A COMPARISON OF CONSUMPTION IN THE USSR AND THE US

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP77M00144R000300060017-8
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 22
• Document Creation Date: December 20, 2016
• Document Release Date: November 8, 2006
• Sequence Number: 17
• Publication Date: January 1, 1964
• Content Type: REPORT

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A COMPARISON OF CONSUMPTION
IN TUE USSR. AND '. `HE US
~\~_JC? S Of ~b\
January, 1964
NOT TO BE REPRODUCED IN WHOLE OR
IN PART WITHOUT THE PERMISSION OF
TIIE CENTRAL INTELLIGENCE AGENCY
CENTRAL INTELLIGENCE AGENCY
OSD REVIEW COMPLETED
10/31/03
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A COMP IK.ISON OF CONSUMPTION
IN TIE USSR AND THY.-{l US
(Supplement)
January 1964
NOT TO,JE REPRODUCED IN WHOLE OR
IN PART WITHOUT THE PERMISSION O.
THE CENTRAL INTELLIGENCE AGENCY
CENTRAL iNTELLIGE NCE AGENCY
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1. Please provide an English translation of the
defense budget figures as they appear in the
official Soviet published documents for each
of the past ten years.
The Soviet Union provides very little public
information on its annual expenditures for defense
purposes. Only one statistic--the single line entry
"For defense" in the annual state budget--is announced.
each year. The published figures for the past ten years
are shown in the tabular presentation under Question 2.
The published state budget contains no information on
what activities are covered by these figures.
There have been occasional references in Soviet
publications dealing with the financing of the economy
to a Ministry of Defense budget known as the smeta (estimate).
These accounts describe the smeta as covering a wide
range of defense activities while making no mention of
military R&D. So far, however, there has been no
basis for establishing a link between the Ministry of
Defense smeta and the defense expenditure line in
the state budget.
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2. Please provide an English translation of those
portions of the official Soviet published budget
documents believed to contain defense and defense
related expenditures not contained in the offi-
cial figures for defense for each of the past
ten years.
The principal categories of the published Soviet
budget are listed in the attached table. Those cate-
gories believed to contain defense or defense related
expenditures are shown in italics. For the first main
category in the budget--Expenditures for the National
Economy--the sub-elements that are given do not exhaust
the total, leaving an unidentified residual. Also, an
overall budget residual may be calculated by subtract-
ing the identified categories of the budget from the
total budget figure.
There is no firm evidence concerning the location
of Soviet defense spending in the State budget over
and above the explicit allocation to Defense. Most
military R&D, however, is thought to be funded through
the Science allocation. In addition, outlays for a
portion of pre-induction military training may be
contained in Education expenditures and some military
medical benefits may be contained in Health expendi-
tures. Pensions are thought to be paid from Social
Security funds. Some researchers believe that the
unidentified residuals may contain military activities.
The allocation to Industry and Construction presumably
includes investment in the defense industries (not part
of direct defense expenditures, but a defense related
item) and possibly some investment in industrial
facilities that may perform military R&D.
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 NSS1t lp)~$r%ffMeW 2 3 6 : ; 4f g g 017-8
(Billion Rubles in Curren : ices)
19:65 . 1966 1967. 1968 1969 1.9.70. .19.7.1. 1.9.72 19.73 197-4
101.621 105.577 115.242 128.558 138.531 154.600 164.15 173.20 183.98 198.5
the National Economy 44.915 45.175 52.761 58.727 62.384 74.554 80.4 84.9 91.3 :.A.
industry and Construction 20.990
Aor-iculture and Procurements 6.772
Trade 2.272
Transport 2.585
Communications 0.244
rousing and Municipal
Economy 4.226
u'n-~~enti fied Residual
computed) 7.826
For Social-Cultural Measures 38.165
Education 13.245
Science 4.265
Health 6.623
Physical Culture 0.045
Social Security 9.050
Social Insurance 4.037
Assistance to Mothers 0.462
Social Security Fund for
Collective Farmers
0.437
For defense 12.780
For Administration 1.280
n.'"e tified Residual
Computed) 4.481
Plan figure.
21.056 23.530 24.150 24.681 30.532 N.A. N.A. N.A. .d.
