JOURNAL - OFFICE OF LEGISLATIVE COUNSEL THURSDAY - 24 SEPTEMBER 1970

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP72-00337R000200160004-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 30
• Document Creation Date: December 12, 2016
• Document Release Date: August 9, 2001
• Sequence Number: 4
• Content Type: NOTES

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'JIT
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Journal - Office of Legislative Counsel Page 3
Thursday - 24 September 1970
10. (Confidential - JGO) Attempted to meet with Frank Cummings,
Administrative Assistant to Senator Jacob K. Javits (R. , N. Y. ), but
Mr. Cummings left the office and will be out of the city with the Senator
until Monday. See Journal item of 17 September 1970.
11. (Secret - JGO) Met with Earl Morgan, House Armed Services
Committee staff, and brought him up to date on
12. (Internal Use Only - JGO) Received a call from Mr. Roger
Majak, Administrative Assistant to Representative Jonathan Bingham
(D. , N.Y.), who requested such information as we can make available
Mr. Majak told me also that he had contacted the Library o
Congress and had been advised that they had no further information on
but that further classified information might be available
from CIA.
13. (Secret - GLC) In response to her request of yesterday, I
hand-carried to Dorothy Fosdick, on the staff of the Senate Subcommittee
on National Security and International Operations, a book put together by
OCI which contained information drawn from the NISs on the various Arab
states. Miss Fosdick was most pleased to receive this material and
agreed to observe the strict rules which I laid down with regard to any
reference as to the source of this material.
14. (Confidential - GLC) Picked up from the Joint Economic
..Committee advance copies of the Committee's study on the Economic
Performance and the Military Burden in the Soviet Union. I talked with
the Executive Director, John Stark, later about the Committee's inclusion
? of the Michael Boretsky article in the study. See Memorandum for the
Record.
:~ECNE o"
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24 September 1970
SUBJECT: Conversation with Joint Economic Committee Staff
re the Michael Boretsky Article
1. I picked up from the Joint Economic Committee advance copies
of the Committee's study on the Economic Performance and the Military
Burden in the Soviet Union. The study includes the rather controversial
paper by Michael Boretsky on The Technological Base of Soviet Military
Power, but statements are included in the forward of the study and in
the press release indicating that the studies present different interpreta-
tions of such phenomenon as Soviet defense activities due largely to the
secrecy surrounding them.
2. As suggested by Dr. Ed Allen, of OER, I offered John Stark,
Committee Executive Director, a copy of OER's Memorandum for the
Record on the Boretsky article. Stark thanked me for offering this
material, but indicated that Chairman Proxmire had given instructions
to the Committee staff not to accept any classified material. This was
the result of some rather bitter experiences with the Air Force over
the C5 -A issue.
3. A copy of the study and press release was sent to OER.
Deputy Legislative Counsel
Distribution:
Orig. - Subj
1 - OER
1 - Chrono
OLC/GLC:rw (28 Sep 70)
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16 September 1970
SUBJECT: "The Technological Base of Soviet Military
Power," by Dr. Michael Boretsky,
U.S. Department of Commerce
1. This memorandum presents the position of the
Office of Economic Research with regard to the subject
paper prepared by Dr. Boretsky for publication in
the forthcoming JEC study,."Soviet Economic Performance,
1968?69." This paper was forwarded to.CIA for review
by the Honorable Maurice H. Stans, Secretary of Commerce,
on 6 August 1970. A conference was held on 28 August
1970 between representatives of CIA and the Departmant
of Commerce to discuss the differences in their esti-
mates of military hardware production. This memorandum
presents OER's objections to Dr. Boretsky's estimates
under the following subject headings: the "residual"
method of estimation, the credibility of the results,
the validity of Soviet gross value of output as a
reliable measure of growth, and the ruble-dollar ratio
problem involved in converting the ruble value of mili-
tary hardware expenditures into their dollar equivalent.
SECRET
BEGET
n r; r, a and
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2. The "Residual" Method of Estimation --
Dr. Boretsky's methodology for "residualizing" Soviet
.z
production of military and space hardware is fraught
with problems relating both to the global value from
which he starts (see Validity of Gross Value
of Output, below) and the values which he deducts for
the various nonmilitary components of machine building.
