SPEECH TO THE ECONOMIC CLUB OF NEW YORK

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80B01554R002700330001-0
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 18
• Document Creation Date: December 12, 2016
• Document Release Date: August 6, 2001
• Sequence Number: 1
• Publication Date: December 7, 1977
• Content Type: SPEECH

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ECONOMIC CLUB OF NEW YORK
7 December 1977
Mr. Chairman, Mr. Midshipman Jay? Ambassador Richards,
ladies and gentlemen, as the Ambassador I- too am honored to
be here and with one exception I am pleased to be here. The
exception is that I believe it shows an amazing lack of good
judgement where a simple sailor turned intelligence officer
to come to talk to an economic club and then to follow on the
podium one of the world's leading economists. Mr. Ambassador,
we are all stimulated by your remarks and very grateful for
them. What I would like to try to do is to talk about the
international economic scene as perceived from an intelligence
view point and specifically from the increasing interplay today
in your American intelligence community with the international
economic picture. When thirty years ago last September the
Central Intelligence Agency was founded we were an independent,
predominant world economic power. The focus of intelligence
was largely in the military and in the political sphere. I need
not say today how interdependent we have become economically,
But I can say that the intelligence world is trying to keep
pace, trying to shift its focus, not neglecting the military
nor the political, but increasing attention in the economic
sphere. Some of the major efforts of this past year or so
have been in this area, and let me mention just a few as
examples.
In March we published a study of The International
Energy Prospects'for the Next Seven or Eight Years. What
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we projected was that the world as a whole is not going to
be able, in our opinion, to pump out of the ground as much
oil as it would like to burn on the surface. We have not
said that the world's reserves of oil are running out and
that the lamps and candles will not burn in the future. We
have simply said that it will be difficult to find a way
around either a major conservation or major pressure on prices
of energy.
A few months after that we produced another study about
The World Steel Situation. We pointed out there is over
capacity in all of the major steel-producing countries. We
operate at some 78% of capacity; the Japanese at 72%, the
European Economic Community at 60%; a country like Sweden at
only 48%. It is our view that in the next four to five years
the increases expected and demand for steel are not going to
fill those excess capacities. In part, because there are
lesser developed countries in the world today who are continuing
to add to their steel-making capacity. We expect that the
exports to these lesser developed countries are going to decrease
by 60% in the next three or four years as some of those countries
like South Korea, Mexico, Brazil, turn into exporters rather
than importers of steel,
Early in the.summer we produced another public study on
International Terrorism, a subject which I an afraid must be
of concern to many of you here engaging in international
business. We have to project, of course, that over the last
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four or five years the amount of bombing, arson, terrorism of
one sort or another, has been on the increase; 400% in the
last four years increase in bombing; 160% increase in arson
in the last year. Unfortunately, the number of incidents
involving United States citizens and firms abroad has
increased from two our of five in 1975 to three our of five
today. We produced this study in the hope that it would also
have particular value to international businesses and we tried
to make it particularly available by issuing through the
Department of Commerce to their contacts in the business
community.
In July, we published still another public study on The
Outlook for the Major Economy of the Communist World, the
Soviet Union. We have made this kind Qf study periodically
and heretofore we have felt that the Soviets had the capability
with their economy to achieve three principal goals; First,
to continue their high accent on military strength towards
achieving parity with us; second, to improve, if not dramatically,
the quality of life in the Soviet Union; and third, to continue
to infuse enough new capital into their economy to have it
grow at a reasonable rate. Our review this last summer was
startling in its change to us. We happen to believe that
sometime in the next four or five years the Soviet economy is
in for a-more bleak prospect than at any time since the death
of Stalin. Why? Because the Soviets have maintained a
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policy of sustaining productivity, largely by continually
increasing their infusions of capital and labor, and we
think they are coming to the end of the line. First, because
in the 1960s they happen to have had a very low birth rate.
