STATEMENT BY ALLEN W. DULLES DIRECTOR OF CENTRAL INTELLIGENCE TO THE SUBCOMMITTEE ON ECONOMIC STATISTICS OF THE JOINT ECONOMIC COMMITTEE OF THE CONGRESS OF THE UNITED STATES 13 NOVEMBER 1959 IN WASHINGTON D.C.

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP70-00058R000100210028-7
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 25
• Document Creation Date: December 9, 2016
• Document Release Date: July 24, 1998
• Sequence Number: 28
• Publication Date: November 13, 1959
• Content Type: STATEMENT

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13 November 1959
Statement by
ALLEN W. DULLE5
Director of Central Intelligence
To The Subcommittee on Economic Statistics
OF THE JOINT ECONOMIC COMMITTEE
OF THE CONGRESS OF THE UNITED 5TA.TES
13 November 1959
In Washington, D. C.
Few subjects arouse more heated controversy than that
which your Committee is studying; namely, the comparison of the
economies of the United States and the Soviet Union.
There are proponents of the view that the Soviet Union is
relatively backward. There are others who picture it as a
galloping giant which exceeds us not only in its present speed but
in staying power.
In the Central Intelligence Agency we devote a major effort
to the analysis of this problem. We gather together the best
technicians available, in and out of Government, to advise us on
the various aspects of the Soviet economy -- from agriculture on
the one hand to the most sophisticated technical and military items
on the other. We have a great mass of evidence to weigh. We try
to do it without prejudice.
We have also carefully reviewed the papers which your
Committee has already received and published. You are to be
congratulated on the general excellence of these studies.
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There are many reasons for the divergence of views among
experts. A great deal depends upon the particular sector of the
Soviet economy that is under study.
The Soviet Union is extremely proficient in certain areas,
especially in the scientific and technological fields related to its
military effort. In other areas which up to the present time the
Soviets have considered secondary, their performance ranges
from fair to mediocre.
In some important areas, particularly agriculture, their
efforts have been hampered by the tendency to impose on the
tillers of the soil some of the precepts of Marx through the system
of collective farms and rigid state control. Such ideological
considerations, in recent years at least, have not hampered their
progress in the field of science and technology.
Returning American experts after visiting the USSR reflect
these contrasts. Those experts who have concentrated their study
on Soviet achievements i~ the fields of steel production, heat
resistant metals, electronics,' aeronautics and space technology,
atomic energy, machine tools, and the like, come back with the
general findings that the USSR is highly competent.
On the other hand those who have studied what the Soviets
are doing in agriculture, roadbuilding, housing, retail trade,
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and in the consumer goods field, including textiles, find them
lagging far behind us. Some recent returning visitors to the Soviet
Union remarked with surprise that they can send a Lunik to the
moon, but don't bother to make the plumbing work.
This is a crude comparison but does help to illustrate where
Soviet priorities lie.
The lag I have mentioned, does not reflect Soviet inability
to do these particular things. It does evidence a definite decision
to defer them to the higher priority objectives of industrial and
military power and an unwillingness, at this time, to devote the
funds and manpower necessary to the modernization of production
equipment in the consumer goods field.
A.t first blush, one might conclude that the USSR was a
country of contrasts but this is only superficially true. It is a
country of concentration -- concentration on those aspects of
production and of economic development which the Soviet leaders
feel will enhance their power position in the world. Theirs is a
materialistic society. They assign a low priority to those
endeavors which would lead to a fuller life for their people.
The attitude they take toward automobiles is a good illustra-
tion of this policy. Mr. Khrushchev was undoubtedly impressed
by the view he gained of our overall economic strength. He was by
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no means persuaded that he should emulate us in the automotive
field. In an address at Vladivostok about a month ago, he said
that it was ,
"not at all our aim to compete with the Americans
in the producing of a large number of cars. We shall
produce many cars but not at the moment. We want to
set up a different system for the use of cars than the one
in capitalistic countries. Cars will be used in our
country more rationally than it is done by the Americans.
Common taxicab parks will be widely developed in our
country, where people will take cars for essential purposes. "
He did not add, but it does cross one's mind, that his system
also gives the regime a better chance to maintain its control over
the people.