9
Given the number of uncertainties surrounding the
basic Soviet data, the residual method of estimating
such a critical magnitude as Soviet production of
military and space hardware can not be relied upon
to give sound results. Even if conceptually sound,-
the methodology can yield reliable results only when
the initial magnitude and the items to be deducted
from it are more solidly based than in the'present case.
Dr.. Boretsky's results suffer from his necessarily
heavy reliance on unverifiable data and assumptions.
Unfortunately there is no way of ascertaining the
degree of success in breaching the smokescreen sur-
rounding Soviet statistics that contain classified
data on military production.*
*In the 25 years that have elapsed since the end of
World War II the Soviets have been completely successful
in preventing Western "penetration" of their statistical
accounts with respect to military expenditures, despite
the publication;-of statistical abstracts, input-output
tables, and scholarly research. It is clear that the
government takes great care to prevent published statis-
tics from fitting together into a coherent whole.
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3. Even if it were conceded (which it -is not)
that Dr. Boretsky's starting point for the residua lization
process -?- the Soviet gross value of output for machine
building were an appropriate measure of economic
growth for determining military expenditures, the
opportunities for cumulative error in the residualization
process are enormous. The result at each step of
residualization is directly dependent on all the pre-
ceding steps. To illustrate the sensitivity of this
methodology to variations in the basic data the fol--
lowing examples are offered. If the "suspect" aggre-
gate (the gross value of output) were to increase by
9.7a per year during 1959-68 instead of by 13.3%, as
officially claimed, then, given the parameters used by
Dr. Boretsky, there would be no increase at all in the
residual. Or again, if the Soviet 1-0 tables are taken
to reflect with a fair amount of accuracy the increase
of deliveries of machinery to final demand in constant
prices as well as current prices, then the military
machinery residual increased between 1959 and 1966 by
only 64% as compared with some 185% estimated by
Mr. Boretsky. The absolute amount and growth of the
residual are also sensitive to various assumptions
about whether or how much to lag investment and sales
of consumer durables (neither of which Dr. Boretsky
does).
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4. The residual method has been explored by this
agency as well. as by organizations working under contract
to it. We have never felt that the results were good
enough to warrant reliance on the residual technique
as a means of obtaining a realistic series on production
of military and space hardware.
5. Using his residual method, Dr. Boretsky esti-
mates a level and trend of Soviet expenditures on
military-space machinery that is vastly different from
CIA estimates. Whereas, according to the CIA estimate,
Billion 1955 rubles
I3orets ___,__~T ~.-CIA
1968 1.0.7 13.4
expenditures or-military-space. hardware increased by 740
in the ten years after 1958, Boretsky finds the increase
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to be 478%. Stressing the enormity of this percentage
increase, he concludes, "The story conveyed by these
/stimates7 could hardly be more dramatic."
Because of the divergence in the CIA and
I3oretsky estimates, the serious weaknesses in the
residual approach, and the "headline" potential of
Boretsky's commentary, we cannot be sanguine about the
publication of his estimate.
6. Credibility of the Results --- We believe
that Dr. Boretsky's calculation of the production of
military and space hardware in his base year (1958)
is far too low and contributes to a sizeable overstate-
ment of growth in 1959-68. It is simply incredible
that in 1958 the USSR could support its large and ex-
panding military hardware programs as well as an exten-
sive space program with an expenditure of 1.9 billion
rubles less than the sums invested in the coal and
petroleum industries in, that year. His calculations
further imply that production of civilian machinery
during 1959-62 did not share in the vigorous growth of
military machinery (although the latter is very depen-
dent on some types of civilian production for parts and
components). CIA's Soviet Production Index, (SPIOER),
which includes in its sample a very large number of
final products, shows no such lag in the civilian
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(see Table 1),
machinery sector. Therefore we feel that Dr. Boretsky's
series on the value of military machinery production is
not consistent with other available evidence on trends
in Soviet machine building during 1959-62.
