Growth, Capital-Labor
Substitution, and Technical Changes: A Reexamination" in Zbigniew
Fallenbuchl, ed. Economic Development in the Soviet Union and Eastern
Europe, Volume 2: Sectoral Analysis. Praeger, New York, pp. 3-47.
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 Approved For?lease 2004/03/15 : CIA-RDP80M00100002400080004-7-
Granick, David. Soviet Introduction of New Technolog : A Depiction of
the Process. Stanford Research Institute, Menlo Park, California,
1975.
Griliches, Zvi, ed. Price Indexes and Quality Change, Harvard University
Press, Cambridge, 1971.
Griliches, Zvi and Jorgenson, D. "The Explanation of Productivity' Change."
The Review of Economic Studies, Vol. XXXIV, 1199, July 1967, pp. 249-83.
"Divisia Index Numbers and Productivity Measurement." The
Review of Income and Wealth, Series 17, #2, June 1971, pp. 227-29.
Hicks, J. R. "The Valuation of Social Income." Economica, Vol. VII, 026,
May 1940, pp. 105-24.
Holzman, Franklyn. Financial Checks on Soviet Defense Expenditures.
Lexington Books, Lexington, Mass., 1975.
Lee, William T. The Estimation of Soviet Defense Expenditures for 1955-75:
An Unconventional Approach. Praeger, New York, 1977a.
Understanding the Soviet Military Threat. National Strategy
Information Center, Inc., New York, 1977b.
"Soviet Nuclear Targeting Strategy and SALT" in Rosefielde and
Leutze, eds. Contemporary Problems of Comparative Communism, UNC Press,
Chapel Hill, N.C., 1978.
Leontief, W. "Introduction to a Theory of the Internal Structure of
Functional Relationships." Econometrica, Vol. 15, 04, October 1947,
pp. 361-73.
Luttwak, Edward. "European Insecurity and American Policy" in Defe__n_ding
America, Basic Books, New York, 1977, pp. 169-86.
Merrilees, W. "The Case against Divisia Index Numbers as a Basis in a
Social Accounting System." The Review of Income and Wealth, Series
_17, 1/1, March 1971, pp. 81-5.
Moorsteen, Richard. "On Measuring Productive Potential and Relative
Efficiency." Quarterly Journal of Economics, Vol. LXXV, 113, August
1961, pp. 451-67.
Nitze, Paul H. "Nuclear Strategy: Detente and American Survival" in
Defending America, Basic Books, New York,- 1977, pp. 97-109.
Nutter, G. Warren. "On Economic Size and Growth." Journal of Law and
Economics, Vol. IX, October 1966, pp. 1.63-88.
Parker, Patrick. "Soviet Military Strategy in the Decade 1977-1987" in
Rosefielde and Leutze, eds. Contemporary Problems in Comparative
Communism, UNC Press, Chapel Hill, N.C., 1978.
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 Pipes, Richard. "Wh he Soviet Union It Can Fight Win a Nuclear War."
01. IVasg1200/Q~/1g7CIA-P$Qp~1 A~002400080004-7
Comn&RL4~edf
Polmar, Norman. "The U.S.-Soviet Naval Balance" in Defending America,
Basic Books, New York; 1977, pp. 187-204.
Rosefielde, Steven. "Sovietology and Index Number Theory." Economia
Internazionale, Vol. XXVIII, Nos. 1-2, February-May 1975,. pp. 3-15.
"Production Functions and the Estimation of Opportunity Costs
in Centrally Planned Economies." Unpublished manuscript, 1977.
. "Comparative Advantage and the Evolving Pattern of International
Commodity Specialization" in Marer and Montias, eds. Integration in
Eastern Europe and East-West Trade. Indiana University Press,
Bloomington, 1978.
Rosefielde, Steven and Lovell, Knox. "The Impact of Adjusted Factor Cost
Valuation on the CES Intepretation of Postwar Soviet Economic Growth."
Economica, November 1977.
Samuelson, P. A. "The Evaluation of Real National Income." Oxford Economic
Papers, Vol. II, #1, January 1950, pp. 1-29.
. and Swamy, Subramanian. "Invariant Economic Index Numbers and
Canonical Duality: Survey and Synthesis." American Economic Review,
Vol. 64, A4, September 1974, pp. 566-93.
Spechler, Martin. "Decentralizing the Soviet Economy: Legal Regulation
of Price and Quality." Soviet Studies, Vol. XXII, #2, October 1970,
pp. 222-54.
"The Pattern of Technological Achievement in the Soviet Enter-
prise." ACES Bulletin, Vol. XVII, #1, Summer 1975, pp. 63-87.