In effect Khrushchev is also implying that he does not propose
to divert to car production resources which could contribute to
build up heavy industry and military strength.
Another illustration of the Soviet ability to concentrate and
allocate resources for the greater power of the State is in the use
made of highly skilled manpower including scientists and technologists.
Once they have determined upon a high priority project -- and
they have fewer echelons of decisions to surmount than we before the
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final go-ahead is given -- they are able to divert to this project
the needed complement of the ablest technicians in the USSR
which the particular task demands. They can also quickly
allocate the necessary laboratory or factory space and manpower
required. Today although their overall resources are far less
than ours, they can allocate what is necessary if the priority is
high enough.
They cannot do everything at once and they do not work on
as many competing designs as we. But in many of the technical
and military fields the leadtime from the drawing board to the
finished product is less with them than with us. This seems to be
true despite the fact that generally speaking the technical competence
of our labor, man for man, exceeds theirs.
Furthermore, our military production program is in
competition as respects brains in the planning, and brawn in the
production, with the requirements for the manufacture of consumer
goods. In the Soviet Union this type of competition now can be
suppressed.
The Soviets are also quick to review industrial and military
programs when they find them inconsistent with their overall goals
or too costly in terms of money or manpower. In 1956 they
advertised widely a program in the field of nuclear power for
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industrial and peaceful purposes, of 2, 500 megawatts to be
achieved in 1960. Gradually they have screened this down to a
point less than 30% of their initial goal. Apparently they found
it too costly for what they were achieving, whether in terms of
electric power or in terms of its propaganda value.
While they keep as secret as they can, the details of their
military programs and progress, Mr. Khrushchev did tell us that
heavy bombers should be consigned to museums and that he is
generally turning from bombers to missiles. The evidence tends
to bear out a change in policy here as well as in naval construction
where the building of cruisers has apparently been halted..
While we know a great dea 1 more about their overall military
programs than the Soviet tells us, their screen of secrecy makes
it difficult to estimate with precision the exact percentage of the
Soviet GNP which it absorbs. We estimate, however, that with a
Gross National Product (GNP) of about 45% of ours -- computed on
the same basis as we compute our own -- their military effort, in
terms of value, is roughly comparable to our own -- a little less
in terms of hardware produced but substantially more in terms of
manpower under arms. Military hardware comes out of the most
efficient sector of their economy.
With respect to the productivity of Soviet labor generally,
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the comparative picture is very different. Today they have on
the farms over 45 million rnen and women, or nearly one-half
of their total labor contingent. With us the number of workers
in agriculture is only about l0% of our total labor force and with
this force we produce about one-third more than does Soviet
agriculture. In the industrial sector they have 20?jo more labor
than we to produce the equivalent of about 40% of our total
production.
It is the task of this Subcommittee, I understand, to reach
some conclusions regarding the present strength of the Soviet
economy, its past rates of progress, and its prospects for future
growth. With these introductory remarks on the general back-
ground of the Soviet economy and its overall objectives, I will
turn to the particular subjects of your inquiry.
The year 1913 is taken as the base for many Soviet studies
and claims. The Soviets try to picture pre-revolutionary Russia
as the economic counterpart of Black Africa today. The official
myth about the relative backwardness of Imperial Russia has been
deliberately created so that communist economic achievements
will appear to be even greater than in fact they have been. The
Soviet party line would have you believe that Russian industrial
output was less than 7 per cent of that of the United States in 1913.
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Recently the dean of Soviet economists, Academician
Strumilin, published a pamphlet which deflated official communist
claims. He calculated Soviet 1913 output at between 11 and 12 per
cent of that of the U. S. Having passed his 80th birthday,
Strumilin undoubtedly felt it was time to write objectively.
The weight of evidence, as I see it, would place pre-
revolutionary Russia as the sixth~or seventh largest industrial
power of its time, though relatively backward by then existing
Western European standards of per capita output.
Further, Russia had in hand many of the keys for rapid
economic development which were, of course, taken over by the
communists after 1917. For example, its agricultural output in
1913 was not only able to provide an adequate diet for its people,
but also to generate an export surplus. There was no pressure of
population against food resources.