6.304 6.961 9.271 10.853 12.375 N.A. N.A. N.A.
2.842 4.921 6.094 6.430 6.258 N.A. N.A. N.A.
2.356 2.349 2.377 2.563 2.841 N.A. N.A. N.A.
0.257 0.269 0.277 0.325 0.264 N.A. N.A. N.A.
:k
.'.A.
4.526 5.046 5.247 5.885 6.458 N.A. N.A. N.A. d.A.
7.834 9.685 11.311 11.647 15.826 N.A. N.A. N.A. N.1~.
40.761 43.481 48.310 51.860 55.941 59.437 63.485 67.343
14.120 15.043 16.326 17.425 18.226
4.612 5.050 5.522 5.884 6.543
7.047 7.384 8.072 8.492 9.208
0.053 0.067 0.066 0.060 0.077.
9.745 10.372 11.256 12.017 12.738
4.328 4.717 5.475 6.286 7.335
0.456 0.449 0.448 0.438 0.435
71.22
a!
26.295 27.949 29.808 31.2
9.623 10.030 10.495 10.
13.624 14.448 15.109
7.774 8.302 9.123
0.431 0.420 0.408 > 28.43.,
0.400 0.400 1.145 1.259 1.380 1.690 2.336 2.400
13.403 14.500 16.700 17.702 17.854 17.9 17.9 17.9 1?.J.
1.412 1.512 1.616 1.716 1.661 1.8 1.8 1.9
4.826 2.988 3.205 4.869 4.590 4.663 5.115 5.787 N.A.-
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-.=,s that are italicized are believed to contain some defense or defense-related expenditures.
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3.
Please provide a table showing the US defense
and defense
the past Z0
amounts the
related
years,
Soviet
expenditures for each of
expressed in the ruble
Union would have to spend
to replicate the same forces. In other words,
I would like you to use the same 'building
block"approach employed to estimate what
it would cost the US to purchase the Soviet
forces in US dollars, to estimate what it would
cost the Soviet Union to purchase US forces
in rubles. I would like this table to be
broken down in two ways, one using the break-
down contained in the VationaZ Defense Table
on Page 7Z of the US Document for Fiscal Year
2976, and the other using the major military
programs breakdown in the defense budget table
on Page 73 of the Fiscal 2976 Budget Document.
We do not have the ruble cost information necessary
to develop such estimates at this time. One major
conceptual problem in such an undertaking is how to
ruble cost those items in the US inventory which are
beyond the technological capabilities of Soviet industry.
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4. Please provide projections for the Soviet
defense budget for each of the next five
years, broken down in force structure, based
on each of the following three varying options;
that the Soviet Union will spend the same
percent of #WP.as it is now spending for
defense, that it will spend a smaller percent
of GJP.on defense, and that it will spend a
greater percent of GVP on defense.
We do not have such projections at this time.
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5. In. estimating Soviet defense expenditures is
any allowance made for inflation; if so what
assumptions are made about price changes
in the defense sector of the ;Soviet Economy?
Is any account taken of inefficiency or Zoss
of productivity due to bottlenecks, shortages
or governmental red tape, or costs imposed
upon the Soviet economy due to inflation in
other countries?
Our estimates of the dollar costs of Soviet defense
activities are in constant prices. This is done to
permit examination of growth trends in real terms, inde-
pendent of price changes. Our present time series are in
1973 dollars. They reflect US military wage rates,
scarcities, and productivity levels of'that year. We
revise these dollar cost estimates every year. Our next
estimate, which is now in preparation, will be in 1974
dollars. The new estimate will reflect the sizable
inflation in US defense prices that took place between
1973 and 1974.
We believe the impact of inflation in other countries
on Soviet military costs has been negligible.
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 I.,V I I I I UL1 I ItlL
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6. What are the areas of uncertainty in the
direct costing or building block method of
estimating Soviet Union spending? What
margins of error are assumed for each part
of the Soviet force 'structure?
We use a direct costing method to estimate the cost
in the US of procuring and manning a military force of
the same size and inventory of weapons as that fielded
by the Soviets and operating that force as the Soviets
do. This approach begins with detailed estimates of
the Soviet forces and their operations. The cost
estimates are generated by applying dollar prices to
these weapons programs and activities.
