DEVELOPMENT OF ECONOMIC INTELLIGENCE: OFFICE OF RESEARCH AND REPORTS VOLUME III 1967-1972

• Document Type: FOIA
• Collection: FOIA Collection
• Document Number (FOIA) /ESDN (CREST): 06896266
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 283
• Document Creation Date: September 12, 2023
• Document Release Date: June 30, 2023
• Case Number: F-2018-01193
• Publication Date: October 1, 1974

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(b)(3)
DEVELOPMENT OF ECONOMIC INTELLIGENCE:
OFFICE OF ECONOMIC RESEARCH
VOLUME III
1967 - 1972
by
(b)(3)
(b)(6)
OER 3
October 1974
Copy 1 of 2
PERMANENT HISTORICAL DOCUMENT
DO NOT DESTROY
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WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
WARNING NOTICE
SENSITIVE INTELLIGENCE SOURCES
AND METHODS INVOLVED
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STreit-rr
DEVELOPMENT OF ECONOMIC INTELLIGENCE:
OFFICE OF ECONOMIC RESEARCH
VOLUME III
1967 - 1972
by
Copies:
#1 � CIA�HS
#2 � DDI
SE
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Contents
Page
I. The Establishment of OER 1
A. The World Scene in 1967 2
(b)(3)
(b)(6)
B. The Reorganization of 1967
C. The End of Annual Program Planning � � �
II. New Leadership and New Directions
A.
B. International Monetary Problems
C. The Pueblo Incident
D. Biafra
E. Automatic Data Processing
III. The Traditional Targets
A. The USSR
1. Input-Output Analysis
2. Depth Analysis of Soviet Growth. � �
5
11
14
Becomes D/OER 15
16
31
36
40
49
51
53
56
3. Studies of Soviet Technological
and Managerial Efficiency 58
B. Eastern Europe 69
1. General 69
2. The Czech Crisis of 1968 75
C. Communist China 80
ii
,,Qrftr
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IV.
Vietnam
Page
86
A.
Enemy Manpower and Forces Estimation
89
B.
Bomb Damage Assessment
96
C.
The Interdiction Issue
98
D.
The Cambodia Problem
102
E.
NSSM-1
109
F.
NSSM-99
111
G.
Economic Intelligence on South
Vietnam
118
V.
The Developing World
120
A.
Introduction
121
B.
Latin America
122
1. Cuba
123
2. The Problem of Economic
Nationalism
124
3. Chile
129
4. The Middle East
134
C.
Africa
137
D.
The Sub-Continent
142
1. Indian Food Problems
142
2. Pakistan and Bangladesh
145
149
E. Model Building
151
152
154
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sEGRr
Page
F. Commodity Problems 157
1. Narcotics 157
2. Petroleum 161
VI. The US Economy at Bay 170
A. Introduction 171
B. Council on International Economic
Policy (CIEP)
177
184
2. A Review of East-West Trade,
Particularly US Trade Policy
Toward the East European
Communist Countries, In-
cluding the USSR 185
C. The Briefing Books 188
D. Nixon's New Economic Policy 191
E. The Smithsonian Agreement 195
F. Expropriations of US Properties
Abroad 199
VII. The Washington Economic Community 205
A. Another Change in Leadership 206
B. Economic Intelligence on the Com-
munist Powers in an Atmosphere of
Detente 212
1. USSR 212
2. China 223
C. The Broadening Concept of Economic
Intelligence 228
iv
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Page
D. The Reorganization of 1972 231
1. The Elimination of the Area Level
of Supervision and Review 231
2. A Better Distribution of the
Growing Workload of Free World
Research 232
3. To Reorganize the Continuing
Intensive Research Effort on
International Trade and Finance 233
VIII. Epilogue 236
A. Retrospective 237
B. Prospective 248
Illustrations
Figure 1. Office of Economic Research
(following page 13)
Figure 2. Office of Economic Research
(following page 13)
Figure 3. Office of Economic Research
(following page 235)
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Chapter I
THE ESTABLISHMENT OF OER
"Good order is the foundation of all good things."
Edmund Burke
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A. The World Scene in 1967
The world scene in 1967, when the Office of
Economic Research (OER) was created, was vastly
different from that at the birth of the Office of
Research and Reports (ORR) 17 years earlier.