The country was richly endowed with coal, iron ore,
petroleum deposits and other essential industrial materials. For
example, Russia accounted for about half the world's production
of petroleum in the early 1900's. After the subsequent major
discoveries in the United States, Russia's relative position
declined, but in 1913, she was still a major world oil producer,
Even in 1913 Russia had a modest but growing machine building
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industry, a well developed rail transport net, a supply of technical
talent and a tradition of excellence in pure science and mathematics.
:;~ ~
So much for what existed prior to the communist takeover in
1917. The first major problems that faced the revolutionists were
political and military -- to get Russia out of the war with Germany,
to bring the internal civil war to a successful conclusion, and later
to resolve the battle for control within the Communist Party itself
which followed the death of Lenin. This took the better part of a
decade. By 1928, three important developments had taken place:
First, Stalin had emerged as the absolute victor in the
internal power struggle.
Second, the economy had then been restored to its 1913
level of output, and
Third, out of the murky materialistic dogma of Marxism and
Leninism, the surviving Communist leadership had molded a
program of economic action which remains in force today.
The central theme of this program is forced draft industrialization.
Having determined on this objective the Communist leadership
proceeded to implement their decision through the mechanism of
detailed plans, rigid allocation of resources, and the use of force
where necessary.
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In the short space of 30 years, from 1928, despite the
ravages of four war years and several years of reconstruction
between 1941 and 1950, the Soviet Union has become second among
the world's industrial powers. There is no dispute on this point.
Furthermore, in reviewing the various studies of Western
scholars, I have been struck by the substantial agreement on the
rate of industrial growth achieved by the Soviet Union over the
period since 1950. The range of estimates is from 9 to 10.5 per
cent a year.
The findings of a study given you by the National Bureau of
Economic Research, appear on the surface to be an exception.
This exception, in my opinion, is more apparent than real. The
N. B. E.R. study covers civilian production only, whose annual
growth is placed at 7. 7 per cent for the period 1950 - 1955.
The most important difference between the National Bureau's
figure of 7. 7 per cent and our estimate of about 10 per cent is due
to our inclusion of military production which looms large in the
overall production figures. The addition of military equipment to
the National Bureau's index would tend to raise it into the range I
have indicated.
Virtually all Western measurements point to this conclusion --
that Soviet industrial production has been growing at a rate at least
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twice as rapidly as that of the United States since 1950.
In reaching this and other comparative figures of industrial
production, we have adjusted Soviet data to make them comparable
to our own, and have included in industrial production the output
of all manufacturing and mining industries, as well as public
utilities.
Turning from industrial production to a more comprehensive,
but in many ways less significant, measure of economic growth,
namely gross national product, we find similar parallels between
the CIA. and independent private studies of the Soviet economy.
We estimate the growth of Soviet GNP during the present
decade, 1950 - 1958, to have been at an annual average rate of
about 7 per cent measured in constant prices. Estimates by others
for similar time periods range from a low of 6 per cent to a high of
9 per cent. The degree of agreement is perhaps even closer than
this range would indicate since these estimates have varying initial
and terminal dates within the decade. The conclusion, then, is that
Soviet GNP has also been growing twice as rapidly as that of the
U. S, over the past eight years.
Some observers have noted that, in the past, the United States
experienced long-term rates of growth comparable to the Soviet
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achievement from 1913 to the present. Such rough statistical
equality would be true, for example, if the four decades of U. S.
growth ending with our entry into World War I were selected for
comparison. Those who would play down Soviet achievements leap
from this statistical springboard to the conclusion that there is
nothing unique about Soviet industrial progress. Indeed, they say,
we did it ourselves at a "comparable stage of development in the
United States. "
Such conclusions omit mention of the uniquely favorable
conditions that stimulated our growth prior to World War I. Such
factors include the massive immigration of European workers, the
influx of investment funds to make possible our rapid rate of
industrialization, and the low level of defense expenditures. The
paint is not only that these factors no longer exist in the United
States, but also that they never existed for long in the Soviet Union.
~x ~x ~x
Let me illustrate this interpretation of history with another
case. The National Bureau study estimates Soviet annual industrial
growth from 1913 to 1955 at 3. 9 per cent. We have not felt that the
years from 1913 to 1928 were helpful in forecasting the future. These
years for the USSR were marked by wars, internal and external, by
political upheaval, mass imprisonment and chaos. By 1928 they
were about back to the 1913 level. For example, Soviet steel
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production in the USSR in 1913 was a little over four million tons;
by 1928 it was still just a little over four million tons.