Personriel'COsts. Our dollar cost estimates for
personnel are derived by applying US compensation rates
to the Soviet manpower estimates. The compensation
rates reflect US pay and allowances, rations, and
clothing allowances for the base year (1973). The
methodology used for estimating Soviet manpower
strengths is described under Question 13.
Procurement Costs. These are derived by applying
dollar cost estimates to our estimates of the numbers
and types of weapons and other equipment procured by
the Soviets. The methodologies used in our production
estimates are discussed under Question 10. We have high
confidence regarding the production of large, visible
items which are the most costly items in the Soviet
inventory. While we do not believe that any major Soviet
weapons production programs have escaped detection, our
estimates probably err in the direction of understating
actual production to the extent that we fail to identify
some of the smaller less visible items.
The methodologies we use in estimating the dollar
prices that we apply to production estimates are described
under Question 11. To the extent that we have to fall
back on US analogs when our knowledge of the physical
and performance characteristics of Soviet systems is
incomplete and that these US weapons are more complex,
our estimates tend to overstate the costs of producing
the Soviet design.
Operating Costs. Much less is known about operating
rates for Soviet weapon systems. Information is available
on such things as the time between overhauls for ships,
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on the number of flying hours for aircraft and mileage
usage rates for ground force systems. In general, this
information is much lower in quality and quantity than the
data available on the types and numbers of weapon systems
produced and deployed. Consequently, our estimates of
Soviet operating costs are based largely on US analogy
and adjusted to reflect Soviet usage rates where possible.
Evaluation. In summary, our estimates of the dollar
outlays that would be required to purchase and operate
Soviet military forces are limited by the Intelligence
Community's knowledge of these forces and their changes
over time. That knowledge, however, has been enhanced
in recent years by sophisticated technical means of collec-
tion. Improved collection efforts have resulted in better
descriptions of systems and programs. Such data permit
more accurate estimates both of quantities and unit costs
to be made. Nonetheless, our estimates should be viewed
as having a margin of error, which for some items could
be substantial. On balance, our best judgment is that
the overall dollar estimate is not likely to be in error
by more than 15 percent. It is important to understand
that this judgment, although informed, is nonetheless
subjective and not the result of statistical measurement.
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7. What assumption is made for the portion of
total Soviet R&D spending allocable to
military R&D? When was the assumption first
made? What is the rationale for the assump-
tion?
While we use published Soviet data in estimating
Soviet military R&D spending, our estimates are not
derived as a proportion of the announced science alloca-
tion.
CUI)\NF E i II\[
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 o'= y~ I I A L
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8.... discuss the differences in U.S. and USSR
strategies with respect to emphasis on basic
research as opposed to development, multiple
designs, fly-offs, and numbers of prototypes.
The Soviets do not follow any general rule with
regard to competition for weapons design. There appears
to be some form of competition in most cases but the
extent of competition varies.
In ballistic missiles, the Soviets typically have
developed two designs for each operational requirement.
At the conclusion of the test phase, one has received
extensive deployment and the other merely token deploy-
ment.
This development strategy has been interpreted as
competition. Another interpretation is possible. We
know the Soviets are cautious relative to the US about
adopting new or radically different technology in
their weapons design, and they require that new tech-
nology be demonstrated in prototype flight hardware
prior to series production. Some analysts believe
that the lower technology missile is developed as a
hedge against the possible failure of the more advanced
design.
Soviet aircraft are designed by a prototype-oriented
system which has been in operation, essentially unchanged,
for nearly 40 years. Requirements for new aircraft are
established by either the Ministry of Civil Aviation or
Defense and sent to the Ministry of Aviation Industry.
The latter Ministry, in charge of all aviation research
and development, either disagrees with the requirement
and seeks modification or agrees and orders the start
of design. The Central Design Office issues the per-
formance requirements to two or more of the ten design
bureaus.
The design process starts with a preliminary
design study. This phase takes only a few months to
complete. Several preliminary design studies may be
prepared to meet the requirement. From these, some
are selected to continue into detailed design. Pro-
totypes are produced and flight tested by the design
bureau before a production decision is made.