In the 1980s the rate of growth of their labor force is going
to drop from a present 1.5% a year to about .5%. Some of
that is in the central Asian area where it is tough to get
them down off the farm and into the cities. As far as capital,
today, as many of the rest of us, they are facing the prospect
of going and looking for resources- that are more and more
difficult, more and more expensive. Iron ore is further into
Siberia. Our energy study particulary emphasized the fact
that the Soviets are not developing the reserves of petroleum
at the correct ratio for their current production. They are
simply putting the emphasis on today. Even then, sQme of the
ways in which they are extracting the oil like excessive water
flooding is going to hurt their long-term reserve position,
Where does this leave them? Well, it seems to me it
leaves them with some difficult, pragmatic choices not far
ahead - maybe at the turn of this decade. For instance, can
they continue to afford the same large military force when
they are manpower short? Can they continue to afford the
same investment in military power? Can they continue to
afford their.p.romised delivery of a 1.6 million barrels of
oil a day to their Eastern European satellites? Will they
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have to enter the foreign exchange market and borrow more in
order to obtain the hard currency to sustain the infusions
of western technolocy that are helping to keep their economy
moving ahead. Let's look interestingly at the high probability
that by the time these decisions are upon them, they will be
confronted with a major change in leadership. None of us can
really speculate on how that country will effect a change of
leadership. I am not saying that they will not make the right
decisions. But I am saying that that may be a difficult time
to take difficult decisions. They may do it very well, and they
may make the sacrifices that are necessary and come out fine.
But it is going to be of great interest to each of us how they
do it. If they decrease the site of their armed forces, it-.-
surely has an impact on our level of investment in ours. If
they don't deliver oil in great quantity to Eastern Europe,
what impact will it have on stability there? If they enter
the world market for borrowing of hard currency in large
quantities, what will our policy and our reaction be? I can't
give you answers to these and I can't even, of course, assure
you that our basic analysis is going to hold up. I can only
say we have done our best, and that we hope in the process of
sharing these views with you the public, we are at least helping
to focus national debate on the right issues.
In addition, in the process of sharing with the public,
we are gaining stimulus for ourselves and assurance that we
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are not going down completely deadend tracks. Now if it
surprises you, that an intelligence officer is standing here
suggesting that he wants more dialogue with the public, it is
new. It is not the tradition-of intelligence to want to be as
open as possible and to share as much as possible. The
tradition clearly is one of maximum secrecy. But, when you
look at this information on economics in the international
sphere and see how much of it can be made available, and
when you look at how valuable it could be to the country,
one has to give some consideration to a policy of openness.
So, today what we do is we complete a major study or estimate
we look at it and say, whether it is classified SECRET or
TOP SECRET or destroy before reading, can we extract from
this those elements that are essential to protecting the
sources of how we got the information or that information
which is uniquely valuable to our decision makers and still
have enough substance left to be of value to you, the public.
If the answer is yes, we will publish and make it available
through the Government Printing Office.
Now, let me say this. I don't want to exaggerate, I
don't want to overwhet your appetites, there is no way we can
share everything; there is no way we can be completely open.
So much of what we have to do in intelligence cannot be done
if it is not done in secret. But in balance I would say, that
a policy_ of greater openness, under control, can in fact
help us protect our secrets. Mr. Ambassador, it is reputed
-6-
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hat Winston Chruchill once said that if everything is secret
nothing is secret. We hope by decreasing the corpus of
classified information to engender a greater respect for that
which remains. Ladies and gentlemen, there is not today in
our country sufficient respect for that which is properly
classified and withheld from the public for a good cause.
I am in the papers today with respect to a young man, a
disaffected member of the Central Intelligence Agency who has
recently published a book on the Agency's activities in Vietnam.
without fulfilling -Qither--his:oath) or-his personal promise to
me to submit the book for a security review. And I suggest to
you that a continuation of this Ellsberg, Snepp syndrome has
a logical extension only that each one of us, each of the 215
million Americans is to be authorized to declassify information.
We cannot tolerate that - it is nothing but chaos. I believe
we have come far enough from Watergate that it is time for
the public to begin to place a modicum of confidence again in
its elected officials and the public servants whom they appoint.
Now I am not asking you just to-trust us blindly because
secrecy is a dangerous thing and it must be treated very
carefully. There is no way we can have complete public oversight
of our secrecy. So what we are evolving in this country in
addition to opennes on the one hand in intelligence, is greater
oversight and control on the other - a system of checks and
balances analagous to our entire governmental process.
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The first surrogate for public oversight is the President
of the United States, and the second is the Vice President.
I can assure you today that they take a very active and positive
concern on intelligence and that I keep them informed of what
we are doing fully and regularly.
Another new surrogate for public oversight are the
Intelligence Committees of the Senate which we have had for
a year and a half, and of the House of Representatives which we
have had for three months, These are excellent organizations
for both overseeing my activities and for being a sounding
board to whom I can turn to find out what the American public
wants, expects and demands of its intelligence operation.