7. Another of Dr. Boretsky's results that is
extremely hard to accept, simply on the grounds of
credibility is the implied average annual increase of
32% in the production of Soviet military and space
hardware in the 4-year period between 1958 and 1962.
If one is to believe the figures in his Appendix Table
3, which shows the derivation of his residual Soviet
ruble-value series for military and space hardware
(Row II, 5) than this category increased from 12-12%
of the gross value of output of machine building (MB)
net of intraindustry sales (Row I, F) in 1958 to 22%
in 1962. Such a phenomenal increase in such a short
period would certainly have caused a great dislocation
in the productive resources of the machine building
industry, but there is no evidence that dislocation of
this magnitude took place in 1959?-62. Instead, the
CIA estimates of the growth of civilian machinery
slump especially in 1963-68, when the average rate of
increase of Boretsky's military machinery falls from
32% to 11% a year.
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EC1ET
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Average Annual Growth Rates of Soviet Machinery Pro-
duction, 1959-68
1959-68 1959-62 2/ 1963-68b/
Percent
Official Soviet
Gross value of output of
machine building
13.3 15.8 t 11.7
Boretsky
Gross value of output of
machine building net
of intraindustry sales
Military machinery
Civilian machinery
CIA Estimates
11.8 14.5 1001
Total machinery
10.3
6.6
Military machinery
9.8
4.2
Civilian machinery
10.6
8.1
a. The base year for this calculation was 1958.
b. The base year for this calculation was 1962.
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8. Although the Boretsky and SPIOER growth rates
for 1963-68 are at some variance, the difference is
nowhere as extreme as in 1959-62, and a drop in the
growth rate of military machinery production is evi-
dent in both. Given the lack of understanding in the
West concerning the precise manner in which Soviet
GVO indexes are` computed (and what factors account for
growth rates that are so much higher than anything
that can. be calculated by conventional methods) it is
fruitless to push the comparison between Dr. Boretsky's
estimates and those of CIA any further. Acceptance of
Dr. Boretsky's results (even if corrected for the
apparent aberration in 1959-62) rests on the credi-
bility which the West attaches to Soviet GVO indexes
as meaningful measures of real growth and on the
applicability of the parameters that Dr. Boretsky uses
to derive his results.
9. Vali_dit of the Soviet Index of Gross Value
of Output -- Western economists who have specialized in
the study of the Soviet economy (Bergson,'Greenslade,
Grossman, Po-,.,,ell, Wiles, etc.) have reached a common
conclusion after.independent investigation of the
Soviet "gross value of output (GVO)" -- namely that
it overstates real growth. It is our experience that
the overstatement is nowhere greater than in the case
of machine building. Soviet indexes of GVO for MBMW
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tend to overstate growth relative not only to com-
parable indexes constructed independently in the West
but even to other official Soviet production data
(see Table 2). The growth in gross output of machine
building as reflected in the two Soviet I?-?0 tables for
1959 and 1966, for example, averaged 10.6% annually
between those two years, whereas the comparable offi-
cial GVO index indicates a growth of 13.3%, nearly
3 percentage points higher. Similarly, for individual
branches of machine building, the GVO indexes have
indicated growth rates significantly above those derived
from officially published ruble-value production series.
10. No one in the West knows.how
precisely for the inflated growth rates registered by
Soviet GVO indexes. We do, however, know some of the
things wrong with the indexes: inclusion of secondary
products, multiple counting of intermediate goods and
components, use of artificially high "temporary"
prices for new and nonstandard products. Dr. Boretsky
has tried to deal with two of these problems --
inclusion of secondary products and multiple counting
of intermediate goods (primarily intraindustry sales).
Comparison of the 1959 and 1966 I-O tables seems to
show about the same increase in intraindustry sales as
Dr. Boretsky estimates. With respect to other aspects
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Comparison of Machinery Growth Rates: Official Gross
Value of Output Versus Other Soviet Measures
of Production, Selected Years, 1958-68
Average Annual
Percentage Rate
Index Numbers of Growth
working .
1966
(1959 - 100)
Official index of gross
value of output a/ .
1.2. 7
Gross output from 1959 and
1966 1-0 tables b/
202
10
6
.