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CONNF I DENT I A L
 CONFIDE-NT!AL
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Competition among design bureaus almost always
exists in the preliminary design phase and, for more
advanced aircraft, will continue through'the detailed
design stages. There may have been a few instances
where the competition has continued through the prototype
stage with'the winner chosen by a flyoff between the
different prototypes.
With or without competition, the Soviets use a
"fly before buy" system. They do not authorize produc-
tion until a final and often modified version of the
selected prototype has been approved. Through the 1960's
aircraft design bureaus constructed at least three
prototypes per program. In the case of fighter aircraft,
as many as ten were produced. In the US about 15 test
aircraft are normally employed in fighter development
programs.
In recent times the Soviets have developed more
different missile and aircraft systems than the US.
By developing in many cases two missile systems to
fulfill a given mission requirement the Soviets have
produced 20 ICBM designs, the US 7. The number of
SLBM designs produced by both countries is much closer--
6 by the Soviet Union and 4 by the US.
The number of fighter aircraft designs flight
tested since 1950 is about the same in the two countries
--25 by the Soviet Union and 26 by the US. This ratio
has changed through time, however. During the fifties
17 US fighter aircraft achieved first flight status
compared to 8 Soviet aircraft. During the 1960's and
1970's, however, the situation reversed. The Soviets
produced 17 designs and the US 9.
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CON D
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9. In last year's testimony you indicated that
the ratio of direct personnel costs to
operating costs was higher in the Soviet
Union than in the US. (see page 33 of the
published hearings). As pay scales for
military personnel are far lower in the
Soviet Union than in the US, I would have
assumed that the opposite would be the case.
Please explain your findings.
The costs referred to on page 33'of the published
hearings are in dollars. When estimating dollar per-
sonnel costs we use US compensation rates--i.e., the
cost of procuring manpower in the US. Inasmuch as
the Soviet force is more manpower intensive than the
US force, in dollar terms the ratio of personnel costs
to total operating is higher in the Soviet force.
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10. Several private. groups such as the Institute
of Strategic Studies publish inventories of
Soviet forces including number of types of
weapons. Your estimates of the annual defense
expenditures of the Soviet Union assume
knowledge of annual production. Please ex-
plain how annual production estimates are
derived for aircraft, missiles, ships, tanks,
trucks, small arms, ammunition and other
items.
Production of trucks, small arms, and ammunition are
more difficult to estimate. These estimates are for the
most part based on fragmentary direct data and require-.
ments implicit in order-of-battle estimates. In the aggre-
gate, trucks, small arms, and ammunition make up less than
5 percent of total Soviet procurement costs.
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SECfj 1
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 ."Ili .
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11. What provision is made in your estimates
of dollar costs to purchase Soviet forces
for the austerity or complexity of the
different types of weapons, or do you
estimate the cost based on the nearest US
equivalent of each Soviet weapon?
Our dollar concept is the cost of producing the
Soviet design in the US using base year US production
technology, input prices and profit margins. Our
ability to reflect the Soviet design depends to a large
degree upon our knowledge of the physical and perform-
ance characteristics of the individual weapons. When
we have good data, our cost estimates capture the
"austerity or complexity" of the Soviet weapon. We
have to fall back on US analogs for weapons or com-
ponents when-our knowledge is less complete. In
these cases we attempt to adjust the analog results
by extrapolating from our general understanding of
Soviet design practices.
For some weapons we have engineering cost studies
performed by US industrial firms. (We try to do this
whenever we get possession of engineering drawings or
of the weapons themselves.) Most of our costs are
derived using cost estimating relationships (CERs)
which are based on US weapons costs adjusted to "Sovietize"
the weapon. Some weapons--usually lower cost items--
are costed on the basis of the nearest equivalent US
weapons.
To the extent that we are not able to "Sovietize",
and US weapons used in the cost estrnating methodology
are more complex, our estimates tend to overstate the
costs of producing the Soviet design. This is pro-
bably the general case. It should be noted, however,
that we have a number of cases where acquisition
of Soviet weapons has shown them to be far more complex
--and far more costly to produce--than we had pre-
viously estimated.