While the Soviet Union remained the only power
that could realistically pose a threat to US
national survival and thus remained the major
target of intelligence concern, the economic in-
telligence interest in that country had developed
along unforeseen lines. With assessments of the
Soviet military posture now conducted by ORR's other
offspring, the Office of Strategic Research (OSR),
consideration of the Soviet economy by OER was
focused on its progress in the growth race, its
economic aid and trade policies and programs in
the international area, and its changing economic
relationships with other countries of the Communist
World.* Communist China was of greater concern
* OER also continued to play a major role in
estimating the costs of Soviet military programs.
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than it had been in 1950, when it was regarded pri-
marily as a Soviet satellite and in certain re-
spects a liability to overall Communist strength.
China's "Cultural Revolution" in 1966-69, coming
on top of the Sino-Soviet split and the eco-
nomic declines of the earlier years of the
decade, presented a picture of disorder and even
disintegration in both political and economic
spheres. Nevertheless, the Chinese nuclear and
missile developments were regarded as a potential
threat to China's neighbors and ultimately to the
United States, while the troubled conditions in
the rest of Asia, highlighted by the Vietnam war,
were regarded as directly related to the China
threat. Concern about the Communist-led threat to
stability in this area continued to be widespread,
even though it had recently received a major set-
back in Indonesia. The tensions and rivalries in
the Asian sub-continent and in the Middle East,
while they had certainly existed in the early
1950's, had not then been considered within the
purview of ORR. By 1967, however, the growing
acceptance of the Office as the government's major
economic intelligence arm had seen these trouble
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spots become of significant concern to the Office,
as were the problems of economic development -- or
more typically stagnation and disorder -- in Africa
and Latin America. These concerns were manifest
in responses to the crisis situations and the deci-
sions which economic and political change contin-
ually placed before the US government's policymakers
with respect to individual countries around the
globe. In addition the Office was beginning to
play a support role with respect to such interna-
tional problems as population pressure, social and
economic inequality, the revolution in agricultural
technology, the raw materials and energy shortages,
and the growing gap between rich and poor nations.
These events carried their own set of
policy problems, which would involve the new Office
in fields far removed from the simple weighing of
economic strengths and weaknesses in a limited
number of potential enemy countries. These would
include not only US relationships with individual
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countries but also international problems of mone-
tary stability, balance of payments, and the ade-
quacy of traditional international financial
mechanisms for handling increasing world trade.
In the light of these world conditions, it is
not surprising that the organization of the new
Office, which at its inception still reflected the
traditional concerns of the Economic Research Area
of ORR, was very early in its first year subjected
to critical review.
B. The Reorganization of 1967
Initially, OER consisted of all former ORR com-
ponents -- less the Military-Economic Research
Area
The four
continuing divisions and four supporting staffs
were directly subordinate
without the interposition
trol (see Figure 1). The
to the Director's Office
of an area level of con-
Communist Division con-
centrated on aggregative analysis of the Communist
countries
while the General Division
worked on the non-Communist countries
The Trade and Services Division and the Resources
and Industries Division provided intelligence on
the various economic sectors -- primarily of
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Communist countries, but with support on Free
World countries as required.
It soon became evident that this organization
did not reflect the responsibilities expressed
or tacit -- that were being laid on the new Office
as a result of the world situation described
above. The Office was, in fact, facing for the
first time an organizational problem that had
been identified fairly early in intelligence
literature. In 1949, Sherman Kent had initially
posed the question, "Should the basic pattern of
intelligence organization be regional or func-
tional?" 1/* This organizational dilemma --
caused by the concern with foreign nations as
political and economic regional units on the one
hand and with economic phenomena as functional
activities on the other -- had not been too serious
for ORR as long as it was focusing on a limited
number of countries, which tended to -- or were
believed to -- coordinate their activities under
central guidance, i.e., the Sino-Soviet Bloc.
With the developing independent course of those
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countries and with ORR's concern widening to cover
the Free World, the problem became acute.*
Under the four divisional organization inherited
from ORR, the regional versus functional dilemna
was being met with a compromise arrangement: two
geographic and two functional divisions as de-
scribed above. Work on Vietnam was, for example,
divided with the strictly economic assessments of
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North and South Vietnam made by the Indochina
Branch of General Division, and the bomb damage,
logistics, and military manpower studies were
carried out partly by a Special Projects Task
Force within Trade and Services Division and
partly by the Construction and Transportation
Branches in the same Division.
As saw the problem, reorganization to
meet the growing burden of Vietnam research was
the most acute requirement, but the need to
achieve a geographic orientation for Office activi-
ties spread across the board. He regarded the
intelligence problem as "first geographic and
second functional.* 2/ An additional problem that
concerned was the inadequate provision for
substantive guidance and review since the elimina-
tion of the Area echelon, which occurred when the
Military Research Area was transferred out and the
Economic Research Area was abolished.