Treml, Vladimir. The Structure of the Soviet Economy. Praeger, New York,
1972.
and Gallik, Dimitri. Soviet Studies on Ruble/Dollar Parity
Ratios. Foreign Economic Reports, #4, Bureau of Economic Analysis,
-Washington, 1973.
Vartia, Yrjo. "Ideal Log-Change Index Numbers." Scandinavian Journal of
Statistics, #3, 1976a, pp. 121-6.
Relative Changes and Index Numbers. The Research Institute of
the. Finnish Economy, Helsinki, 1976b.
Weitzman, Martin. "Soviet Postwar Economic Growth and Capital Labor
Substitution." American Economic Review, Vol. IX, #4, September
1970, pp. 676-92.
Approved For Release 2004/03/15 : CIA-RDP80M00165A002400080004-7
 Wohlstetter, Albert. "'"-Vcing Forward or Ambling Back" 'n Defending America,
Basic PAPI~Weckir*,asq r?Q4/W15 1CgIP~RDP80M00161@0 -
Yergin, Daniel. "The Arms Zealots." Harper's,Vol. 254, June 1977,
pp. 64-76.
114 1-r
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 STAT Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 Compt
D/ Pers
A/DCI/PA
Remarks:
c
/1 /,/R1-,'
Approved For Release 2004/03/15 : CIA-RDP80M00165AO0240008
 STAT Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
Next 3 Page(s) In Document Exempt
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 Approved For?lease
MEMORANDUM FOR: Director-of Central Intelligence
Schick Lecture sent by Zumwalt
1. Lecture on inter-relationships between energy policy
and national security; given at the'NWC 19 October 1976.
2. Content is thin and ideas not well developed. However,
there are some interesting statistics and the point that the
use of energy supplies as leverage in international politics,
thereby increasing non-military options, is a good one.
3. Schick says:
? Because of increasing oil dependency, OPEC's prices are
a "weapon" the U.S. cannot avoid.
`US - USSR conventional balance is affected by U.S. domestic
energy balance which is partially derived from world
energy balance.
? Oil SLOC's are weak points for both U.S. and USSR (USSR
to be net importer by 1985).
? One billion barrel petroleum reserve by 1985 will reduce
problem.
4. Recommend:
? Sign attached thank you note to Zumwalt.
Send to OER to add to background material.
Very /espectfully,
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 'Approved For*lease 2004/03/15 : CIA-RDP80M001O002400080004-7
Iff-DREJ
FI?J -RGY POL1fY ?j D ~?I 101,1r,l_ SECURITY
GUESTLEC:I DELIVERED 13Y
JACK It SCHICK
ACTING DIRECTOR
OFF I CE OF GOVERlU;I?IENTS AND ENERGY
.INTERNATIONAL hN?,E_RGY AFFAIRS
FEDERAL ENERGY ADMINISTRATION
AT THE
UNITED STATES NAVAL WAR COLLEGE
19 OCTOBER 1976
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 Approved Forlease 2004/03/15: CIA-RDP80M0016MO2400080004-7
ADMIRAL STANSFIELD TURNER
18 JUL 1977
Dear Bud,
Just a note to thank you for sending Jack Schick's
lecture. The whole energy question is being''-looked
at by the Intelligence Community from several points
of view - Schick makes some good points, particularly
the effect of energy as leverage in international
politics increasing non-military options..
Thanks again.
Admiral E.R. Zumwalt, Jr. (Ret.)
1500 Wilson Boulevard
Suite 1700
Arlington, Virginia 22209
1 - DCI
1 - DDI for D/OER
1 ER
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 Office of the Director
CI ppf rrvdd f-ov 2OO 3115: CIA-RDP80MOO165 2400080004-7
Dear Mr. Roboff.:
Your 9 November letter inquiring
about restrictions on the use or ship-
ments of cesium, cesium compounds and
pollucite ore was referred to this
office for a response. Your question
is outside the purview of this Agency
and I can oply suggest that you again
pursue the matter with the Department
of Cormi erce.
I regret that we can not be more
helpful.
Sincerely,
/s/
Deputy Executive Secretary
AT
Mr. Stanley B. Roboff
Director, Corporate Development
Kawecki Berylco Industries, Inc.
220 East 42nd Street
New 'York, New York 10017
Distribution:
Orig - Adse.
1 - D/NFAC
1 - DDSIT
ER
ES : cs (14 Nov 77)
(ECG
Approved For Release 2004/03/15 : CIA-RDP80M00165A002400080004-7
 Approved Release 2004/03/15: CIA-RDP80M0OA002400080004-7
KAWECKI BERYLCO INDUSTRIES, INC.
