ADDRESS BY ALLEN W. DULLES DIRECTOR OF CENTRAL INTELLIGENCE TO THE FORTY-SIXTH ANNUAL MEETING OF THE CHAMBER OF COMMERCE OF THE UNITED STATES WASHINGTON, D. C.

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP67-00318R000100670001-4
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 18
• Document Creation Date: December 23, 2016
• Document Release Date: May 2, 2013
• Sequence Number: 1
• Publication Date: April 28, 1958
• Content Type: OPEN SOURCE

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ADDRESS BY ALLEN W. DULLES
DIRECTOR OF CENTRAL INTELLIGENCE
TO THE
FORTY-SIXTH ANNUAL MEETING
OF THE
CHAMBER OF COMMERCE OF THE UNITED STATES
WASHINGTON, D. C.
12:30 P.M., DST, APRIL 28, 1958
KHRUSHCHEV'S CHALLENGE
The subject for your meeting today, "Dimensions of the International
Peril Facing Us, " is a particularly appropriate one for the Chamber of
Commerce of the United States. With its membership of two and a half
million businessmen, your organization occupies a key position of influence
in our nation's approach to international as well as domestic problems.
It is also a timely subject.for you to be considering. Today the Soviet
Union, through its very vocal leader, Khrushchev, is directly challenging
the United States in the fields of industrial development and foreign trade
and aid as well as in military matters. The other day he remarked,
"To the slogan that says, 'let us arm', we reply with the slogan, 'let us
trade'."
The economic challenge is a dual one. They are setting goals for
their own domestic production to compete directly with our own and to quote
their words, "to get ahead of us in the economic race." The other phase of
their challenge is through their foreign economic penetration program.
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 I shall discuss both of these challenges. But before doing so,
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hall analyze briefly the development of Soviet policy over recent years,
this, I feel, helps to explain why they have turned to the economic and
industrial fields to promote their long range international policies.
ment of Soviet aims.
It was with military force that the Soviet took over and established
their control in the European Satellites and repressed the democratic
In the immediate post-war period, Stalin relied on military and para-
military action and the military threat as the chief weapons for the advance-
forms of government which tried to find root immediately after the war.
It is with military occupation force and the threat of force that they still
hold their position in Central Europe.
Then in Iran, in Greece, and at Berlin in the early postwar years,
it was force and the threat of force that was used in the attempt to break
down the free world defenses. Through the Marshall Plan and our growing
military preparedness following Korea, this threat was contained in the
West; but China was overrun by the Communists and Northern Vietnam
taken.
These and other military and subversive maneuvers alerted the free
world to the dangers of Stalin's policies. Our countermeasures tended to
make them counter-productive. Stalin was posthumously discredited by
Khrushchev, Stalin's programs were generally repudiated by his successors
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who literally trembled at the risks he had taken at a time when the Soviet
had no atomic capability to match our own. It is well, however, that
Khrushchev's ruthless repression of liberty in Hungary with Soviet troops
should stand as a reminder to us that Stalinist tactics may at any time be
revived if the Soviet Union feels its vital interests are affected.
Today we face the subtler policies of Nikita Khrushchev. Will they
be more or less effective than the Stalin policies in achieving the over-all
aims of international Communism?
Of course, I do not mean to discount the seriousness of the Soviet
military threat or its challenge in the scientific and technical fields on
which advanced weapons systems depend. But as I see it, under its present
policies, the USSR does not intend to use its military power in such a way
as to risk general war. They have a healthy respect for our retaliatory
capability.
Furthermore, the Soviet success with Sputniks and in the field of
ballistic missiles has well alerted us to the military danger and our missile
and other programs are receiving top priorities, We must, however, be
ever watchful of the Soviet emphasis on the military applications of science
and technology in order to anticipate any attempts at a breakthrough which
would change the balance of military power.
Barring such a possibility, it is most probable that the fateful battles
of the cold war will, in the foreseeable future, be fought in the economic and
subversive arenas.
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To understand the seriousness of the Soviet economic threat, it is
essential to understand the Soviet economic and industrial base on which
they are developing their economic penetration program.