In order to remedy these weaknesses,
proposed in August 1967 to reorganize the Office
* Kent, in discussing this basic dilemma in
1949, had also opted for an essentially regional
pattern. 3/
8
I 2
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SET
into five divisions divided into two areas (see
Figure 2). The Communist Research Area's (CRA)
two divisions had responsibility for the continuing
effort on this office's traditional targets: the
USSR and Eastern Europe in one and Communist China
in the other. In the International Research Area
(IRA) were: the Indochina Division, which concen-
trated work on the Vietnam war and the Indochina
peninsula generally in one division; the Free World
Division whose Branches
and the International Services Division
which was assigned responsibility for research
on services and other activities which transcended
national and regional boundaries. 4/ This pro-
posal was approved by the DDI and put into effect
on 1 November 1967. It provided the basic organ-
izational structure, with some later changes at
the branch level, for OER until 30 June 1972
where another major reorganization occurred.*
The new organization represented more than an
adjustment to changing substantive requirements.
The reduction of functional branches from 13 to 10
and the subordination of most of these to a regional
* See pp. 232-235.
9
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organization at the division level represented not
only an overdue shift in attitude toward the sub-
stantive demands upon the Office, it required also
a change in attitude on the part of many of the
individuals involved. Any shakeup of personnel
can carry the seeds of morale damage and other
personnel problems. Although the 1967 reorganiz-
ation was not as serious in this respect for OER
as had been the 1953 shakeup which had wiped out
the Strategic Division,*
problems. The change in
for most of the Office's
there were adjustment
work assignments meant
functional specialists a
reordering of their priorities and interests,
which was in some cases not easy. Although the
change was often wrongly interpreted as a down-
grading of their
importance,
was dispelled when it became
were being made to provide a
much of this feeling
apparent that efforts
degree of unity to
functional research activities. One of these was
the designation of experienced functional analysts
as "senior technical advisers." These individuals
were to have not only regular line responsibilities
within the Divisions but also to play consultative
* See Volume I, pp. 83-87.
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roles on the more complex functional studies and
on technical questions as they might be required
by analysts of any branch. In addition, they
would serve as the Office's points of contact
with such specialized government agencies
Finally, they were to serve as advisers
on the training of additional functionally spec-
ialized analysts. These assignments have served
the dual purpose of maintaining the morale and
making the most effective use of the technical and
functional specialists who have been able to adjust
to the changing mission of the office.
C.
The End of Annual Program Planning
It was also in the first year of OER's exist-
ence that another significant change took place in
the management of economic research. This was the
abandonment of the annual research program. Since
the days of
(1951-52) the annual
research planning exercise had been an important
office ritual.* Every spring each branch had
been required to draw up at some length a schedule
of its commitments, known and aniticipated, and of
* See Volume I, pp. 89-92 and 97-112.
11
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its research gaps. These were brought together in
a program of planned research projects to meet
these commitments and gaps -- each project was
described in detail in the annual program with an
estimate of the necessary man-hours and due dates.
By the mid-1960's, however, unanticipated policy
support was crowding in increasing number of plan-
ned projects off the schedule, and the elaborate
annual planning exercise was more and more an
exercise in frustration. The program prepared for
FY 1968 contained a tacit recognition of this in
its breakdown of self-initiated projects into two
categories:
(a) Almost certain to be undertaken and
(b) May be undertaken.
Even these categories proved too sanguine.
Early in 1968 a cursory check showed that few pro-
jects in either category were going to be com-
pleted -- for some branches none had even been
started. Without fanfare the annual program plan-
ning exercise was abandoned. Each branch and
division was thereafter charged with the continual
updating and review of its research priorities,
and new projects were laid on as the need arose.
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Periodic staff meetings at the area and Office
level proved to be a more realistic means of
command-line monitoring of research and reporting
activity, and the resultant gain in flexibility
was a necessary factor in the Office's capability
to respond to policy requirements. A less happy
result was perhaps the further neglect of basic
research. But this was in any case inevitable
given the demands on the Office for current policy
oriented studies. Basic research, however desir-
able and necessary, had not for some years been
on the scale believed necessary by
and other Office leaders. The new
approach to project initiation (and completion)
was at least more realistic and less frustrating
than annual programming had come to be.