If the first 15 years are eliminated, as we believe they should be,
and growth is measured from 1928 through 1958, the conclusion is
inescapable that Soviet economy has surged forward very rapidly
indeed. The rate was faster than for American industry over these
years, despite the effects of World War II, which stimulated
industrial growth in the United States but was a disaster for the USSR.
But let us not forget that the West did the pioneering. Soviet
industrial development was built upon, and profited from, the
technology already developed by the West from the days of the
industrial revolution.
The statement, frequently made, that much of postwar Soviet
growth came from looting :plants in Manchuria and East Germany,
does not stand up if closely examined. The early rehabilitation of
war-damaged Soviet manufacturing plants was aided by these forced
imports; the total benefit, however, was small compared with
wartime losses.
Espionage and the reliance on outside technical experts,
particularly German, is also alleged to have been of crucial
importance to Soviet industrial success since World War II. In a
few key industries of military significance, most particularly in
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atomic energy and in the field of ballistic missiles, this had some
importance in the very early stages of Soviet postwar development,
but looked at in the perspective of Soviet industrial military growth
as a whole, and their present competence in both the ballistic and
nuclear fields, these factors played a relatively minor role. They
have gained much more in the overall industrial field from the
acquisition and copying of advanced western models of specialized
equipment.
~ ~ ~
Turning from the past to the future, we have not attempted
to distill a "best estimate" of future Soviet prospects for economic
growth out of the vagaries of 30 or 40 years of Soviet history.
Instead, we have asked ourselves three questions:
First, what have the Soviet shown a capacity to do under
present prevailing conditions ?
Second, what do the Soviet leaders intend to do, and
Third, what are the Soviet's prospects for the achievement of
their goals, assuming there are no intervening catastrophies, such
as war, famine, and the like.
As to the first point, Soviet performance on past plans,
particularly postwar, has been relatively good. The Fourth Five
Year Plan (1946-50) was fulfilled well ahead of schedule. The goals
of the Fifth Five Year Plan were more than met.
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The Sixth Five Year Plan was abandoned early in its life.
It soon was apparent that it was too ambitious. In contrast, the
Seven Year Plan (1959-65) was more carefully drawn and is a
reasonable blueprint of attainable growth. Experience teaches
us that Soviet industrial plans should be taken seriously.
With respect to their intentions, the Soviet leaders have
left no room for doubt. The obsession with overtaking the U. S.
economy in the shortest possible historical time was the dominant
theme of the- 21st Party Congress held last February. It continues
to be so. Mr. Khrushchev's words to the Congress were:
"The Soviet Union intends to outstrip the United
States economically . To surpass the level of
production in the United States means to exceed the
highest indexes of capitalism. "
Visitors to the Soviet Union report the slogan, "Even
America must be surpassed, " painted on the cow barns throughout
the country.
The USSR is now in the opening stages of the Seven Year Plan,
which blueprints industrial developments through 1965. This plan
establishes the formidable task of increasing industrial output by
80 per cent over seven years. The achievement of this goal will
narrow the present gap between Soviet and United States industrial
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output. This would be particularly true in the basic raw materials
and producers goods fields.
In our judgment, these goals can be met, with certain
exceptions.
Past Soviet economic growth has rested largely on the plowing
back of every possible ruble into heavy industry, into the means of
production. It is the use of steel to make steel capacity greater,
rather than to use it up by manufacturing automobiles, for example.
The magnitude of the investment program in the Seven Year
Plan, the P1 an that runs through 1965, is impressive by any standards
of comparison. Capital investment in Soviet industry for the year
1959, the initial year of the plan, when measured in dollars, will
be approximately equal to industrial investment in the United States,
this year. The Soviets plan proportionately larger investment outlays
for the succeeding years through 1965. These absolute amounts of
investment are being fed into an industrial system whose output in
1958 was only about 40 per cent of the United States. Under such
forced draft feeding the Soviet industrial plant should grow at a
rapid rate.