220 East 42nd Street, New York, N. Y. 10017
Telephone: [phone] Telex: 126332
TWX: 710-581-5199
November 9, 1977
Admiral Stansfield Turner
Director, Central Intelligence Agency
McLean, Virginia 22101
Certain recent events regarding shipments of the commercial cesium
ore, pollucite, have raised questions which may have a bearing on
a growing part of our business and on the availability of cesium
ores in the U.S. and overseas.
By way of explanation, KBI is a New York Stock Exchange, listed
company, and is probably the leading producer and supplier in the
U.S. of high technology materials. Among the materials in which
we are interested is pollucite ore, a cesium raw material from the
Tanco Mining properties, located at Bernic Lake in Manitoba,
Canada. KBI owns approximately 25 percent of Tanco.
Pollucite can be employed as a raw material for a key ionizing
agent (cesium) in the magnetrohydrodynamic (MHD) system for pro-
ducing power directly from coal or other fossil fuels. Until
quite recently Tanco had been selling pollucite ore overseas,
ostensibly for use in MHD systems in the U.S.S.R. Since there is
nothing that we know of that is classified about MHD in the U.S.,
Canada or the U.S.S.R., overseas shipments of pollucite were per-
mitted by the Canadian Government.
Within the past year, however, the Government of Canada has
refused to allow shipments of pollucite from Canada to Europe,
where the known customer is the U.S.S.R. Inquiries which Tanco
and KBI have made to Canadian and U.S. Government agencies have
brought no explanation, except that the U.S. Department of
Commerce has indicated that there are no restrictions, other than
the usual license procedure, in shipping pollucite and cesium
metals and compounds overseas.
Approved For Release ~6b44l03/15L 96A-k 6W0165AO02400080004-7
 Approved SRelease 2004/03/15: CIA-RDP80M0is5AO02400080004-7
Admiral Stansfield Turner - 2 - November 9, 1977
Director, Central Intelligence Agency
Nevertheless, with requirements for pollucite derived materials
growing throughout the world with some vigor, and with our Company
(and Tanco) faced with upcoming investment and marketing decisions,
it is important for us to know whether pollucite will be subject to
governmental restrictions because of potential consequences to which
we are not privy.
for an important segment of our business.
My purpose in writing, therefore, is to ask if there are any restric-
tions, current or planned, on the use or shipments of cesium, cesium
compounds and pollucite ore, and if so, why. This information will
be of importance to us, since it will help guide near term planning
SBR:fg
Enclosure: KBI Product List
Stan'ey B. Roboff
Dire tor, Corporate Development
P.S. While we have had little experience obtaining information under
the "Freedom of Information Act," if our requested information
must be provided under that Act, then please consider this as a
request within the provisions of the Freedom of Information
Act. SBR
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 ed For Release 2004/03/15: CIA-RDP801%00165A002
KAWECKI BERYLCO
INDUSTRIES, INC.
In the growing market for rare metals, alloys
and specialty materials, here is a company,
formed in 1968 by the merger of two leading
organizations ... Kawecki Chemical Company
and The Beryllium Corporation.
The result is an integrated company with a
depth of skill, knowledge, experience and re-
sources. Built on a base of two companies
with proven performance records of applied
research and technical marketing, Kawecki
Berylco Industries, Inc. has emerged as a
leading supplier of rare and refractory
metals, alloys, specialty materials and chem-
icals to the world's technical industries -
aerospace, aircraft, electrical, electronic,
metallurgical, nuclear and chemical process.
ed For Release 2004/03/15: CIA-RDP80M00165A00240
 Releas RDP80MOMA002400080
ALL
ALUMINUM BASE
* BERYLLIUM
* BORON
CALCIUM
CERIUM
* CHROMIUM
CHROMIUM-TITANIUM
COBALT
COPPER
GALLIUM
GERMANIUM
* IRON
* LITHIUM
* MAGNESIUM
*MANGANESE
MANGANESE-TITANIUM
MISCHMETAL
MOLYBDENUM
MOLYBDENUM-TITANIUM
NICKEL
NIOBIUM
* SILICON
TANTALUM
TIN-TITANIUM
* STRONTIUM-SILICON
* TITANIUM (TITAL)?
* TITANIUM-BORON (TIBOR)?