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12. What would be the cost in dollars for
the US to build the following Soviet
systems: the Mig 23, the Krivak class ship,
the ABM deployed around Moscow, the SST?
The estimates listed below are in 1973 US dollars
and are exclusive of RDT&E costs. The aircraft
estimates are fly-away costs which do not include
spares. These costs would be much higher if spare
enginees were included inasmuch as the Soviets normally
use five engines per engine emplacement over the life
of the aircraft. The US spare practice calls for about
1.5 engines per engine emplacement over the life of
the aircraft. We have neither the direct nor the analog
information necessary to make a confident estimate of the
dollar cost of the TU-144.
MIG-23 (Flogger) Million 1973 Dollars
Cumulative average cost
for production run of
approximately 1000 air-
craft.
Krivak Class Ship
Cost of follow-on ship
ABM System around Moscow*
Facilities, missiles and
equipment at four launch
locations
Early warning and battle 1040
management radars
Radar calibration satellites 600
*Does not include nuclear warheads or operating costs.
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13. Please discuss the method used to estimate
the number of Soviet troops including the
use, if any, of the Soviet tables of organi-
zation.
The Soviets provide no information on the manning
of their military forces. It is necessary, therefore,
for the intelligence community to estimate the person-
nel strength of these forces.
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.14. In last year's testimony you apparently used a
method other than the direct cost or building
block approach to estimate Soviet expenditures
for civilian goods and services. For example,
on page 52 of the published hearings, health
expenditures in the USSR are shown as only
32 percent per capita compared to the US. How-
ever, there are more doctors per capita in the
USSR, more hospital beds, and a system of com-
prehensive free medical care. Much the same can
be said for education, shown as only 63 percent
per capita compared to the US. How are your
figures derived and would the results he different
if estimates were made for how much the US would
have to spend in dollars to replicate the same
civilian expenditures in the Soviet Union?
In the transcript of last year's hearing, pages 52 to 55
relate especially to Question 14. The estimates on page 52
give Soviet per capita consumption as a percent of US per
capita consumption in 1972 as follows:
Total . . . . . . . . . . . 34%
Education . . . . . . . . . . 63%
Health . . . . . . . . . . . 32%
Personal services . . . . . . 32%
Durable goods . . . . . . . . 9%
Soft goods . . . . . . . 19%
Food . . . . . . . . . . . . 60%
These results stem from analytical work extending back
more than a decade. Each comparison is our best judgment
of a single number that represents a range of possible esti-
mates. Because of conceptual ambiguities and the incomplete
nature of both Soviet and US data, however, the numerical
results can only be approximations that support the following
generalizations: (a) Soviet per capita consumption is a
fraction of US per capita consumption, with "about one-third"
being a handy representation of the relation, and (b) Soviet
per capita consumption--which is governed by the leaders'
decision, not by free choice in the marketplace--is compara-
tively high in certain categories (food and education), com-
paratively low in others (durable goods and soft goods).
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To estimate Soviet per capita consumption as a percent
of US per capita consumption, we take the geometric mean of
(1) Soviet per capita consumption valued in rubles as a
percent of US per capita consumption valued in rubles, and
(2) Soviet per capita consumption valued in dollars as a
percent of US per capita consumption valued in dollars. The
attached report (A Comparison of-Consumption in the USSR
and the US, CIA, January 1964) describes the methods and
underlying data in a good deal of detail. The comparison can
be summarized in the following formula:
X = 100 , NUS a PUS - QUSSR PUSSR,QUSSR
1USSR US US PUSSR,QUS-`
"X" = Soviet per capita consumption as a percent of
US per. capita consumption
"N" = population
"P" = unit price of a given consumption good or service
?'Q" = quantity of that good or service
Since we cannot identify the prices and quantities for
all of the goods and services consumed by the Soviet and US
populations, we start with categories of consumption--
representing both private and public expenditures as reported
in the Department of Commerce accounts for US GNP and as
estimated from published Soviet data. We then value US con-
sumption in rubles and Soviet consumption in dollars to obtain
the comparisons described above. The purchasing-power-parity
ratios (ruble-dollar ratios) derived in the attached report
serve as the bases for these conversions. Calculated from an
extensive sample of consumer goods and services in 1955,
the ruble-dollar ratios have been updated year-by-year on
the US side with price indexes published by the US Department
of Commerce. Because Soviet consumption is estimated in
constant 1955 ruble prices, the Soviet side of the price ratios
does not need to be updated.