S ET
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OFFICE OF ECONOMIC RESEARCH
DIRECTOR
DEPUTY DIRECTOR
ADMINISTRATIVE
STAFF
CURRENT
SUPPORT STAFF
EXECUTIVE
STAFF
PUBLICATIONS
STAFF
COMMUNIST
DIVISION
GENERAL
DIVISION
RESOURCES
AND INDUSTRIES
DIVISION
� USSR Africa 'Agriculture
Eastern Europe Orient Chemicals
� Far East Indochina Electronic Equipment
� Strategic Impact Latin America Fuels and Power
Near East Manufacturing
Western Europe Minerals and Metals
63912 8-74 CIA
Figure 1
TRADE
AND SERVICES
DIVISION
Special Projects
� Communications
Construction
� International Shipping
� Policies and Organizations
� Trade and Finance
� Transportation
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OFFICE OF ECONOMIC RESEARCH
DIRECTOR
DEPUTY DIRECTOR
Administrative Staff
Current Support Staff
Executive Staff
Publications Staff
Communist Research Area
Trade Control Staff
International Research Area
Figure 2
USSR/Eastern
Europe Division
China Division
Free World Division
Indochina Division
International
Services Division
USSR
China/North Korea
Africa
North Vietnam
International
Transportation
P.� Eastern Europe
Industries
Near East
� South Vietnam
Trede and Aid
Industries
Resources
Resources
Western Europe
Western Hemisphere
Thailand, Laos,
and Cambodia
Logistics
Communications
Construction
Services
Orient
Agriculture and
Population
'Rd
563913 0-74 CIA
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Chapter II
NEW LEADERSHIP AND NEW DIRECTIONS
"...the age of chivalry has gone. That of sophisters,
economists, and calculators has succeeded."
Edmund Burke
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A. Becomes D/OER
On 2 January 1968,
as Director of the Office,
took over
appointment
meant that for the first time since
tour (1951-52) a professional economist was head-
ing the Office. It also put in formal charge the
man who had in fact directed the economic research
effort for fifteen years, i.e. since May 1953,
when
came to the Agency to head the Economic
Research Area of ORR.** His tour in this assign-
ment had seen the substantive growth of the activ-
ity from a concentration on the Sino-Soviet Bloc
economies to a mission of tacit responsibility
for research and reporting
of
both the Communist world and the Free World and
ranging in complexity and economic sophistication
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accession at the start of 1968, although
it was a formal change in leadership, represented
actually a continuity in the Office's functions and
modus operandi because of his long association with
the activity. Like
he was an aggressive
promoter of the Office's products and the policy
support orientation of the Office's substantive
output continued. The changes that took place
under his leadership resulted primarily from ex-
ternal events - the minor and major crisis situa-
tions on the world scene and developments in the US
international strategic and economic posture --
and from his recognition of the opportunities that
such situations offered. The most striking of
these developments coincided -- by chance -- with
his accession at the start of 1968. This was the
international monetary crisis highlighted by the
devaluation
brought OER
and
of sterling at the
for the first time
reporting on international
end of 1967, which
to detailed analysis
monetary problems.
B. International Monetary Problems
During the 17 years of ORR's existence, signif-
icant developments in the arcane field of in-
ternational finance, although of professional
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interest to a number of ORR's economists, were
largely academic in terms of the Office's assigned
responsibilities. The reconstruction of the West
European economies and the intricate operations of
the international monetary system which helped to
make it possible were not directly related to ORR's
mission of analyzing the economic mysteries of
the countries of the Sino-Soviet Bloc. The latter,
having stood apart from the Marshall Plan's recon-
struction program and from the international
monetary system which supported it
a knowledge of the intricacies of international
finance was only peripherally useful for this pur-
pose. Except for the occasional in-house memo-
randum prepared to keep the DCI or the DDI informed
of events on the international monetary scene, ORR
stuck to its knitting and officially ignored what
were, in retrospect, the most significant inter-
national economic developments of the post-war
period.
* See Volume II.
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The unprecedented increase in the volume of
world trade and the rapid economic growth of the
major Free World industrial countries occurred in
and were fostered by an environment of interna-
tional monetary stability based on a structure
of fixed exchange rates established late in World
War II at the Bretton Woods Conference. The
International Monetary Fund, also created at
Bretton Woods, provided the mechanism for main-
tenance of this stability. After the period of
post-war reconstruction -- i.e., by the mid-1950's
this system was working efficiently in terms of
encouraging world trade and economic growth. Be-
tween 1958 and 1966, the volume of world trade
rose by more than 90 percent. Japan and the major
countries of the West -- with the exception of
the United Kingdom -- experienced rapid economic
growth. The role played by the United States in
financing the smooth operation of the international
monetary system was enormous. From 1958 through
1967 the flow of dollars and gold from the United
States contributed 70 percent of the total increase
in official world reserves. 5/
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Weaknesses in the system were becoming apparent
in 1967 at just about the time OER replaced ORR's
Economic Research Area and was broadening its
activities to become a significant arm of US eco-
nomic intelligence support on a worldwide scale.