On the other hand, we see no prospect that the agricultural
goals of the Seven Year Plan will be approached. The dramatic
increase of 7 per cent per annum achieved over the 1953-58 period
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was the result of a six-year effort to raise agriculture out of the
trough in which Stalin had left it. A variety of factors including
increased inputs of resources, more efficient use of resources,
and at least two unusually good weather years contributed to this
record growth.
We estimate, however, that these resource and efficiency
gains will not be repeated in the present plan period. Given average
weather, net agricultural output will probably not increase under the
Seven Year Plan more than 18 to 20 per cent by 1965. Such a modest
growth is well below the implied planned growth of 55 - 60 per cent.
Of course the regime may be stimulated to undertake drastic new
programs or new resource commitments not presently planned.
Because the agricultural sector of the Soviet economy in the past
has been its least efficient component we do not reject the possibility
of more improvement than we presently forecast.
~ ~ ~
Apart from the problem of agricultural growth, the Soviet under
the present Seven Year Plan will be forced to cope with certain fore-
seeable difficulties, in addition to the unpredictable -- such as acts
of God and the uncertainties which might attend possible policy
changes incident to any new management in the Kremlin. While these
foreseeable problems are significant we believe their impact is more
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likely to place a ceiling on the Kremlin's ambitions for over-
fulfillment rather than to threaten the success of the plan itself.
Among these foreseeable hurdles are the following:
First, due to the lower birthrate during the war years, there
is an obvious gap between the 1958-65 increase in the number of
persons in the working age group (15-69) and the labor force
increment necessary to meet the planned goals. The regime has
recognized this problem and is taking steps to fill the gap. The
men under arms, the surplus of people on the farms (if more
efficient techniques are introduced into agriculture) and students
found unqualified for advanced education, are possible sources of
additional manpower for industry.
Second, the metallurgical raw material and the energy
industries, which were slighted in the rapid expansion of the
1950-56 period, must now be brought into balance with the rest of
the economy. These former stepchildren will be receiving about
half of alt industrial investment under the Seven Year Plan. This
pattern of concentration of investment means that other industries
which contributed much to growth in the recent past will no longer
make the same relative contr~i.bution.
A third limiting factor on the Seven Year Plan goals will be
the need for a vastly increased housing program and the claim on
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construction resources for this purpose. It must compete with
higher priority "material strength" requirements in the industrial
construction sector. It will call for improvement over past
performance in completing construction of industrial projects
with the time and funds allotted.
Fourthly, the regime faces a complexity of problems in its
attempt to increase its automation and mechanization programs.
Finally, as we have already suggested, the Soviet leadership
will have difficult decisions to reach in dealing with the popular
demand for more consumer goods. We believe that they now
estimate that they can get away with a slight gradual improvement
which will be highly publicized, and probably exaggerated. This
happened in the case of the decree of a few days ago promising some
additional consumer goods. If, however, the popular demand should
greatly increase and the Soviet leaders made very substantial
concessions in this field, it would affect the Seven Year Plan goals.
~ ~ ~
Primarily because agricultural growth will be slower than
in the recent past, we project a moderate slowdown in the rate of
total Soviet output, or gross national product, over the next seven?
years, compared to the past seven years. However, even so, the
USSR will achieve significant gains by 1965 in its self -appointed
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task of catching up with the United States, particularly in industrial
production and should substantially meet the industrial goals of the
Seven Year Plan.
Thus we estimate that Soviet GNP will grow at the rate of
6 per cent a year through 1965, and even assuming that the United
States gross national product for the years 1956 through 1965 can
be increased to an annual growth rate of from 3. 5 to 4 per cent,
our best postwar growth rate, then Soviet GNP will be slightly more
than 50 per cent of ours by 1965, and about 55 per cent by 1970. I
would emphasize that we must increase our recent rate of growth,
which has been less than three per cent over the last six or seven
years, to hold the Soviets to such limited gains.
In the industrial sector the race will be closer. We believe
it likely that the Soviets will continue to grow industrially by
8 or 9 per cent a year. If they do so, they could attain by 1970
about 60 per cent of our industrial production, provided our
industrial growth rate averages 4 1/2 per cent per annum. A.ny
decrease in this rate would of course narrow the gap. For example,
if our rate were to average the 2 per cent which Khrushchev believes
is the best we have in us, by 1970 the Soviets' industrial production
would be more than 80 per cent of ours if they maintain the rate of
growth forecast.