2. Machine building only
Official. index of gaross
value of output
239
13.3
Gross output from 1959 and
1966 1-0 tables/
202
10.6
3.
Selected branches of machine
building
a. Instrument building
(
rib
t
2
oros
royeniye )
(1959
= 100)
Official index of
gross value of output
338
Reported ruble value
of production
269
13.2
b. Equipment for the food
1964
processing industry
(1958 -100)
Official index of
gross value of out-
put
226
14.6
Reported ruble value
of production
154
7.5
a. Calculated in enterprise wholesale prices of 1 July 1.955. Out-
put is computed on an establishment basis, including secondary
products.
b. Calculated in current prices to the purchaser (including turn-
over tax where applicable, freight charges, and trade mark-up).
Output is computed on a commodity basis consisting of primary
products only and regardless of where produced.
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of these two problems, however, it is difficult to judge
the success of Dr. Boretsky's adjustments, given the
self-interest of Soviet enterprises in maximizing"their
GVO's. Also there is little that one can do about the
pricing problem. Reputable Soviet economists claim that
machinery prices have actually increased since 1958
despite the publication of an official index of machine
building prices that shows a.decline of 11% in enter-
prise wholesale prices. Acceptance of the official index
of GVO as a reliable constant price index is very much
in question due to the numerous problems inherent in
Soviet price formation and pricing practices. Soviet
practice tends to allow the introduction into the report-
ing of GVO of artificially high "temporary" prices for
new and nonstandard products as if they were bona fide
constant 1955 prices.
11. Soviet sources are themselves in disagreement
over the absolute value of the gross output of machine
building and metalworking. This value is crucial be-
cause it is the starting point for Dr. Boretsky's entire
calculation of Soviet military machinery production.
Dr. Boretsky places the value of MBMW in 1959 at 27.6
.billion rubles (Table A-3, Row I,B). We believe that
he is in error 'in this regard. Certainly a strong
case can be made that this figure should be 29.6 billion
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u.bles. Substitution of this number alone reduces the
average annual growth-rate of Dr. Boretsky's military
and space hardware series during 1959-62 from 32%'to
23%, thus indicating how susceptible his results are to
modifications in the underlying Soviet data.
12. Finally the use of GVO as a basis for dis-
aggregating the various components of machine building
is.a risky business because of the lack of common know-
ledge as to its precise contents and how the ratios of
its components change over time. In 1962 OER attempted
to.estimate for the purpose of deriving weights for
use in SPIOFR the division between the civilian and
military components of MBMW. Using statements and co-
efficients culled from the Soviet press, it was esti-
mated that the military component was 40% to 50o?of
the total in 1955. Dr. Boretsky, also relying on
statements and coefficients appearing in the Soviet
press, arrives at a military share of machine building
(net of intraindustry sales) of only 12.6% in 1959,
* The GVO of MBMW in 1960 was officially reported to be
34 billion rubles in enterprise wholesale prices of
1 July 1955 (SSSR v tsifrakh v 1961 crodu p. 108-9). Moved
by the offxcia~T-'inzi TOf GVO~=o I~l3i~I[ - , = 87, when
1960 - 100) results in a 1959 value of 29.6 billion rubles.
of this Office.has written a memorandum,
25X1A ross a ue o-- utput of Machine Building and Metalworking,
I l i - dated 30 April 1970, in which he details
the conflicting evidence concerning the correct value of
MBMW. A copy of this memorandum was presented to Dr.
Boretsky at the conference on 28 August.
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rising to 22% in 1962, and to 24% in 1968. Clearly the
selection of data and the interpretation of Russian
Interestingly
h
enough, this method led to a military share in 1960 that
was not far from the one calculated by OER for 1955,
but greatly at variance with Dr. Boretsky's 1958 rela-
tive share. Since 1960 military machinery has grown
more slowly than civilian machinery in the CIA index
and its share has correspondingly declined from 40%
to 35%. In particular, Dr. Boretsky's method of esti--
mating sales of intermediate products and inventories
seems somewhat arbitrary.