Since 1928 the Soviet Union has developed rapidly from a predominantly
agricultural and industrially underdeveloped country to the second largest
economy in the world. Forced draft industrialization, emphasizing heavy
industry, was carried out by Stalin to prevent, to quote his words, another
beating of backward Russia by the more economically advanced capitalist
countries. Forced draft industrialization continues in Russia today, and
now the emphasis is more positive: namely, to meet Khrushchev's goal
of, "catching up and surpassing the United States in per capita production
within the shortest possible historical period of time." This theme is
being used not only as internal propaganda.but also to propagate the Soviet
faith abroad.
Comparison of the economies of the US and the USSR in terms of total
production of goods and services indicates the USSR's rapid progress.
Whereas Soviet gross national product was about 33 percent that
of the US in 1950, by 1956 it had increased to about 40 percent, and by
1962 it may be about 50 percent of our own. This means that the Soviet
economy has been growing, and is expected to continue to grow through
1962, at a rate roughly twice that of the economy of the United States.
Annual growth over-all has been running between six and seven percent,
annual growth of industry between 10 and 12 percent. .
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These rates of growth are exceedingly high. They have rarely
been matched in other states except during limited periods of postwar
rebuilding.
A dollar comparison of USSR and US gross national product in 1956
reveals that consumption -- or what the Soviet consumer received -- was
less than half of total production. It was over two-thirds of the total in
the U. S. Investment, on the other hand, as a proportion of GNP in the
USSR, was significantly higher than in the US. Furthermore, investment
funds in the USSR were plowed back primarily into expansion of electric
power, the metallurgical base, and into the producer goods industries.
In these fields, it was over 80 percent of actual US investment in 1956,
and in 1958, will probably exceed our own. Defense expenditures, as a
proportion of GNP in the USSR, were significantly higher than in the US;
in fact about double.
Soviet industrial production in 1956 was about 40 percent as large
as that of the US, However, Soviet heavy industry was proportionately
larger than this over-all average, and in some instances the output of
specific industries already approached that of the US, Output of coal in
the USSR was about 70 percent of that of the US, output of machine tools
about double our own and steel output about half.
Since 1956, Soviet output has continued its, rapid expansion, In the
first quarter of 1958, Soviet industrial production was 11 percent higher
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6.
than a year ago. In comparison, the Federal Reserve Board index shows
a decline of 11 percent in the United States.
According to available statistics, in the first quarter of 1958, the
Sino-Soviet Bloc has for the first time surpassed the United States in steel
production. The three months figures show that the USSR alone turned out
over 75 percent of the steel tonnage of the US.
A recession is an expensive luxury. Its effects are not confined to
our own shoree. Soviet propagandists have had a field day in recent months,
pounding away at American free enterprise.
Every Soviet speech, magazine article, or radio broadcast beamed
to the underdeveloped nations plays up and exaggerates our economic
difficulties. The uncommitted millions are being told by the Communists --
'see, we told you so. Crises and unemployment are inevitable under
capitalism. Communism is the only true road to social progress, 11 Our
economy is giving the Communists a propaganda target as damaging, and
I trust, as transitory as their own Sputniks,
Continued Soviet industrial growth has had a counterpart in increased
trade with the free world, Over the past two years, their trade with the
West has been moving ahead far more rapidly than it has within the Bloc
itself. About 70 percent of the USSR's increase in non-Bloc trade in 1957
was with the industrial nations of Western Europe and, under agreements
such as that just concluded with Germany, will expand still more.
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Recent speeches by Soviet leaders -- Khrushchev, Mikoyan, and
Deputy Foreign Minister Zahkarov -- stress the USSR's desire to expand
trade with the Free World. Mikoyan, for example, said that the USSR is
"confident that with the establishment of normal trade relations a
significant forward step will be taken along the road leading to the
establishment of cooperative relations between the Soviet Union and the
United States.'' This month, Zahkarov told the United Nations' Economic
Commission for Europe that Western trade ministers should devote their
energies to bringing about a long-run increase in East-West trade.
