BEFORE COMING HERE TODAY, I HAD THE OPPORTUNITY OF LEAFING THROUGH SEVERAL OF YOUR PAMPHLETS, AND I WAS PARTICULARLY STRUCK WITH YOUR 1957 ANNUAL REPORT ENTITLED, "THE CHALLENGE OF NEW TECHNOLOGIES".

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP68-00046R000200240068-8
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 20
• Document Creation Date: December 23, 2016
• Document Release Date: March 19, 2014
• Sequence Number: 68
• Publication Date: December 10, 1957
• Content Type: LETTER

!STAT
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? Machinery- & Allied Products
Institute on 10 Dec. 1957
South Americazi-ROZE-17-Ratler
? Stewar
Before con.
4..1.5"..
? ugh. several: of-yotir paMptilets, and 1 was partictilarly struck
with your 1957 Annual Report entitled, The Challenge of New
? Technologie es of that report, you set forth
very clearly one aspect of the story of American industry, and
1 quote: "The story of the changing technologies lies in the
development and marketing of new products and processes. Such
products and processes have been an important factor contributing
, to the long-term growth ofmanufactitring soO?
has...made: poSsibiell.l. h levels of: 11)/Ing 04. frig-eased -leiture.
Unquote..: .1 -assume that you have.another.?aspett of your goal ? -
the Important one of protecting the Many things we as a:country.
s Oft 041 ? ? ?: ? ?
11M .already accomplished.,? ? This fo6up4sadliwectly;:oppOsilte'to: the
.? onebOing....posed by Communism -today.
. Forty years ago, alinaltgroup.of.CoMmuri
leaders came to power in 'Russia.: Their. initial
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I.nt??control of the Soviet UnIon. Their inevitable ion un
objective, and in fact, their announced objective Is to gain world
omination. Communism today is a force strivingconstantly for
the emergencg of a "sovietIzedt world order in other words, the
liquidation of capitalism
By 1928, Stalin had won the internal power struggle. In
that year, the First Five-Year Plan was launched. The central
theme of Soviet economic policy which has remained unchanged Is
forced-draft industrialization n hiniselt publicly proclaimed
the reason for the emphasis within Its industrialization, on the
development of heavy industry. Russia, he said, had been beaten
many times in the past because of Its backwardness. For Its own s
Russia must make good the distance it was laggingd the
advanced capitalistic ons. Only then, he concluded, would It
be possible to devote resources to improving living standar
Since 1928. the Soviet Union has developed rapidly from a
prddominantly agricultural, industrially underdeveloped country)
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,
to unquestioned k as the second largest economy in the work
Forceddraft Industrialization continues Its reflection in milita
strength has, of course, been continued fat beyond the levelsn
toguarantee internalcontrol and the protection of the Soviet
Communist machine forged by Soviet heavy
industry ch Is capable of augmentingy direct military
Seiet ideologicalandrevolutionaelsewherery subversion In the
?
The n leadership hes., .e .n
or maintaining' .:00.1-ogrowth as the overriding prior
has announced e goal of catch1rgudsurpassin
he d States In per capita production within the shortest
onlyiIS!d rot as Internal.prpagan4a, bt al$as a.iecessai
cornerstone to propagatefaith
Where do he Soviets stand In Ui economic race to
they have e dedicated and committed? First letbs corn
size of tbe
es;-'? the United States and the SOviet bin
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v11'.
7
?,????? s???
production of goods and services, or as the
economists say, in terms of gross national product (GM).
GNP In 1950, was abut 33
of:that of. the. United States.
N1956,, It had Increased to 39 .0ertent Andby %Zit should
about 47 percent of the site Of the U.:. GNP,
the Soviet economy has been g
ng. It IS. expected. to continue
to gra, antat a rougOly tW_ce thatof the United States.. ?? The
Soviet rate of growth Is exceedingly high; It has rarely been matched ?
n capitalistic states, except during limited: periods of postwar
rebuilding.
How do viets-dolt? First of all the SovietecorI?my.
is one where virtually all roans of production are sta1eowned. o
, Far more important than who owftwhat however, is the use to which
economic resources are put. In the Soviet Union, the economy is
used to serve the purposes Of the state, not the people. The Communist
- leaders decide the objectives they wish to achieve,and then proceed to
do so through a mechanism of very detailed plans and rigid controls
wet resource allocation. Given the objective of maximizing economic
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investment Is given a ery hi9h prior
\
tolerated only to the extent necessary.