13. The Ruble-Dollar Ratio Problem -- In addition
to the question of the meaningfulness of Dr. Boretsky's
ruble-value series, his paper poses a serious problem
with regard to the valuation of military machinery in
dollars. In converting his ruble series on Soviet mili-
tary machinery production into dollars for purposes of
comparison with US military machinery, he come: to the
conclusion that Soviet production in 1968 exceeded US
production by some 3% to 19%. (The range reflects the
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use of alternative ruble/dollar ratios.). Dr. Boretsky
seems to favor use of the lower ratio of .315 rubles to
1 US dollar, and for purposes of exposition we will
confine our comments to this ratio and its effect on
his dollar-value series.
14. First, we question the realism of the .315-to?-1
ratio. It is based on a sample of investment goods,
not military goods. We believe that this ratio is much
too low and leads to an inflated dollar valuation of
Soviet military hardware production. In our estmates
of Soviet.military hardware production individual cate-
gories are converted at different ruble.-dollar ratios.
When these categories arc aggregated, a weighted average
ratio is derived. This ratio tended to rise'between
1958 and 1962, but levelled off thereafter. The rise
reflected the introduction on the Soviet side of more
exotic types of weaponry (nuclear warheads, radio-
electronic equipment, etc.) that are relatively more
costly for the USSR to produce vis-a-vis the US than are
conventional series-produced items.
15. If our ruble-dollar ratios are substituted for
Dr. Boretsky's, the level- of his dollar series for Soviet
military hardware production drops by one-third, and the
ratio of the value of Soviet military hardware production
to the value of US procurement of military-space hardware
declines correspondingly:
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Boretsky's Comparison
Machinery component of
Soviet defense and
space programs
1955 Rubles (million) 1,864 5,642 6,337 9,318 10,733
(Boretsky) .315 .315 .315 .315 .315
1964 Dollars (million) 5,872 17,772 19,962 ,29,352 33,809
Machinery component of
US.defense and space
programs (million 1964
dollars).
1958 1962 1965 1967 1968
16,517 19,738 19,430 26,060 28,530
Soviet programs as a
percent of US programs 36. 90 103 113 119
Alternative Comparison (employing CIA ruble/dollar ratios)
Machinery component of
Soviet defense and
space programs
1958 1962 1965 1967 1968
1955 Rubles (million) 1,864 5,642 6,337 9,318 10,733
Ruble--dollar ratio (CIA) .48 .52 .51 .51 .51
1964 Dollars (million) 3,883 10,850 12,425 18,271 21,045
Machinery component of
US defense and space
programs (million 1964
dollars)
Soviet programs as a
16,517 19,738 19,430 26,060 28,530
percent of US.programs 24 55 64 70 74
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1.6. In the alternative series the Soviet program
reaches only 74% of the US program in 1.968 instead of
119%. Even if Dr. Boretsky's 1958 base -year figure
were adjusted upward as we believe it should be (see
above), then the Soviet programs would still equal
only 33% of the US progralisin 1958 but would rise to
90% in 1968. CIA estimates that the Soviet programs
equalled about 97% of the US programs in 1958 and
about 93% in 1968.
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McHUGH - 5171 FOR RELEASE FRIDAY A.M.
SEPTEMBER 25, 1970
CONGRESS OF THE UNITED STATES
JOINT ECONOMIC COMMITTEE
Representative Hale Boggs Announces Release of Study of
Soviet Union
Representative Hale Boggs (D-La.), Chairman of the Foreign Economic
Policy Subcommittee of the Joint Economic Committee announced today the
publication of a new study, Economic Performance and the Military Burden
in the Soviet Union.
In announcing the publication, Chairman Boggs noted that the
Joint Economic Committee has had a long-standing interest in the study of
the economic performance of the Soviet Union and has made available periodic
studies going back to 1955,
Representative Boggs cited two important features in connection
with this publication. "First, the Soviet leadership is now preparing a
blueprint for their next Five Year Plan for 1971-1975 to be aired at the
forthcoming Twenty-Fourth Party Congress. The new study is therefore a
timely assessment of Soviet economic achievement and will provide the
U.S. Congress and the American people an opportunity to place in perspective
whatever plans will be announced by the Soviet leadership.