I believe we are entering a period of two or three years
in which an entirely new model of intelligence, an American
model, will emerge. A model in which we find a balance between
openness on the one hand and preservation of necessary secrecy
on the other; and oversight, control on the one hand and
sufficient initiative and risk taking on the other to satisfy
the legitimate needs of our country. As this evolves, as these
rules, these surrogates for oversight settle down into a
process, which I am optomistic that is going to be done, and
it is going to be done properly, we are going to need the
understanding and the support of you, the American public.
That is why I am grateful for your concern and your interest
as evidenced in asking me to be with you tonight. Thank you.
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QUESTIONS AND ANSWERS - ECONOMIC CLUB OF NEW YORK - 7 December 1977
Question: ...... for me, let me say that having had some
significant contact with the process by which the
intelligence is acquired, the depth of study that
goes into the analytic and estimating process, the
dedication of-the staff involved, I: have come to
know ...... It is not easy to me to quaintly ask
some critical questions and yet they must be asked.
The two studies you-referred to or two of the studies
you referred to that are of particular significance
in this evening's discussion The Outlook for Soviet
Oil Production and the rather remarkable Soviet Economic-
Prospects and Problems. Both have a common thread.
They both anticipate, and in the very. short. term,
some very significant difficulties. The difficulties
................ but not completely so, An in the
case of, for example, the outlook for.Soviet oil
the expectations are as the Agency has presented them.
The Soviet oil production will be in the early 1980s
and sharply drop off immediately thereafter. And
if this fact becomes one of the elements contributing
to a very bleak and also rather short term, aggravated
outlook'-for the entire Soviet economy. My question is
this, there has been disappointmentsin past estimates;
some have been wrong. We have had slings in our
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anticipation of what the Soviet economy will do. Our
expection now is a little bit bleak. What reason is there
to believe that these estimates will be as accurate as
they are closely reasoned?
Answer: One of the advantages I mentioned of making the estimates
like this public, is that they are then subjected to your
scrutiny. We got a lot of adverse press on the energy
study when it came out. I personally wrote to each sensible
critic and asked for further elaboration on their positions
of doubt. Those who responded with reasonable replies, I
invited to come and spend the day at CIA. I personally met
with them. Our analysts met with them and we went over it
up and down. We have now established more contact with
people of that nature - think tanks, oil companies, independent
oil consultants. We are trying very hard to stray abreast of
what they think, and their good. criticisms. And their criticisms
lead me to now have a better feel for where to focus future
intelligence efforts to find out if we are right or if we are
wrong. If we are wrong, I will be happy to admit it because
we never will be 100% right
7uestion: Admiral Turner, perhaps I can follow up on that point ......
You mentioned in your talk that the CIA's estimate did not
have so much to do with actual resources but with how much
oil and how much gas we can pull out of the ground. Do you
mean by that you don't feel that we are exhausting, that CIA
doesn't feel, we are exhausting the world's resources that
it is simply a matter of capital expenditures?
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Answer: George, all I am saying is that we only looked as far
as 1985 because the glass becomes pretty murky beyond
that as to what reserves will be uncovered and you can
get into infinite debate and dispute. But we did think
it was quite relevant to forecast that with the amount
of drilling equipment existing today and the know
reserves that are being employed, and the time it takes
from discovery of an oil field until actual production,
and the rate of growth of demand that at least until
about 1985 we could:predict that the demand curve was
going to pass the supply. We are not really capable
at this point of looking much further than that and
seeing when those reserves will dry up to the point
where we must simply shift to alternatives.
Question: I wonder if I may ask the question of Ambassador James
Question: It appears that .... there has been a misestimate
of the nature of the Soviet ........ this year.
This will have been twice in five years. There
appears to be a significant miscalculation of the
prospects of Soviet food production., In each case
in addition, the Soviet Union appears to have been
quite successful in hiding its deficiency for .......
time sufficient to replenish its stocks at favorable
prices with benefits which.did not accrue by and large
.to the U.S. farmer. There are two questions:
To-
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This an area in which CIA has properly pride in
itself - the ability to estimate food production.
Is there a satisfactory explanation for two failures
in ................ and secondly is there not an
associated failure in the inability to perceive the
Soviet's purchase of grain during the period t~ben