? Soviet prioritiesrare reflected in the rela
lye efficiency of
various :sectors of the. economy.., The Soviets: are most efficient
in the production of military equipment and as producers _ of durable
goods. They are least efficient in agriculture and in the production
of consumer goods In attaining -se, last an ?Industrial development
the Soviets have"skimmed the: cream1 from the top of their economy.
_ .for example, they have mined the richest deposits of iron at
:Krivoi Rog, - (Krie-voy Rog), and the motreaidiIy available coal seams
,of the Ukraine. They have
Increase in productivity
pecketed.the wlndfaH
be achieved ittcOnver.
be1Thfi4-01 the:
ng -from, a h
to,a manufacturing economy. By curbing food consu
, been able to transfer large number of farm laborers to
run their new factor
es.
they have
cities to
This is nOt to suggest; ,4owever,:. that the Soviet. Union is
a country without economic headaches.
uctlon of agrktiltural
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products leaves no margin for safety The Soviet Union has reached
a point where it is little more than feeding itself. It is no I
possible, until they some how raise the productivity levels of Sovi
farm labor, to divert much additional manpower from agriculture to
labor-hungry Industry. Furthermore, the Soviets have come into
the time period when the low birth rate of the war years is being
reflected in fewer workers entering the labor fora1 11abor productivity.
Including agricultural labor, must be Increased rapldly If their
ambitious goals of economic growth are met. Right now, the
Soviet Union is scraping the bottom of its labor barrel. Incidentally,
it Is probable that announced reductions in Soviet military manpowej
are directly associated with this condition, rather th n a sincere
desire for disarmament
Thus, despite the Soviet successes in priority efforts and di--
their buoyant propaganda, they have come face-to-face with serious
economic problems. Some raw materials have been in short supply,
which I shall mention later on. The labor pool has been reduced.
Military demands for advanced and costly weapons systems have been
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? pressing. It. has been ?necessary to Increase allocation to res
and development The heavy demands for investment goods have
shown no signs of abating. In addition, their Internal situation
has dictated that greater recognition be given to consumer needs In
? the form of, more and 'better food, Improved housing,, and increased
supplies of consumer durables- Further, the Soviets have had to
reckon with world Opinion and discontent in its European satellites.
The initial punitive Soviet reparations policy, and thethinly _disguised
economic exploitation of the satellites, have had to be replaced with
costly programs to support the tottering economies of these countries
and sustain their populations.
The Soviets have embarked on a two-pronget attack to meet
the productivity 0 They have programs of direct Investment
In industry and agriculture on the one 'land, and a number of .
programs designed to increase worker incentives on the
With respect to Industry, they have cleared the way for the
suggestions and adoption of technological Improvements by economic
ministries and plant managers by renouncing two points of Communis
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dogma. The old thesis that obsolescence is peculiar to capitalism,
has-been Scrapped. Under this old dogma; it was 'contradictory
to Communist doctrine for la plant manager; for-example to
suggest Scraiwing inefficient machinery until it was finally beyond
repair. This of course, was the Communist way of rationalizing
their inability at thatpoint in time, to modernize their Industrial
plants. The situation has. changed and so has the dogma. They
have also openly abandoned the notion that Soviet excellence made
a study of capitalistic accomplishment unnecessary, and even
unpatriotic. That old policy, part of a broader Campaign against
"kowtowing to the West) " has now been ridiculed and replaced by
an insistence on constant attention to the technical achievements
of capitalism They have for example, taken a lesson from the
West and have been. giving considerable attention to automation
and mechanization. in mechanization, they are making efforts
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-8/a-
to replace human labor with mechanical and electrical device
and with automation to replace human con
or lectrical devices. An analysts of Soviet technical literature
suggests that they are among the leaders of the world in basic
automation theory.. Khrushchev has called automation the
chief method by which the Soviets intend to catch up with
United States In industrial production.