The first major crack in the international monetary
system occurred with the devaluation of the British
pound in November 1967. As indicated above, the
United Kingdom had chronically been the major ex-
ception to the pattern of rapid economic growth and
balance-of-payment surpluses in Western Europe. On
several occasions it had faced balance-of-payments
crises because of persistent unfavorable trade
balances and a long-term drain on its capital re-
sources. Previous crises, notably that of 1964,
had been contained by the cooperative action of the
central banks of the nine-country "gold pool," set
up in 1961. These powers had provided the gold
reources to meet the periodic speculative attacks
on sterling. The crisis of 1967 stemmed, as had the
others, from the poor performance of the British
economy and from sterling's traditional role as a
reserve currency. Officially alleged to have ag-
gravated the situation in 1967, however, was the
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Arab-Israeli war -- which resulted in closure of
the Suez Canal and the flow of Arab funds out of
sterling into other currencies.
An unusually large
trade deficit in October 1967 appeared to have
triggered the flight from sterling
When the deval-
uation of the pound occurred on 18 November 1967,
OER issued several reports outlining the background
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and the implications. 7/ One of these, prepared
in collaboration with OCI, dealt particularly with
the probability of further pressure not only on
sterling but also on the dollar. The DCI, Richard
Helms, and the DDI,
were understandably
edgy about the Agency's getting involved in mat-
ters that seemed at the time remote from its of-
ficial concerns and also about the competence of
their economic intelligence unit to make useful
contributions in such a critical field. At Helms'
direction,
and OER's
carried
the paper with its forecast of dollar problems to
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The activities of the De Gaulle government in
the so-called "Gold Rush" of 1967-68 were of con-
siderable interest to OER's customers
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The
French government had consistently opposed the
dominant role of the dollar in international finance
and had for some time been converting its official
reserves from dollars to gold and in other ways
attempted to promote the world role of gold --
against that of dollars and sterling. It had with-
drawn from the "gold pool" in June 1967 and had
obstructed negotiations for the implementation of
the "special drawing rights" agreement which was an
effort to create additional reserve assets for member
countries of the International Monetary Fund. In
the weeks immediately following the sterling de-
valuation of 18 November 1967
Le Monde revealed publicly items of financial
information of great sensitivity.
OER's reporting with the judgment that they "were
important factors contributing to the massive
speculation against the dollar and the pound during
the recent gold crisis". 10/
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Throughout the first quarter of 1968, the Office
continued to issue reports on international monetary
problems. 11/ Its monitoring of the deepening crisis
put it in a good position to analyze the next major
turning point in March -- the establishment of the
"two-tier" market system.
The British devaluation and the supportive
activities of the major financial powers -- except
France -- had slowed the speculation activity for
several months, but in the spring of 1968 heavy gold
buying pressure again reached panic proportions.
On 17 March the seven leading "gold pool" members
decided to withdraw from private gold transactions
allowing the open market price to be determined
competitively while maintaining the $35 an ounce
price for inter-government transactions.
The favorable reception
given to this report and the continued demands for
support on the subject, particularly from the
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Treasury Department, led in May 1967 to a decision
by
to launch a new economic intelligence
series, which included both occasional papers on
specialized topics and -- begining in July 1967 --
a monthly publication on the World Gold Market.
These issuances, entitled the International Fi-
nancial Series, started with an analysis of the
South African position in the gold market. South
African had, in fact, temporarily dropped out of
the market in order to push the Free World price
up under the competitive situation created by the
new "two-tier" system. The OER report detailed
the development of what it called "the battle for
domination of the new free gold market" 13/ by
various private groups, pointing out that South
Africa could maintain a gold embargo "for many
months.. .at least through the remainder of 1968. 14/
The second issue in the series extended this esti-
mate to "it probably could continue to withhold gold
well into 1969 if necessary by borrowing abroad
with relatively minor interest costs."*15/
* South Africa, whose gold sales had been running
at about $1 billion a year prior to the establish-
ment of the two-tier system, withheld about three-
quarters of its gold output from the market in the
year following. 16/
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With the change in administration in January
1969, there was no diminution of interest in OER's
products with respect to international monetary
problems. The Office was requested to prepare a
background paper for an NSC meeting in March 1969
analyzing the attitudes of European governments,
businesses, and banking interests toward a change
in the price of gold.