TITANIUM-ZIRCONIUM-BORON
VANADIUM
VANADIUM-TITANIUM
ZIRCONIUM
ZIRCONIUM-BORON
* ZIRCONIUM-VANADIUM
For ReleaseP s l`0` P1 : CIA-RDP80M00165AO024000
 roved For R We 2004/03/15: CIA-RDP80M00165A
COPPER BASE
ALUMINUM
BERYLLIUM
BORON
CHROMIUM
COBALT
PHOSPHORUS
TITANIUM
ZIRCONIUM
NICKEL BASE
NIOBIUM BASE (Columbium)
(Vacuum Grade)
CHROMIUM-NIOBIUM
FERRO-NIOBIUM
NICKEL-NIOBIUM
SELENIUM BASE
FERRO
NICKEL
TANTALUM BASE
(Vacuum Grade)
CHROMIUM-TANTALUM
FERRO-TANTALUM
NICKEL-TANTALUM
TELLURIUM BASE
COPPER
IRON
NOTE: Other Master Alloy combinations
can be made to customer's specifica-
tions. Inquiries invited.
 METALS, ALLOYS
ALUMINUM
INGOT, BAR, EXTRUSIONS
WIRE, STRIP
ANTIMONY
SHOT, INGOT
ARSENIC*
LUMPS
BERYLLIUM
BEAD
BLOCK
WIRE
FLAKE
ROD, BAR, TUBE
EXTRUSIONS
INGOT
SHEET, FOIL
MACHINE BLANKS
POWDER
PLATE
FABRICATED FORMS
CONSOLIDATING METHODS
1. HOT PRESSING
2. ISOSTATIC PRESSING (cold and hot)
3. PLASMA SPRAYING
BERYLLIUM ALUMINUM (Lockalloy)
ROD, BAR, TUBE SHEET, FOIL EXTRUSIONS
FABRICATED FORMS PLATE
BERYLLIUM COPPER
INGOT ROD, BAR EXTRUSIONS
STRIP TUBE, WIRE PLATE
BILLET FORGINGS CASTINGS
FABRICATED FORMS
BERYLLIUM CUPRO NICKEL
INGOT ROD, BAR, TUBE CASTINGS
STRIP FORGINGS FABRICATED FORMS
BERYLLIUM NICKEL
INGOT STRIP WIRE
ROD BAR CASTINGS
BERYLLIUM TITANIUM
ROD, BAR, TUBE SHEET EXTRUSIONS
FABRICATED FORMS
BISMUTH*
INGOT, SHOT, POWDER, PELLETS
BORON
AMORPHOUS POWDER
Grade 1: 94-96% and Grade II: 90-92%
CRYSTALLINE (98%, min.) Lump - Powder
"These Metals and Alloys are available as
or Releas6e20041013PI'$sta'CYX-PDP80M00165A00240008
3
 Dved For ReIS 2004/03/15: CIA-RDP80M00165A
CALCIUM
STRIP
CESIUM
Packaged in:
GLASS AMPOULES and STAINLESS STEEL CYLINDERS
CHROMIUM
FLAKES
COLUMBIUM
(See Niobium)
GALLIUM*
INGOT IN SQUEEZE BOTTLES
GERMANIUM*
ELECTRONIC, OPTICAL and COMMERCIAL GRADES
INGOT POWDER
INDIUM*
INGOT BAR
SHOT WIRE
LEAD
INGOT BAR
SHOT WIRE
LITHIUM
BATTERY/ ELECTRONIC and COMMERCIAL GRADES
INGOTS SHOT WIRE
STRIP DISCS
MOLYBDENUM
FOIL, SHEET, WIRE, ROD
NIOBIUM (Columbium)*
CAPACITOR and METALLURGICAL GRADES
POWDER
ROD
SHEET
BAR
WIRE
FOIL
INGOT
FINE WIRE
EXPANDED MESH
HIGH TEMPERATURE ALLOYS
TUBING
SUPERCONDUCTING ALLOYS
FABRICATED PARTS
POTASSIUM
Packaged in:
GLASS AMPOULES and STAINLESS STEEL CYLINDERS
 ved ForRelease 2004/03/15 : CIA- D80MO0165AC
RUBIDIUM
Packaged in:
GLASS AMPOULES and STAINLESS STEEL CYLINDERS
SELENIUM
PELLETS
SILICON
LUMPS
TANTALUM*
CAPACITOR and METALLURGICAL GRADES
POWDER
WIRE
EXPANDED MESH
BAR
FINE WIRE
FABRICATED PARTS
INGOT
SHEET
TANTALUM ALLOYS
ROD
FOIL
PLATE
TUBING
ALLOYING AGENTS - FOR HIGH TEMPERATURE
NICKEL AND COBALT BASE ALLOYS
TELLURIUM*
SLAB LUMPS POWDER
TABLETS STICKS
TIN*
INGOT, ROD, WIRE, SHOT
TITANIUM and
TITANIUM ALLOYS
TUBING, SEAMLESS
TUNGSTEN
WIRE, STRIP, BAR, SHOT, TARGETS
ZIRCONIUM and
ZIRCONIUM ALLOYS
TUBING, SEAMLESS
*These Metals and Alloys are available as
electronic and solid state grades.