They have, also embarked upon n extremel.aMbitious--.4gr cultura
This program. has two .alms-- first, to. raise the quality Of the
-oV.I.et diet to levels approximating that of, the United States - and second .
to increase, agricultural -productivity: to the .point where.. the. transfer .of
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Ye/
workers to industry can be resumedi
it is a drag on worker incentives. A typic
urged to increase output has been, 'why work harder to earn more
rubles when all they will buy is more black brea
Khrushchev has called, upon ? Soviet agriculture to m
United States, in per capita production of mily by 1958, an
I960-61. As a further prop to worker Incentives
.un to make plans for easin
Cause of WiciespteadAissatistaction.
space for a family of tout is
Kingdom. . Khrushch.ev has promised about el5 portent improvement,
In !lousing spate by the end of 1960. He also has.promised that the
housing shortage will be overcome in the n
n o
Whether this two-pronged attack on the labor? productivi
problem will succeed Is not possible to predict with absolute accuracy.
There is One point I want to emphasize. Both the elaborate
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?
technological innovations in Indus y, and th
housing plans, need not succeed completely for the Communists
to realize their goals. The establishment of a tnd of improvemen
in living standards the acceptance by the workers of the idea
agriculture
? that things are getting ,better andwill continue to get better, may:.
be sufficient to bring out the degree of cooperation with the
which is necessary. This is really already the case.
The Soviet Union is also overhauling its management with
drastic program of decentralization. All but a few economic
ministries in Moscow have been dismantled and replaced by regional
economic councils. Thedaytb?-day authority of the prOducing.
enterprises has been augmented. Regional economic councils have
been directed to in rate economic activity In their areas to eliminate
waste from cross-hauling of supplies and finished products, and to
Improve the balance of production throughout the country
Another aspect of improving management it the SOW
attention to the training of Scientific and technical personnel They
know that their world competitive position in the future wit
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upon a large reserve of scientifically skilled manpower. In a
technological era, they understand the importance of fundamental
? research. They have already made progress in the areas of
mathematics, physick, and chimistry. The Soviets have also,
undertaken a grass roots campaign to raise the competence
Its skilled and semi-skilled laboring groups Thousands of workers
in these categories are recelving technIcalining at evening
training centers
Now. I have been talkin
about the Russian economic.
position essentially'. In terms ofecoinomic aggreg
t s take a
.. moment to translate these aggregates into more-specific _terms. For
example, the production Of tractors in the Soviet Union last year was
about two-thirds of that of the United, States, Production of machine
tools WS greater in the Soviet Union 7'''" or, to put it another way,
. United States output in Machine tools,. was equal to about 80 percent .
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of that of the Soviet Union. Steel output is now almost half
that of the United States. However, Soviet expansion of steel
output for I956-60 is planned to be about egad iin bump blot
of United States expansion This means that the output of the steel
mill equipment industries is abaft the same in the two countries.
Consumer goods, on the other hand, provide a startling contrast.
United States automobile production was about 90 times that of the
Soviet Union. Washing machine manufacture was over 50 times
greater. United States radio and TV set output, was about 5 times
that of the Soviets This list could be much longer, but the important
thing is that the pattern is consistent In investment goods, and in
producers durables, 'the Soviet Union is compe
even terms with the United States. On the other side of the coin,
In the consumer sector, their performance is Characteristically poo
What does all this mean? It means that the Soviets are now
in a position, not only to support a mighty niiiitary apparatus, but
also to launch on an increasingly active program of economic
penetration, outside of the Communist Bloc I do not propose to dwell
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? on the Soviet military position - that is outside the subject of
today's discussion. Homer I do wish to discuss the threat posed
by the Soviet program for economic penetration of underdeveloped
areas of the world.
The mnunlsts up to now have been successfully
checked in their efforts to subvert the economies of Western Europe.
They have now directed their attack to the less developed countries
of the Middle East, Asia, Africa and Latin America Their outlay
to stimulate trade and reduce the affinity of these areas toward the
West, has been considerable, and the rate is increasing. In a three-
year period, from late 1954 to December 1957, it totalled nearly
$1.8 billion. This aid has been principally oriented to the Near
East and Asia (Afghanistan, India, Egypt, Syria, Yugoslavia, Yemen,
Burma, Camliodia, Indonesia and Napal. It also includes Iceland.)
In Africa, the Soviets have increased their economic overtures.