The highly specialized reports
were
supplemented by more basic "primer" type of reports,
A more de-
tailed paper of this type was issued on April 1969,
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The Problem of International Financial Stability.*
This paper presented a summary of the rise and
functioning of the international monetary system
since its establishment in 1944 and the strains
which it had undergone during 1967-68. More im-
portantly, it analyzed the existing strengths and
weaknesses of the system and discussed some of the
proposals for reform. In a prescient forecast of
coming difficulties, it concluded that such pro-
posals would:
Conflict with differing national pol-
icies and interests. Thus basic reform
raises unavoidable and fundamental polit-
ical problems.
Perhaps the most difficult problem
concerns the power of countries with
consistent surpluses in their interna-
tional payments. The international finan-
cial system would work much better if
surplus countries shared in the burden
of adjustment than if they left nearly
the entire adjustment to deficit coun-
tries, as has been the case for years.
But there is no way to force the sur-
plus countries to make adjustments nor
reason to believe that they would readily
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agree to some new international financial
rules that would much curtail their free-
dom of action. 20/
C. The Pueblo Incident
As do all years, 1968 had its share of flaps
which engaged the attention of the intelligence
community, and demands on OER for economic support
characterized most of these situations. The first
of these in 1968 was the Pueblo incident, which
required the Office to take a new look at North
Korea.
On 23 January 1968 the Navy's intelligence ship
USS Pueblo was seized off the coast of North
Korea by North Korean patrol boats and taken in to
Wonsan, where its crew was detained for nearly a
year. This action was interpreted in the community
as a manifestation of a step-up in North Korean
aggressiveness -- only a day or two before, a group
of North Korean infiltrators had entered the South
Korean capital in an apparent attempt to assassinate
President Pak.
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manpower assignment to North Korea was
FY 1969 to
positions and over the
two years, economic intelligence output
Korea increased substantially.
Immediately following the Pueblo incident,
in-process reports on North Korea's foreign trade
were hastily released ?4
The formal
raised for
ensuing
on North
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3 3
CritEr
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North Korea made the headlines again in April
1969 with the shooting down of a US Navy EC-121
reconnaissance plane over the Sea of Japan.
In addition,
advised the DDI on
18 April that North Korea's policy of belligerence
was being maintained at considerable cost in eco-
nomic terms and that it was "semi-isolated both
within the Free and Communist Worlds." North Korea's
failure to receive economic credits or grants since
1961 had had an adverse effect on imports needed
for development, and there had been a significant
slowdown in economic growth. While the North Korean
diversion of resources to military uses had caused
a postponement of economic goals, South Korea, in
contrast, had "blossomed forth, benefiting most
recently from heavy Japanese private investment."
He concluded that:
It would be unfortunate if the US took any
action against North Korea which prompted the
resumption of the subsidized flow of industrial
machinery and equipment that the USSR (and to a
lesser extent, Communist China) furnished during
the later 1950s to the North. Things on the
Korean peninsula have been going pretty well.
Hopefully, we can have some effect on our allies
to continue to deny credits to North Korea. 23/
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By 1972 the general world atmosphere
of detente was being reflected in cautious discus-
sions between the two sides with respect to the
reuniting of families and the possibility of other
non-political accommodations and even trade had
heightened considerably.
The potential of trade between the two was
analyzed by OER in mid-1972 in a report which sum-
marized Korean economic developments for the post-
World War II period. It noted that the complemen-
tary nature of the economies of North and South
Korea at the time of partition (1945) had been
gradually altered as each had made compensations for
its natural economic deficiencies. North Korea,
formerly the heavy industrial area, had attempted
to develop agriculture and consumer industries at
least to satisfy minimum domestic demands and had
reestablished trade ties within the Communist
World. South Korea, on the other hand, had
strengthened its industrial base and developed
export markets in the West. Thus what might have
been a natural and extensive trading relationship
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in the immediate post-war period has become less
likely over the years. The report concluded that
... continued emphasis on policies to
overcome the original deficiencies in the
respective economies suggests that the two
Koreas will need each other even less in
1976 than they do today - from the economic
point of view. The separate international
orientations developed over the past quarter
of a century seem likely to continue; they
underscore the position of North Korea as a
largely self-sufficient "command economy"
and the position of South Korea as a
"market economy" with strong international
ties. 24/
D. Biafra
The Office's ability to provide support on
African policy matters was tested
The Office's initial assessment of Biafra's
economic viability at the outbreak of the Nigerian
civil war in mid-1967 had noted that the original
territory of the break-away state was basically
self-sufficient in food. 26/ It will be recalled,
however, that the Nigerian civil war had in its
closing months resulted in a compressing of the
several million Ibo tribesmen, who were attempting
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to establish the separate nation, Biafra, onto a
shrinking territorial base in southeastern Nigeria.