oved For Release 2004/03/15: CIA-RDP80M00165A0~
5
 Relea5 5 Q165A0024000
C EEECA,2 smd`
(0OIIFOUNDO
BERYLLIUM
BERYLLIUM BASIC ACETATE
BERYLLIUM CARBONATE
BERYLLIUM NITRATE
BERYLLIUM SULFATE
BERYLLIUM FLUORIDE (ANHYDROUS)
BERYLLIUM CHLORIDE (ANHYDROUS)
BERYLLIUM OXIDE
BERYLIDES
BORON
AMMONIUM FLUOBORATE
POTASSIUM FLUOBORATE
SODIUM FLUOBORATE
ALUMINUM BORIDES
NIOBIUM BORIDES
TANTALUM BORIDES
TITANIUM BORIDES
ZIRCONIUM BORIDES
BORIDE COATED REFRACTORY SHAPES
BORON CARBIDE POWDER
CESIUM
CESIUM COMPOUNDS
(Optical, High Purity, Technical Grades)
GALLIUM*
GERMANIUM*
GERMANIUM DIOXIDE
GERMANIUM TETRACHLORIDE
GERMANIUM COMPOUNDS
*These Chemicals and Compounds are available
r Releas%e2004f0`3`/11d:sGIfALRDP80M00165AO0240008
6
 ed For Release 2004/03/15: CIA-RDP 00165AO024
LITHIUM
LITHIUM CARBONATE
LITHIUM COMPOUNDS
NIOBIUM (Columbium)
NIOBIUM BORIDES
NIOBIUM CARBIDE
NIOBIUM NITRIDE
NOBIUM OXALATE
NIOBIUM OXIDE (Optical and Standard Grades)
NIOBIUM PENTACHLORIDE
POTASSIUM NIOBATE
POTASSIUM NIOBIUM FLUORIDE
POTASSIUM NIOBIUM OXYFLUORIDE
RUBIDIUM
RUBIDIUM COMPOUNDS
(High Purity and Technical Grades)
SILICON NITRIDE
POWDER, REACTION BONDED FORMS,
HOT PRESSED FORMS
TANTALUM
TANTALUM BORIDES
TANTALUM CARBIDE
TANTALUM NITRIDE
TANTALUM OXALATE
TANTALUM OXIDE (Optical and Standard Grades)
TANTALUM PENTACHLORIDE
POTASSIUM TANTALUM FLUORIDE
TIN
or ReleiW~88if/?gl?FCIA-RDP80MO0165AO02400
7
 d For Release@04/03/15: CIA-RDP80M00165AO02400
TITANIUM
POTASSIUM TITANIUM FLUORIDE
SODIUM TITANIUM FLUORIDE
TITANIUM BORIDES
YTTRIUM
ZIRCONIUM
AMMONIUM ZIRCONIUM FLUORIDE
POTASSIUM ZIRCONIUM FLUORIDE
ZIRCONIUM BORIDES
MISCELLANEOUS
CHEMICALS
HYDROFLUORIC ACID
MAGNESIUM FLUORIDE
POTASSIUM ALUMINUM FLUORIDE
POTASSIUM SILICOFLUORIDE
RARE EARTH FLUORIDE
ed For Release 2004/03/15: CIA-RDP80M00165A00
8
 HCE
DUCT
r 31J J-R M00165A002
BRAZING AND WELDING ALLOY
- ROD, RINGS AND COIL
Phos-copper and phos-copper-silver brazing al-
loys are of high quality and certified to meet all
federal and AWS specifications. High purity cath-
ode copper is used in alloy preparation to elimi-
nate detrimental trace elements. All brazing rods
are ball burnished to remove rough edges and
burrs.
BRAZING ROD ALLOY COMPOSITION
MB-0 Copper-7% Phosphorus
MB-2 Copper-7% Phosphorus-2% Silver
MB-5 Copper-6% Phosphorus-5% Silver
MB-15 Copper-5% Phosphorus-15% Silver
Other Specialty Compositions including Su-
peralloys and Titanium Alloys are available
on a custom basis.
Sales Office:
220 East 42nd Street
New York, NY 10017
Phone: [phone]
PLATING SERVICES
Extensive facilities for the continuous electroplat-
ing of strip, wire and performed parts are found at
the Summit Finishing Division plants in Thomas-
ton, Connecticut and Mooresville, Indiana. Summit
has the equipment and experience to handle a
broad range of material sizes to the most exacting
specifications.
In addition to specializing in continuous selective
electroplating, Summit has total capabilities for
precision plating of large parts, including critical
rotating jet engine components. Tank capacity up
to.2,700 gallons is available.