In the past, the Soviets trade with African countries has been
sporadic and of minor importance. Now, they are beginning to make
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a few key, offers to purchase burdensome surpluses; particularly
in those countries where the existence of such surpluses are
an ingredient of the political scene. (For example Ghana
cotton) Trade agreements have been concluded by a
number of Communist countries with the newly indepen
countries of Morocco and Tunisia, and both Ghana and Sudan
have received offers by the Soviets to expand commercial relations.
They give their old line -
help."
Now, why are these coun ries su
ertures? First, there is tr
betterment. These countries h e accepted the position that economic
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rats requires rapid indUstrialization1 Though they generally .
believe in .pol
and individual freedom, they will not remain
staunchly loyal to these concepts if the price appears to be economic
'nation. ,Some of the underdeveloped countries of Asia,
example, have been inclined to accept the Communist line tha
Industrialization by free enterprise methods took 150 years in
countries. They can't wait that long. Soviet propaganda, emphasizing
that Russia
tell a great Indust' al power in one? generation, is
very-appealing. The Sov..e.ts, of .course, do not spe* of the ap$tJing
cost in human suffering: of the denial .of human rights; of the sharp
limitations on. living 'standards, or of ,the help and technological
Impetus they receive from the West.
,FroM the -Russian kint of view, expansion of tr
makes good economic .sense, The. Soviets heed additional
raw materials because of shortages .of its own production,? ...Or example,:
.bauxite, copper, textile fibers, ? rubbert.,and.industrial_ diamonds, furthers
and.extromely.important the ? -Soviets can readily.. use _additional
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uttu gothic
which are allabie s export surpluses in
lesofAsia. In turn, the Soviets
of industrial s
equipment,. wetl
in exchange for needed rts..
many of the underdeveloped count*
now can afford to export many
as obso cent military
The Communists appear to have lost the fear of econorn c independencE
through reliance on for
? sources can be controllet
that this approach offers the prom
sources of supply Warty if ttio
The Communists apparently realize
or rapid rates of their o
:economic. 0001 than their-traditional
The upshot ts
nc
whether we like It Or.not,and mostof us
do not like it, we are now
the Soviets lathe underdeVel
economics as well as pOlifict_plo. ?
conflict or competition
s of the worl4. and that
ge role, Now1. .1 do notwnt
to leave 'yOu?with the Impression :that taSsurneor
Communists will have Unmitigated succe
working to make these countries
aware of
Communists in extending aid, The long
at
e United States. is
al ves of the
aid programs Of th
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tie slow in maturing in
ron mere is
a steady.gring excPahge:Of students- technicians,and scholar
Who have aim ? Oris..an.-0 underitanding
and We hope notunderdeveloped countries es
increasingly aware that the Soviets -out tothat the
- Soviet aim is not to help them to become self-reliant and strong,
.. but rather to make satellites of them. They will see that.the'United.
. States,: on he other-ha.. has respect their Independencea
encourages:, their tenst at equalityn world effe
Before closing, let me.brieflyHrecapittlia? r you the
salient features of the Soviet picture about which t have been
To continue to achieve rapid industrial deveiopmen
military establishment, to improv
s satellites, and to carry out its
the underdeveloped countries
resources for sustairted growth.
facilitated by the e
to suppo
status of its peoplei to support
ams to establish control over
of the id, the Sovi must find new
To date, Soviet growth has been
on of virgin resources, he adoption
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?
western techniques,
:hi negiett of agriculture, housing and
-consumer durables?. and theechievpment Of.fUlterOployMeritof ?
human resources Thus far,....ktgiVing priority to .Investment and:
curbing consumption, the Sovie s
system the second largest in
their industrial
y are now faced with
the problem of maintaining sustained growth. They a
accomplish this through a comprehensive program to
efficiency and productivity and through the training and de
of technical and scientific manpower.
show is that already the
industrial primacy.
Maybe you have
you a policy or a plan that
these general situations.
am not going to either.
Officer, which is to prese
and to you businets leaders, a
grim lesson these facts
us challenge to America's
les should follow to meet
go a little further and say that
king to my role of An Intelligence
It is up to the policymakers,
ublic to weigh thesef
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STAT
with other facts and conditions known to you, and then
for yourselves the best policies to compete with and defeat
successfully the Soviet drive for world domination
Now there may be some among you who have questions.
will be most pleased to try to answer them within the limitations
of security of course.
colleague,
will assist me in these answers.
'Thank you..
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