Even if specifications, quantities, and prices of US and
Soviet goods were perfectly known, calculations of relative
consumption would vary depending on which price system is
used for valuation. In general, the comparison using ruble
prices favors the United States, and the comparison using
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dollar prices favors the USSR. This is so because ruble-dollar
ratios tend to be high on goods and services which the US pro-
duces relatively more efficiently and low on goods and services
which the USSR produces relatively more efficiently. The geo-
metric mean of comparisons in two different sets of prices is
a compromise commonly used in making international compari-
sons.*
In fact, the establishment of specifications, quantities,
and prices of Soviet goods is a painstaking task. Years of
work by government and academic specialists have only partially
overcome the serious deficiencies in the Soviet data and the
inherent difficulties of comparing two quite different economies.
In particular: (1) the Soviet economy is not designed to
respond to price signals so that certain kinds of goods are
not available (for example, a large number of additional housing
units could be sold at existing or higher prices); (2) the
range of choice is a key aspect of consumer welfare, and the
question of choice still is not taken into account in our
comparisons; (3) Soviet goods and services are generally of
lower quality than US goods and services, notable examples
being housing, construction, health and education services,
and maintenance and repair services. The allowances made for
quality in our comparisons probably err on the conservative
side; in the case of labor services in health and education,
we apply a 20% quality discount based on a consideration of
standards of training. A 20% quality discount is also applied
to the machinery and construction components of new fixed in-
vestment.
Certainly the main problem with the method is its reliance
on benchmark data almost 20 years old. The price indexes that
are used to update the 1955 ruble-dollar ratios become less
reliable as time passes. We have therefore been engaged in
a general revision of all of our ruble-dollar ratios, including
those for consumer goods and services. The new ratios will
reflect Soviet and US prices of the early 1970s.
See, for example, Paul Samuelson, "Analytical Notes on
International Real Income Measures," Economic Journal,
September 1974, p. 600.
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The comparison of consumption of health and education
services in the USSR and the United States covers current
purchases of material goods and labor services; investment
in buildings and equipment is classified in 'the new
fixed
investment component of GNP by end use. In the 1973 compari-
son, our procedure resulted in the following ruble and dollar
comparisons:
Current Public and
Private Expendi-
Billion 1955 Rubles
Billion 1973 Dollars
tares on:
USSR US
U&SR ~~ U?
Health
7.2 30.9
57.8 83.1
Education
12.3 21.0
77.7 77.4
Clearly, the USSR does much better in a dollar comparison than
in a ruble comparison. The reason is that (1) the ruble dollar
ratios for wages of employees in health and education (.07 and
.11, respectively) are much lower than the ruble-dollar ratios
for material purchases (.71) and (2) the United States spends
far more on material purchases per employee in health and
education. Therefore, a ruble valuation gives greater weight
to the heavy US outlays on material purchases while a dollar
valuation gives greater weight to manpower, favoring the
USSR.
In health and education, as in the measurement of many
services, comparisons must be made in terms of inputs--man
years of labor and supplies of materials. The consequences
of health and education services--healing, prevention of
illness, training, knowledge--defy measurement. Although the
USSR may approach or even surpass the US in the provision of
individual inputs such as number of doctors, elementary school
teachers, or hospital beds, these are poor indicators of the
total quantity of inputg allocated to health or education.
In the United States, for example, the range of services pro-
vided by hospitals and the equipment and drugs that are avail--
able for patient care markedly exceed the capabilities or the
operating procedures of the typical Soviet hospital.*
* Because of the change in the range of services provided,
measuring the real expenditures on health and education in
the US in 1950 and 1975 by the number of doctors and the
number of teachers would also result in a substantial under-
statement of the difference in the volume of services provided.
4
Approved For Release 2007/03/06 : CIA-RDP77M00144R000300060017-8