Summit deposits a wide range of plated coating
on all types of base metals under strict laboratory
controlled supervision.
Sales Office:
1430 Waterbury Road
Thomaston, CT 06787
Phone: [phone]
356 Bridge Street
Mooresville, IN 46158
Phone: [phone]
DRAWN AND FORMED PARTS
Eyelets for Industry, Inc., a subsidiary of KBI
,
ivied Fob' e~eds1' fftbirFt' ~dA?-R'PPO1100165AOI
 or Release 2/03/15: CIA-RDP80MO0165AO024000
exacting specifications. By emphasizing imagina-
tive engineering and skilled toolmaking, the com-
pany has earned an enviable reputation for manu-
facturing competence and product excellence.
EFI was at first a maker of precision electronic
parts. The company has since extended its service
to include the automotive, ordnance, electrical,
furniture and instrumentation industries. Handling
high-production, high-volume jobs, and also pro-
totype development work, the company is now a
major source of specialty eyelets for recognized
leaders in major industries.
Sales Office:
Eyelets for Industry
1430 Waterbury Road
Thomaston, CT 06787
Phone: [phone]
HIGH TEMPERATURE
MATERIALS MACHINED
TO PRECISE TOLERANCES
CERAMICS
Aluminum Silicate Silicon Nitride
Aluminum Oxide Boron Nitride
GRAPHITE
Assorted grades for specialty applications,
including high purity materials
METALS
Tantalum Stainless Steel
Columbium Inconel
Molybdenum Kovar
Tungsten Titanium
CEMENT AND CASTABLE COMPOUNDS
Duramic S-2 Castable Ceramic
Duramic Hi-Temp Cement
APPLICATIONS
Glass to Metal Sealing Nozzles
Brazing Furnace Tooling
Alloying Dicing Tools
Soldering Insulators
Welding Bearings
Metal Evaporation Jigs
Sintering Fixtures
Sales Office:
Duramic Products, Inc.
426 Commercial Avenue
Palisades Park, NJ 07650
r Release 2Q(d4/Ol314 7 1A-RDP80M00165A002400
 or Release 2004/03/15: CIA-RDP80*165AO024000
COATINGS
FLAME SPRAYED COATINGS ON METALS
Tungsten Carbide
Ceramics
Stainless steel
Molybdenum
CHEMICAL VAPOR DEPOSITED
SILICON CARBIDE ON
Graphite
Ceramics
Sales Office:
Duramic Products, Inc.
Ringwood Division
1022 Greenwood Lake Road
Ringwood, NJ 07456
Phone: [phone]
BERYLCO SAFETY TOOLS
KBI's Berylco Safety Tool line is comprised of a
wide variety of nonsparking beryllium copper
tools for use near flammables and explosives. All
of these hand tools are rugged, nonmagnetic and
corrosion resistant.
The many different types of safety tools available
are used extensively in the electronic, chemical,
ship, paint and petroleum industries. Berylco
beryllium copper is the strongest, hardest mate-
rial that meets Federal specifications for non-
sparking tools.
Sales Office:
Post Office Box 1462
Reading, PA 19603
Phone: [phone]
SPECIALTY METALS -
SEAMLESS AND
WELD REDUCED TUBING
Zirconium Technology Corporation, a subsidiary
of KBI, has the specialized facilities for producing
both seamless tubing and the reduction of welded
tubing. Working primarily with the high technology
specialty metals, Zirtech can process almost any
metal capable of cold working in tubular form
requiring specifications and tolerances for aero-
space or nuclear applications. Sizes from a maxi-
mum 1.875" outside diameter down are available
from Zirtech. Custom annealing, in our 35 foot
vacuum furnace, is also available with maximum
temperature capability of 1600?F.
Zirtech also offers a lightweight, high-strength 3-
2.5 titanium alloy golf club shaft.
Sales Office:
Zirconium Technology Corporation
Post Office Box 947
Albany, Oregon 97321
 ved For ReIe2004/03/15: CIA-RDP80M00165A002
SILICON NITRIDE PRODUCTS
KBI-AME, Inc., a subsidiary of KBI, specializes in
silicon nitride powders, fabricated forms by hot
pressing or reaction bonding. The fabricated
forms cover both standard products and custom
shapes to handle a broad range of sizes to the
most exacting specifications.
Sales Office:
220 East 42nd Street
New York, NY 10017
Phone: [phone]
CASTINGS
KBI's Precision Cast Products Division is
equipped to provide a wide variety of non ferrous
alloy castings, including aluminum, brass, bronze,
beryllium copper, and beryllium nickel ranging in
weight from ounces to approximately 700 pounds.
