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December 12, 2016
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June 24, 2002
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May 2, 1961
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Approved For Release 2002/07/12 : CIA-RDP79TO1003AO01000260002-0 CIA/RR CB-61-26 S-E-C-R-E-T Copy No. 2 May 1961 25X1 C CURRENT SUPPORT BRIEF SOVIET ECONOMISTS ADVANTAGEOUSLY EMPLOY DOLLAR NATIONAL INCOME COMPARISONS ,OFFICE OF RESEARCH AND REPORTS CENTRAL INTELLIGENCE AGENCY This report represents the immediate views of the originating intelligence components of the Office of Research and Reports. Comments are solicited. This document contains information affecting the national defense of the United States, within the meaning of the espionage laws, Title 18 USC, Sections 793 and 794, the transmission or revelation of which in any manner to an unauthorized person is prohibited by law. Approved For Release 2002/07/12 : CIA-RDP79TO1003AO01000260002-0 Approved For Release 2002/07/12 : CIA-RDP79TO1003AO01000260002-0 S-E-C-R-E-T SOVIET ECONOMISTS ADVANTAGEOUSLY EMPLOY DOLLAR NATIONAL INCOME COMP RI N Soviet press reviews of comments on the recently published Soviet statistical compendium The USSR in Figures: 1960 have con- tained several comparisons of Soviet and U economic indicators.* 25X1C Wh t i l i h a s nove n t e set of comparisons apparently appearing in the handbook are estimates of per capita national income in dol- lar terms for the USSR, US, Great Britain, France. In the Soviet comparison, the USSR's per capita national income is half that of the US, and greater than that of the UK and France, two of t leading economies of Western Europe. On the other hancj0R ates of per capita gross national product (GNP) show the USSR to be considerably smaller than all three Western economies. The sharp differences in results between the two estimates can be ex- 25X10 plained in terms of differing concepts as to national income and different conversion ratios, not only between rubles and dollars, but also between dollars and pounds sterling and dollars and francs. Dollar Estimates of Per Capita National Income and Per Capita, GNP, 1959 Country Soviet Estimate 1/ ;' e stimate 2/ of National Income I-_ _- , of GN US 1,655 2,722 USSR 804 1,050 UK 738 1,516 France 733 1,395 Effects of Differing Concepts of National Income Conforming to the traditional Marxist concept that "produc- tion" is limited to the sphere of material production of goods or of services directly connected with their production, the Soviet concept of national income excludes incomes generated in what the Soviets term non-productive sources. These incomes are included in Western measurements of both national income and gross national product (GNP), Non-productive incomes aside, the Soviet concept of national income is equivalent to the Western concept of GNP. In our national accounting methodology, GNP equals national income plus capital consumption allowances plus indirect business taxes. Since the services have been the most rapidly expanding sectors in highly advanced economies, the effect of using the Soviet concept of national income is to lower the magnitudes of national product of the US and Western European economies relative to those of less advanced countries, In addition, since most of these excluded ser- vices are consumption-oriented, their exclusion rebounds to the propaganda advantage of an economy like that of the USSR in which the consumer is accorded a low priority on resources. Since it may be assumed that the Soviet measurement of US national income is derived directly from adjustment of US data, comparison of the Soviet an ORR er capita estimates of US na- tional product provide a direr measure of the degree to which substitution of the Soviet concept reduces US product in measure- ment. * The actual publication does not contain the relevant information. 2 May 1961 CIA/RR CB-61-26 Page 2 25X1 C Approved For Release 2002/07/12 : CIA-RDP79TO1003AO01000260002-0 Approved For Release 2002/07/12 : CIA-RDP79TO1003AO01000260002-0 S -E -C -R-E -T 25X1 C In the above table the reduction aaaounts to nearly 40 percent. The effect of the use of the two different concepts in determining Soviet product cannot be directly computed from the table as the differences between the two sets of estimates involve other vari- ables in addition to that of concept of national product. It is possible, however, to estimate the approximate extent of under- statement by deduction from the ORR i stimate of Soviet GNP of those elements of national product whit are excluded within the Soviet context. The reduction amounts to about 20 percent_, or about half the relative reduction in US national product. ORR'ss omputed ra- tio of per capita Soviet GNP to US GNP is about three-eighths; the effect of using the Marxist concept of national income is to raise the ratio to over half. The effect of using the narrower Soviet definition of nation- al income leads to similar understatements of per capita UK and French GNP relative to that of the USSR. If the announced per capita dollar national income of the USSR is compared with ari,'te o:f Ab6dt 6,400 rubles per capita, de- rived from official souree's, 3/ a ruble-dollar ratio of about 8 rubles to I dollar emerges. This is about the same as the ratio ,eu * its comparison of 1957 rubles and 1959 dollars. 25X10 compu This identity in conversion ratios vanishes, however, when vari- ations in concepts of national product are taken into account. Ruble-dollar ratios are lowest on those services expenditures whi re, excluded if the Soviet income concept is adopted. Thus, 25X1C if QR uble-dollar ratio were adjusted to conform to the Soviet measuhe resulting._, ruble-dollar ratio would be much 25X10 higher than tTW existin< 5 estimate. The conversion ratio error is even more glaring in its ef- fects on the estimates of UK and French per capita dollar national products. The technique by which the Soviet economists derived dollar estimates for the three countries cannot be deduced from the data presented, but the relationships between their per cap- ita national products and that of the US are similar to those that would be obtained by converting estimates in pounds and francs. into US dollars at prevailing exchange rates. Studies by Western scholars have concluded that exchange rates seriously understate the internal purchasing power of Western European currencies rela- tive to the US dollar. 4/ The (RR estimates in the table are based on conversion ratios representing the geometric average of dollar and European prices for a selected sample of goods and services in 1955. The effect of this adjustment is to raise UK per capita GNP by 18 percent and French by 21 percent over the values obtained by exchange rate con- versions. 5/ Therefore, the Soviet measure understates the posi- tions of UK and France relative to the USSR not only by using the narrower Marxist concept of national product, but also by over- stating pound-dollar and franc-dollar ratios in the UK and French estimates. 2 May 1961 25X1 C Approved For Release 2002/07/12 CIA-RDP79TO1003AO01000260002-0 25X1 Approved For Release 2002/07/12 : CIA-RDP79TO1003AO01000260002-0 Approved For Release 2002/07/12 : CIA-RDP79TO1003AO01000260002-0