Soviet capabilities to export petroleum and metals - aluminum, tin,
zinc, and ferro-alloys - is increasing, The USSR is already a supplier
in a few traditional Western metal markets. Over the years, the USSR
may well become a major source of many such industrial necessities to
Western Europe.
This seems particularly likely if Khrushchev's 1972 commodity goals
prove to be realistic.
Take, for example, petroleum. By 1972, the Soviets plan to produce
as much crude oil as we in the United States do today. Even allowing for
substantial increases in.domestic consumption, they could export about
2 million barrels a day. Today, all of Western Europe consumes about
3 million barrels a day.
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A start has already been made on the pipeline needed to bring
the crude oil from the Ural-Volga basin to the Baltic.
Soviet ability to use trade as a weapon to advance its political
aims will increase in a direct ratio to their success in realizing their
economic goals.
For example, once they have penetrated Western European markets
to the extent that these markets become substantially dependent on Soviet
industrial raw materials, they will have available a new and formidable
weapon of economic warfare. By withholding supplies, by capriciously
raising prices, or by dumping commodities, the Soviets in effect will have
a seat at the council table of the great industrial nations of Europe.
During the Suez Canal crisis, we saw a brief glimpse of Soviet
capabilities to grant or withhold economic favors through the forms of
its own petroleum exports. The increase in sales of metals and petroleum
to Free World countries, which moved sharply upward in 1958, is not an
economic flash in the pan. It is a reflection of growing Soviet industrial
capacity,
Further, their governmental set up is well adapted to waging economic
as well as political warfare. They have no budgetary controls when it
comes to diverting funds to particularly urgent national policies. There
need be no prior consultations with parliaments or the people.
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This, briefly described, is the Soviet economic base and foreign
trade program, as we analyze it today. It is to this base that Moscow is
adding its foreign economic penetration deals designed to wean to its camp
the uncommitted and newly developing areas of the world.
It is important at the outset to note that Soviet credits and grants
are not limited to those countries where there is an early prospect of
acceptance of Communist doctrine.
Of the $2 billions of development and military aid extended by the
Sino-Soviet Bloc over the past three years - and this is exclusive of
intra-Bloc aid which is a substantial drain on Soviet economy - large sums
have gone to countries which are not now in the Soviet camp.
Let us get down to cases: In Egypt the communist party was outlawed
at the time of the Bloc's original military aid offers in 1955. Despite
repeated crackdowns on communist elements within the country since that
time the USSR concluded a major $175, 000, 000 economic aid program with
Egypt in 1957.
Communist influence in Syria has been reduced following its member-
ship in the United Arab Republic in February of this year -- even to the
point where Khalid Bakdash, the leading Arab communist, fled the country,
But the USSR is going ahead with its $170, 000, 000 economic aid program
and continues to supply arms under agreements worth $100, 000, 000. The
magnitude of this and other military programs raises the question as to
who may be the eventual user of these arms.
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The list of examples can be extended. Afghanistan is a monarchy.
The Imam of Yemen is an absolute ruler. Both are recipients of large
Soviet aid programs.
Soviet Bloc economic penetration of Yemen provides a striking
instance of the use of trade and aid as an investment in disorder.
Yemen is strategically located at the entrance to the Red Sea from
the Gulf of Aden. It commands one entrance to all Suez Canal traffic;
the oil moving westward as well as goods moving from Europe to the East.
Soviet overtures were appealing to the Imam because the Bloc was
willing to supply him with arms, while the West would not.' Arms in
Yemini hands on the scale contemplated can only create more trouble in
the Middle East. They will fan the Imam's dispute with the British and
with local Sultanates over the borders of the Aden Protectorate.
The Soviets were quick to sense the opportunity to create disorder
by giving aid to Yemen. They moved quickly. In less than two years, this
small country of some four millions of people has been granted $80 millions
in credits. Additional offers of over $20 millions are currently outstanding.
Arms valued at $30 millions have been delivered. A Soviet and Czech military
mission of some 65 advisors is currently in Yemen for training assistance.
Even the Red Chinese have joined in with an offer of a loan of
$15 millions. If all proposed projects are carried out, the Communists
will play a key role in Yemen's economic as well as military development.