PCP's excellent pattern shop and mold making
versatility provides the capability to produce con-
ventional sand castings as well as precision repli-
ca castings which require special molding sands
and binders or ceramic refractory materials. Pat-
terns are made from wood, metal, acrylic plastics,
rubber, epoxies and casting plaster. The particu-
lar pattern material or combination of materials is
selected on the basis of the casting requirements.
Sales Office:
Precision Cast Products Division
725 East Avenue
Athens, TN 37303
Phone: [phone]
AVAILABLE FACILITIES
HOT AND COLD ISOSTATIC PRESSES - These
presses are available on a toll basis for the press-
ing of metals, alloys, composites and ceramics.
VACUUM HOT PRESSES - KBI's 15 double-acting
vacuum hot pressing furnaces will accept dies
from 12" to 60" in diameter and 36" to 72" high.
ROLLING MILL - A versatile, 60-inch, four-high,
reversing rolling mill for hot and cold rolling can
accommodate varied rolling requirements on a
contract basis for metals and alloys including cop-
per, titanium, specialty steels and nickel base
alloys.
FOIL MILLS - Four mills can handle foil in thick-
nesses down to 0.0002 in. Widths vary from 41/4"
to 9". These mills are equipped with beta ray
thickness aaaes. The facility is equipped with foil
 Release 2004/03/15: CIA-RDP80M0C&A002400080a
WIRE DRAWING MACHINES - KBI has precision
single and multipass wire drawing machines. The
single pass machines are general purpose slow
speed machines capable of drawing large diame-
ter wire with a variety of liquid or solid lubricants
and a wide span of reductions. The multipass
machines draw smaller gages of wire at higher
speeds.
ELECTRON BEAM FURNACE - Electron Beam
melting in the presence of high vacuum is the best
known method for purifying high-melting-point
metals and alloys. KBI's furnace produces ingots
of finished metals up to 16" diameter.
PLASMA SPRAYED BERYLLIUM PARTS - Com-
plex beryllium parts and shapes can be produced
by plasma spray techniques, achieving excellent
physical properties. Process can also be used to
produce high strength porous beryllium metal
shapes.
 proved For R se 2004/03/15: CIA-RDP80M00165A~
Obtain Ad onal Information and
Assistance From:
General Sales Office
NEW YORK, NY
220 East 42nd Street, New York, NY 10017
Phone [phone]frelex126332 TWX: 710-581-5199
Beryllium Alloy Sales Office
READING, PA
Box 1462 Reading, PA 19603
Phone [phone] TWX: 510-651-0677
Field Sales Offices
ATLANTA, GA
3276 Marjan Dr. NE Atlanta, GA 30340
Phone: [phone] TWX: 810-757-0150
BOSTON, MA
235 Bear Hill Road. Waltham, MA 02154
Phone: [phone]
CHICAGO, IL
1370 Lively Blvd. Elk Grove, IL 60007
Phone: [phone]
TWX: 910-222-4570
CLEVELAND, OH
23811 Chagrin Blvd. Cleveland, OH 44122
Phone: [phone]
DETROIT, MI
5649 Van Born Court Dearborn, MI 48125
Phone: [phone] TWX: 810-221-6289
LOS ANGELES, CA
1220 West Walnut Street, Compton, CA 90220
Phone: [phone] TWX: 910-346-7703
MONTREAL, CANADA
56 Westland Drive Montreal West 28, Quebec, Canada
Phone: [phone]
PALO ALTO, CA
0 Suite 206, 750 Welch Road Palo Alto, CA 94304
Phone: [phone]
Warehouse distributors located throughout the United States
and Canada
International Operations and Sales Offices
CONSOLIDATED BERYLLIUM N. V. KAWECKI-BILLITON
LIMITED METAALINDUSTRIE
P.O. Box 5 P.O. Box 38
Milford Haven, Dyfed, Wales Arnhem, The Netherlands
Phone: Milford Haven 2604 Phone: Arnhem 629071
DEUTSCHE BERYLLIUM GmbH SHOWA-KBI COMPANY LIMITED
Postfach 450 5-10, 1-Chome, Shiba-Koen Minato-Ku
637 Oberursel, West Germany Tokyo, Japan
Phone: Oberursel 5 20 88 Phone: Tokyo 433-0902
KAWECKI-BILLITON TREFIMETAUX-BERYLCO SA
(U.K.) LIMITED 76-78 Champs Elysees
659-660 Ajax Avenue Paris 8? France
Slough, Berks, SL14DA, England Phone: Paris 359 27 95
Phone: Slough 34242
P. GENERAL OFFICES READING, PA. 19603
 KAWECKI BERYLCO INDUSTRIES, INC.