The federal government's blockade of their terri-
tory, a swollen population, and an inadequate food
supply were causing widespread starvation and
death, particularly among the aged and the very
young. Worldwide sympathy, stimulated by reports
from foreign relief workers and other observers,
was placing the US Government under considerable
pressure to provide emergency food relief. The
major difficulty -- aside from a distressing
rivalry among the several relief agencies in-
volved -- was that nobody has a clear picture of
the magnitude of the problem.
In order to provide a realistic basis for a
relief program, OER's Africa Branch, augmented by
the temporary return of one of its experienced
analysts
attempted to winnow from the many horror stories
of starvation and from all other available infor-
mation some measure of Biafran food requirements.
The problem was not solely a matter for economic
research and analysis. It required as well the
application of skills in demography, agronomy, nutri-
tion, and anthropology and the resulting report
included:
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(1) An attempt, through analysis of
previous censuses, estimates of refugees
movements, and reports of starvation -
related deaths, to reduce the population
estimate range of 4 million to 10 million
in Biafran-controlled territory to a work-
able figure. The analysis arrived at a
population figure of 6.5 million to 6.9
million which was rounded up to 7 million
to minimize the chances of grossly under-
estimated food requirements.
(2) An analysis of the agricultural
setting in terms of principal food crops,
agricultural practices, production
patterns, and the crop cycle. The analysis
concluded that the starvation and malnu-
trition death rate of the previous several
months were caused less by overall caloric
deficiencies than by displacement of
people, food distribution problems, and
the shortage of protein. A crisis of
considerably greater magnitude, however,
could be expected in the coming year as
these causative factors were aggravated.
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(3) An analysis of the types of
relief food needed. This required not
only an estimate of calorie and protein
requirements but a knowledge of the die-
tary habits of the population.
On the basis of admittedly rough calculations
and estimates, the Office response to State's re-
quest for assessments of the likely requirements
placed the need at "100 tons of high-quality food
per day." 27/
As often happens with the Office's policy
support products, it is not possible to assess the
degree to which this study influenced the policy
decisions which followed. US food relief to Biafra
was effected, and the existence of an objective
working figure -- admittedly based on very sketchy
evidence -- at least provided better guidance than
the wildly varying pronouncements coming from the
competing relief agencies, the federal government
of Nigeria, and the Biafran regime.
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E. Automatic Data Processing
The potential of automatic data processing
machinery in economic research had received early
attention by ORR, although the first rudimentary
application of these devices had been in the field
of research management in the late 1950's and early
1960's. During that period, characterized by mas-
sive research projects of months and sometimes years
duration and by annual research program planning,
the services of the IMB key-punch, card-sort, and
print-out capability were engaged to keep tabs on
project progress and analyst time allocation. The
data inputs came from weekly time sheets prepared --
with much reluctance -- by each analyst and branch.
Although most analysts regarded the time sheet as
a harassing "watchdog" and a bureaucratic nuisance,
its purpose was to monitor not the analyst but the
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project and support functions of the Office. It
was abandoned in 1962 at about the time of ORR's
first major reorganization and thus roughly coin-
cided with the "new look" in research management
which resulted from the burgeoning of policy support
requests, short problem-oriented papers, and the
gradual abandonment of exhaustive research projects
requiring many months for completion.
At about the same time, the Economic Research
Area was beginning to exploit the capabilities of
computers and allied machines for substantive data
storage and retrieval as well as data manipulation
and compilations. These usages -- as of mid-1974 --
included:
a. Computer calculation of indexes of Soviet
industrial production. The capabilities for rapid
calculation made it possible to revise
several times a year, which would have
time-consuming by traditional methods.
the index
been too
The index
was, of course, an important component in the much
demanded estimates of Soviet GNP.