"Second, the latest publication has been oriented, more so than
past publications, to the analysis of the role of the military requirements
on the overall performance of the Soviet economy. This analysis is
especially pertinent as the American people, the President, and the Congress
reappraise and shape their priorities for the years ahead."
"The Subcommittee's study," Chairman Boggs noted, "presents a
telling case of the relatively poor Soviet economic performance in the last
several years, with not only agricultural but industrial production lagged --
agricultural performance was particularly low in 1969 due principally to
bad weather. However, there were also pressing bottlenecks in fuel, labor
and construction. In the short run, these problems directly impinge on
defense production. For the longer term, it is evident that unless there is
1970-26
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further substantial economic reform, Soviet efforts to raise living standards,
which are roughly about one-third that of the United States, will depend on
the priorities given to military production and services.
"It is stressed throughout the study" Representative Boggs asserted
"that the defense effort share (which accounts for over one-tenth of Soviet
output), might be maintained indefinitely or even increased if present wfkrld
tensions continue. Such an eventuality would unfortunately mean that the
military would continue to have the strong voice it now has in determining
priorities. On the other hand, a diminution of world tensions would afford
the Soviet leaders an opportunity to meet many pressing civilian demands
which are much more acute than in this country."
Other major findings of the study are summarized in the attached
The Chairman indicated that some of these studies present different
interpretations of such uhenomeno as Soviet defense activities. For the
most part, this is due to the high degree of secrecy surrounding such
activities in the Soviet Union. The Chairman expressed hope that the
publication of these data will permit fuller exploration of the subject
matter by the experts with a view-rfgnimizin discrepancies and arriving at
close approximations of the truth. This subcommittee plans to examine the
more prominent areas of controversy through public hearings to aid in this
process of achieving a fuller understanding of
Copies of this study are available on request frrm the Joint
Economic Committee, Room G-133, NSOB, Ext. 5321.
Members of the Subcommittee on Foreign Economic Policy are:
HOUSE OF REPRESENTATIVES
Hale Boggs (D-La.), Chairman
Henry S. Reuss ?Wis.)
William S. Moorhead (D-Pa.)
William B. Widnal,l (R-N.J.)
W. E. Brook III (R-Tenn. )
Barber B. Conable, Jr. (R-N.Y.)
SENATE
John Sparkman (D-Ala.)
J. W. Fulbright (D-Ark.)
Herman E. Talmadge (D-Ga.)
Stuart Symington (D-Mo.)
Abraham Ribicoff (D-Conn.)
Jacob K. Javits (R-N.Y.)
Jack Miller (R-Iowa)
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Attachment to Joint Economic Committee Press Release 1970-26, September 22, 1970
Representative Hale Boggs (D-La.)2 Chairman of the Foreign
Economic Policy Subcommittee of the Joint Economic Committee of the
U.S. (3ongress, announced the publication of another in their series
of assessments of Soviet economic performance. This publication
entitled "Economic Performance and the Military Burden in the USSR"
represents not only an updating of the periodic annual indicators
(Soviet Economic Performance 1966-67 published in 1968 being the
most recent) but an initial survey of the role of military claims
on resources in the performance of the Soviet economy.
prov:i.ded .a general assessment
of Soviet performance in the following:
" For the Soviet Union, 1969 was it year of slower aroivt.h and generally
unsatisfactory ecorion.lic I)erformo-ulee. Nevertheless, the USSR
easily niaintluned its second place position anion-Y the worl(I's ceo-
nomtc? powers, producing 'only half as much as the United States
but almost 2) times as much as third ranking Japan or fourth ranking
West Germany. \Iensure(1 on it per capita basis, however, Soviet
gross national product (G\P) is only about 40 percent of the American
or % of the northwest European and is comparable to the Italian or
Japanese. '
11 During 1969, Soviet GNP increased only 2.3 percent, that, is, at less
than half the rate tuaiiitaille-cl (hiring the preceding several years and
the lowest rate posted since the (lisastrous agricultural Year of 1963,
Over the years, the rapid growth of factor (i.e., capital and labor)
` r ? 11. .. f .. 1
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