220 East 42nd Street, New York, N. Y. 10017
~a U.S.PU5IAUt F
r~0d-9'87 `d s ~~ a
1a
0
Admiral Stansfield Turner
Director, Central Intelligence Agency
McLean, Virginia 22101
 Approved For OaS 0 4V I C&RD.Q#@P j6 0240008000
ONE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60603
TELEPHONE 312: 329-5400
TELEX 25-4364
Pounded in 1666 as
Williams & Thompson
November 10, 1977
Adm. Stansfield Turner
Director of Central Intelligence
Central Intelligence Agency
Washington, D.C. 20505
WASRINOT031 OPPICE
1730 PENN9YLVAN1A. AVEMCE, N.<
AYAS1l1NOTO I. D.G. 20000
TELEPHOVE 202: 624-8000-
TELEX 89.463
Evao,wi OmcE
9 HOLLAND PARX
L0_NDON,'HH 3Tff ENoLAVD
TEAEPHONE Oi: 727-1416
TELEX 21701
I'm so sorry, but I find that I will be out
of the City when you are here. I will call you the next
time I'm in Washington.
Warmest personal regards.
NIL/dm
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
STAT
TR.~N MIVTAL SLIP
TO: JJ
Pro tl
FROM: 0/ DC I
DATE
16 Nov 77
N FAC
Attached forwarded per DCI?s
request.
ROOM NO.
7D60
BUILDING
HQS
FORM FED 55.24 1 REPLACES FORM 36-8
WHICH MAY BE USED.
 X7
Approved FARelease 2004/03/15: CIA-RDP80M0cA002400080004-
STAT
November 10, 1977
Admiral Stansfield Turner, Director
Central Intelligence Agency
Washington, D.C. 20505
I will very much appreciate your forwarding the
enclosed letter to Mr. Richard Helms, whom I consider to be
a very heroic and patriotic individual.
Thank you.
JOW/na
f a1
STAT
Approved For Release 2004/03/15 : CIA-RDP80M00165A002400080004-7
 Admiral Stansfield Turner, Director
Central Intelligence Agency
Washington, D.C. 20505
 :: C :i lE SECRETARIAT
Routing Slip
-- I
- '
ACTION
INFO
DATE `
;N WA1 j
3
D/DCl/IET
_-
DDS&T
LIT
-+
6
31
---
l7 Da1
D/i C1/NI
- ---
-~
9
,?
GC
LC
-- i
12
Compt
(!_
-
-- -
13
D/ Pers
---
I d
15 ?
ice; s
rDT
h6
PA
L L7
,AQ~'^CI
73
C/i?S
7~
L 20
DCI/S5
I SUSPENSE
Dots
proved For Release 2004/03/15: CIA-RDP80M0 4-7
Dato
3,1~17 to-771
TO:
 Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 ILLEGIB Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
Next 9 Page(s) In Document Exempt
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 Approved For FWase 2004/03/15: CIA-RDP80M00165&2400080004-7
rl Cti:'.'! ii.; 1.977
PS ide.nt varter has a s?__~d
to your letter and convey his t ?i!:i;>s
You can be assured that careful cons i,le r a--
`Lion is given to all suggesL.S_ons :o+tt those
who share -i,1i ....i -?
,?.~..x r~eli.r:~
a his i~ concern for the
of the nation.
v:jith the PresiC . nt' S best iisheS
9
Landon Kite
Staff Assistant
Approved For Release. 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 The Director of Central Intelligence
Approved For F,5qgQ4{~J15 : CIA-RDP80M00165
APn -77
How thoughtful of you to write, and to offer such
warm words of support after your viewing my appearance
on the "Face the Nation" program.
I especially appreciate your comments because of
your long-time employment with the CIA. I am certainly
conscious of the need to improve the public image of our
intelligence activities and intend to do my best on that
score.
40008000
- - Again my thanks -for_ writing. I hope you are enjoying
your well-earned retirement.
Admiral,'U. S. Navy
Distribution:
O - Addressee
vl'- ER w/basic
"tiara d
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 Next 5 Page(s) In Document Exempt
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7
 Approved For ~ g, 04/03/15: CIA-RDP80 E L T00 4-7 yt,
AT
Central InteliigenceAgency / n
9 NOV 1977
Thafk you for sending me a copy of your paper,
"The Impact of Technology and Organization on
Command and Control." It is encouraging that serious
thought is being given particularly to the changes
which technology is inevitably making on the ways we
have traditionally solved problems.
I appreciate your sharing this interesting
work with us.
Mr. Robert A. Butler
Director
The Assessment Group_.-
207 Norman Place
Santa Monica, California
90405
Approved For Release 2004/03/15 : CIA-RDP80M00165AO02400080004-7