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e. The many demands on the Office for estimates
and projections in the field of military expenditures,
military manpower allocations, and the military hard-
ware components of the Soviet production index were
greatly facilitated by computer storage and manip-
ulation.*
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In October 1967, in order to assure that the
potentialities of automatic data processing were
being fully exploited in economic research,
set up an automatic data processing committee, con-
sisting of his executive assistant,
and
senior analysts with extensive backgrounds
in econometrics --
This committee assisted
in developing training courses for selected ana-
lysts -- the first of these was a six-month workshop
set up in 1968 -- and in working with the Office of
Computer Services to develop appropriate applications
of ADP to specific problems in economic research.
The first of these was an analysis of Indonesia's
foreign debt carried out in December 1967. Indonesia
at that time was returning to respectability among
the Free World nations after the overthrow of Sukarno
and the putdown of the Indonesian Communist Party.
Its economy was, however, in atrocious shape after
years of mismanagement. 30/ One of the many problems
for economic intelligence was to attempt an analysis
of Indonesia's muddle of foreign indebtedness and
continuing foreign assistance needs.
OER developed an ADP analysis
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which was one of the first instances of computer
application to the study of a Free World and Com-
munist countries
The mix of repayments
of fixed debts and the servicing of private loans
under government guarantees were obviously far be-
yond Indonesia's foreign exchange earnings prospects,
raising the probability that any new aid extension
by the United States, for example, would be used
primarily for (or would release funds for) loan
repayments to other creditors, including the Com-
munists. The attempt to put financial obligations
was, from a statistical point of view alone, a
staggering task, but it proved well suited to com-
puter application.
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Although confirming the experts' worst fears
about Indonesia's basic insolvency, the results pro-
vided a firm and rational basis for the US Government's
financial planners' work with the International
Monetary Fund and other donor countries toward
setting Indonesia on a reasonable financial course. 31/
The technique was then adapted at the Department's
request for use with four other major debtor nations.*
In addition a global model was developed for the
analysis of all debt, repayment, and continued aid
needs of all less developed nations. 32/
Another application developed early in 1968 was
the processing of data from captured documents on
Viet Cong and North Vietnamese manpower in order
to estimate and project force levels and recruitment
rates.**
These ADP applications were bellwethers of a grow-
ing demand for expanded use of computer applications
for the more
these devices
in economic intelligence production and
sophisticated quantitative methods that
made possible. By the end of 1968, some
ADP
projects were in the works and a number of analysts
were being trained in the application of these meth-
ods. Early in 1969, a Systems Development Staff was
Turkey, India, Pakistan, and Brazil.
** See Chapter IV.
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established with
as its Chief.
The staff was designed to centralize the burgeoning
activity and formalize the training of analysts and
assist in the management and Improvement of existing
programs and the development of new ones as well as
to coordinate the Office's activities with the Office
of Computer Services (OCS) and related components. 33/
The Systems Development Staff operations in-
cluded the following areas: model design, data base con-
struction, computer systems procurement, and admin-
istration and training.
The staff also com-
pleted projects for other offices in the Intelligence
Directorate, notably studies of Soviet intentions
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As for training, the staff has given OER analysts
courses in econometric methods and in various pro-
gramming languages. In all cases, the training pro-
gram has complemented courses offered by OJCS and
by local universities. For example, students who
learned econometric theory in graduate school have
been taught how to apply the theory by using Agency
computer facilities.
With the establishment of the System Development
Staff, the Office became capable of moving to new
levels of sophistication in economic research and
analysis. By the early 1970s, virtually all major
areas of the Office's substantive responsibility
was feeling the impact of computer technology and
techniques -- particularly, analysis of Soviet and
other Communist economies, Vietnam problems, Free
World development problems and more recently, inter-
national monetary affairs. Some examples of these
techniques and their applications in the major
substantive fields indicated are discussed in the
following chapters.
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Chapter III
THE TRADITIONAL TARGETS
*NM
PRIM
41611V
SIM
Q. "Professor, why do you give the same exam
every year?"
A. "In economics we never change the
questions�only the answers."
Traditional
aft
TON
MIN
4 9
iiehr"r
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Notwithstanding the growing burden of Vietnam
and the new worldwide responsibilities of the
Office, both of which were taking an increasing
toll of personnel resources, it was nevertheless
incumbent on the Office to continue its major
traditional tasks of analyzing the Communist eco-
nomies -- as of the end of 1971, these duties
Policy interest in the Office
product on these countries has remained high --
not only for the overriding reason that the
strength and vigor of their economies are deter-
minants of their military posture and of their
potential threat to US security interests, but also
because of the possibilities of closer economic
relations stemming from an improving atmosphere
of detente and a felt need to keep US trading
relations in constant repair.
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PM/