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The Communists have no interest rate problems. They have no
legislative restrictions. The USSR has developed an attractive package
credit deal -- long term loans, generally for 12 years; 2 1/2 percent
interest rates; repayment in surplus commodities, and room for bargaining
on prices. They have devoted much effort to the native language training
of the technicians they send with their aid to the newly developing nations.
Though the Communists eschew capitalist types of business organiza-
tions in their own country, they make liberal use of them abroad,
One of the most important of these is the Bank of China. It is a
primary source of funds to the 12, 000, 000 Chinese in Southeast Asia.
These loans, controlled from Peiping, often require appropriate gestures
of support to the Communist regime in China,
Branches of the Bank throughout the East promote the export and
sale of Chinese Communist goods in the area, They also collect a vast
store of economic and political information, both openly and by clandestine
means.
In Paris, for its European business, the Soviet use a commercial
bank called the Banque Commerciale pour 11 Europe du Nord. It often
serves as agent for effecting sales of Soviet gold in London and on the
Continent and is the means through whichSoviet credits are transferred
to the Satellites. It also maintains a widespread system of correspondent
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relationships with banking institutions throughout Europe and in this
Hemisphere and is one of the chief instruments for the financing of Soviet
trade with the West and for obtaining information on trade opportunities.
In Latin America, there are a number of communist front or Bloc
associated organizations actively campaigning for closer commercial
ties with the Bloc. In Brazil, one of these has been offering to import
and sell Russian automobiles at ridiculously low prices. When this fell
through, it offered to import a complete auto factory from the USSR.
While neither offer may have been serious, they had considerable
propaganda value.
On a world-wide basis, the Soviet Union presents itself as eager
to do business on terms attractive to the customer.
Moscow's foreign aid program has particular appeal in the
undeveloped countries because Russia until so recently was an undeveloped
country itself. For some reason the recently liberated countries seem to
feel that the Kremlin has found a new and magic formula for quick
industrialization which is the hallmark of becoming a modern state to
many of these countries, They recognize American economic and
industrial leadership in the world but they feel that the democratic
process of economic development may be too slow.
Soviet propaganda charges that it took the West 150 years to achieve
industrially what the Soviets have built in a generation. In the newly
developing countries, the drive for economic betterment has become a
crusade, not always based on reason.
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Also these countries feel that we in the United States are far ahead
of them and that while they may aspire eventually to an economy something
like that of the Soviet Union, they cannot, in the foreseeable future,
hope to reach the high standards of living of this country.
Factors such as these give a particular appeal to overtures from the
Soviet Union. They are not able to see the invisible strings which are
tied in with Soviet offers nor do they understand the subtle implications
of Soviet subversive penetration which is a part of every economic package.
Each time that I prepare a summary of any phase of Soviet activities,
whether it be in their domestic industrial development, their foreign
economic exploitation activities, or their military defense preparations,
I am impressed by the efforts which the Soviet make to keep secret the
details of their operations.
If their motives in the military, industrial and economic fields, are,
as they claim, peaceful and defensive, why should this be the case? Why
are we not entitled, before we accept their protestations regarding peace-
ful coexistence, to ask that there should be a franker disclosure of their
activities -- something comparable to the disclosure made by the free
countries of the world?
For example, before their recent offer of a suspension of nuclear
testing, they themselves had just completed a series of nuclear tests,
concentrating a great number of tests in a short period of time, For
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example, three tests occurred within a single two-day period in an
unprecedented burst of activity. This was done behind a cover of secrecy
except for announcements that our Government itself made of the Soviet
tests, But, by and large, their activities in nuclear testing remain quite
unknown particularly in those countries which are being filled with Soviet
propaganda against testing.
The nature of their military aid programs such as I have described
above have, by and large, been kept as secret as the Soviet could manage.
An even tighter veil of secrecy is kept around almost all phases of their
military establishment.
The details of our own aid programs as well as of defense expenditures
and military production, with few exceptions, are available to the world
through our newspapers, In contrast, the Soviets release only the annual
ruble total of what they call defense spending.