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At the same time as we take note of Soviet progress, there
is no reason to accept Soviet exaggerations of their prospects in
the economic race.
In the propaganda surrounding the launching of the Seven Year
Plan, Khrushchev made a number of statements about Soviet
economic power which were nothing more than wishful thinking.
Specifically he stated that, "after the completion of the Seven Year
Plan, we will probably need about five more years to catch up with
and outstrip the United States in industrial output." "Thus," he
added, "by that time (1970), or perhaps even sooner, the Soviet
Union will advance to first place in the world both in absolute volume
of production and in per capita production. "
From other evidence before us we do not believe that
Mr. Khrushchev left the United States with any such illusion.
First of all, to reach such improbable conclusions, the Kremlin
leaders overstate their present comparative position. They claim USSR
industrial output to be 50 per cent of that of the U. S. It is in fact nearer
40 per cent. Also, as I have mentioned, this is predicated on Khrush-
chew's forecast that our growth will be only 2 per cent a year which
is wholly unrealistic.
Another of Khrushchev's promises to his people is that they
will have the world's highest standard of living by 1970. This is a
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gross exaggeration. It is as though the shrimp had learned to
whistle, to use one of his colorful comments.
Although year by year since 1953 the Soviets have been
continually raising the level of production of consumers goods,
their consuming public still fares very badly in comparison with
ours. This is true not only in the quality and quantity of their
consumer goods, but particularly in the hours of labor needed to
purchase comparable products. Last year, for example, Soviet
citizens had available barely one-third the total goods and services
available to Americans. Indeed, the per capita living standard in the
Soviet Union today is about one-fourth that being enjoyed by our own
people.
The Soviet government last month announced the program
for increasing the production of certain durable consumers goods
which I alluded to above. The decree did not mention automobiles
but included refrigerators, sewing machines, vacuum cleaners,
and the like.
Actually, the new program covers only about five per cent of
Soviet industrial production, and even in this narrow area raises
goals but modestly above previous plans. The decree is one of a
series introduced to provide a trickle of further benefits to the
consumer at relatively small cost to the state. This does not mean
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that Soviet industrial investment or military programs need be
reduced.
There is another economic area where the world has been
treated to propaganda statements by Khrushchev. Last February
he claimed and has since repeated many times, that the socialist
camp "now accounts for over one-third of the world's industrial
output" and "will produce over half of the total world industrial
output by 1965. "
Actually, total industrial production of the "socialist camp, " -
the USSR, the European Satellites and Red China - is only about
25 per cent of total world output. By 1965, it will be a few
percentage points higher but Free World production will still
account for over 70 per cent of the total.
To summarize and conclude:
(1)
The communists are not about to inherit the world
economically. But while we debunk the distortions of their
propaganda, we should frankly face up to the very sobering
implications of the Soviet economic program and the striking
progress they have made over the last decade.
(2) The fulfillment of the present Soviet Seven Year
Plan is a major goal of Soviet policy. Khrushchev and the Kremlin
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leaders are committed to it and will allocate every available
resource to fulfill it. The present indications are that Khrushchev
desires a period of "coexistence" in which to reach the objectives
of this plan.
(3)
Future economic gains will also provide the goods
and the services needed to further expand Soviet military power,
if they choose so to use it, and to carry forward the penetration
of the uncommitted and the underdeveloped nations of the Free
World. These gains will also permit the Soviet to further assist
in the rapid economic growth of the Kremlin's eastern ally,
Communist China, if Soviet policy considerations dictate such a
course.
(4) If the Soviet industrial growth rate persists at
8 or 9 per cent per annum over the next decade, as is forecast, the
gap between our two economies by 1970 will be dangerously
narrowed unless our own industrial growth rate is substantially
increased from the present pace.
(5)
The major thrust of Soviet economic development
and its high technological skills and resources are directed toward
specialized industrial, military and national power goals. A major
thrust of our economy is directed into the production of the consumer
type goods and services which add little to the sinews of our national
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strength. Hence, neither the size of our respective gross
national products nor of our respective industrial productions
is a true yard stick of our relative national power positions.
The uses to which economic resources are
directed largely determine the measure of national power.
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