It is our best estimate that the announced Soviet defense budget as
published to the world actually covers little more than half of the rubles
they are now putting into military activities.
As long as this secrecy remains a cardinal tenet of Soviet practice
it is extremely difficult to accept Soviet protestations of a desire for
peaceful relations as expressing their real intentions.
It is true, and it is an encouraging sign, that exchanges of visits
are being arranged, particularly in the cultural, technical and academic
fields. This may well help to a better mutual understanding but that
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understanding will be very incomplete until it is broadened to a point
where the barriers of secrecy are removed. It is this very secrecy
which makes meaningful agreements so difficult to reach.
One answer to Khrushchev's challenge to us should be a renewed
challenge to them, as in the President's open sky proposal, to put an
end to secrecy which breeds suspicion and doubt.
Undoubtedly one of the reasons for secrecy is to hide from the
world some of the problems which the Soviet Union faces.
In the analysis I have given above, I have stressed their very real
achievements, their growing power, and their rapid rate of progress.
These factors we must not underestimate. However, the realization
of many of the goals they have set depends on resolving some very real
obstacles to success.
For example, Khrushchev has repeatedly promised his people
startling improvements in the quality of their diet. The realization of
these dreams rests on a precarious agricultural base, whose crops over
large areas, as we saw in 1957, are vulnerable to serious drought. Further,
Khrushchev has brought the anti-geneticist Lysenko back into favor, a
theorist whose plant and animal breeding ideas are regarded as nonsense
by all competent Western scientists.
They are now engaged in a massive reorganization of the control of
their industry and this move toward decentralization has built-in, long-run
dangers for any dictatorship such as that of the Kremlin today.
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The myth of collective leadership has been abandoned and there
are signs today of a reversal to a harsher line with consequences of a
far-reaching nature. Khrushchev, despite his gregarious characteristics,
as he assumes new positions of power and eliminates his rivals, becomes
more and more an isolated and lonely figure,
As they enter into the field of international trade on a major scale
they lack a convertible currency. They must rely on the device of
settling international balances in sterling or dollars. In essence, most
of their trade must remain on something-approaching a barter basis.
The ruble is not an international currency and within wide ranges its
value is a matter of speculation, varying from the official rate of around
20~ to a purchasing value of around 10', to a quoted, value for ruble notes
in the Swiss market of only a few cents. But, of course, this latter
rate is due to the fact that ruble currency can neither be legally imported
into nor exported from the Soviet Union.
.. Possibly today the most acute problem facing Khrushchev is that
of meeting the growing demands of the Russian consumer for a greater
share in the over-all production of the Soviet Union. With a gross national
product of around 40 percent of our own, they put into the military sector
a national effort roughly comparable to our own, leaving only a modest
share for consumer goods.
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If the Kremlin responds to popular pressures, they will be forced
to give more and more to the consumer. This trend has already started.
The Russians have somewhat improved living standards and the national
output of such consumer goods as TV sets and washing machines has been
stepped up. Some former armament plants are now producing civilian
goods.
All this may help to develop a society where people will have more
opportunity to satisfy the individual yearning for a fuller life. Economic
betterment, added to the massive educational system they have already
installed, may help to build up generations of people more and more
inclined to question the basic tenets of a totalitarian philosophy and less
willing to tolerate the autocratic forms of government under which they
are living.
Under Khrushchev there has been, undoubtedly, some relaxations
of the old Stalinist police system, but every two steps in advance seem
to be followed by one step backward as they wrestle with the problem of
reconciling a measure of freedom with the stern line of communist doctrine
and discipline,
The fact that the leadership of the USSR faces these very real problems
is, however, no excuse whatever for complacency on our part. During and
since the war, their leadership has faced even more serious problems and
has surmounted them. The economy of the Soviet Union has momentum
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and versatility and, while I predict that their people will undoubtedly
press for an improvement of their lot, some real concessions can be
made to them without fundamentally altering the general tempo of their
present industrial and military programs.
Certainly here we have the most serious challenge this country has
ever faced in time of peace. As this challenge is very largely based
on the economic and industrial growth of the Soviet Union, it is one
which concerns very directly the business leaders in our country.
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