MILITARY ECONOMIC ANALYSIS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80M00165A001800110013-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 21
• Document Creation Date: December 16, 2016
• Document Release Date: December 13, 2004
• Sequence Number: 13
• Publication Date: May 24, 1977
• Content Type: MEMO

Approved for Relea~ 2005/01/10 :CIA-RDP80M00165A001~00110013-0
MEMORANDUM FOR? 8x@cunv? ResiAtxy
' The Director
Should military-economics be raised during
your discussion with Secretary ~3rown, we have
provided in the attached memorandum some brief
comments and background on his memorandum of
20 May to you on this topic.
~!-~_~ ayre Stevens
D~t~ ~ -~ r~n~Y ~97~
5~75'~I EP~TIONS10US
STAT
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TRANSMITTAL SLIP
EXTENSION
1 FEB 55 ~L4 I REPLACES FORM 36-8
WHICH MAY BE USED.
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`~ 4 SAY 1177
MEMORANDUM
SUBJECT Military Economic Analysis
REFERENCE: Secretary of Defense Memorandum to
DGI of 20 May 1977
1. In the referenced memorandum Secretary Brown
took the opportunity, in thanking the CIA for its pre-
liminary analysis an NATO-Warsaw Pact defense spending,
to state his views concerning the CIA's work in mili-
tary economics. In brief he
--reiterates the continued interest within
Defense in military economic analysis
because it contributes to our understand-
ing of the long term competition and plays.
a significant role in assessing the military
balance between the US and Soviet Union.
--finds the dollar estimates to provide the
best, single aggregated comparative measure
of US and Soviet defense efforts.
--reaffirms the value of the ruble estimates.
--identifies nine areas of further research
" which are of priority interest to Defense..
These areas are in addition to the primary
dollar and ruble cost estimates of Soviet
defense activities.
Z. The nine areas contain no surprises. CIA
currently has scheduled research efforts in each. of
the areas. Adec{uate treatment of all nine areas
within the next year, however, wi11 not be possible
within existing resource constraints. :~ndy Marshall'
understands this. Completion of specific projects
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in the areas involving comparative analysis (l, 4,
5, 6, and 7) are also dependent upon the participation
of Defense in providing US data. While such partici-
pation has been forthcoming in the past, these projects
expand the scope of previous projects and will require
a greater commitment of Defense resources than pre-
viously.
3. The continued interest shown by Defense in
military economics is encouraging. Their statement
of priorities which generally accords with our own,
is useful in gauging consumer interest.
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DCI xnay wisri. to mention. v,~hen h.E,nze:et~
with Secx?eta7?y of Defense 170Q WPdnesd.ay
2 5 May.
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THE SECRETP,RY OF DEFENSE
WASHINC;TON. D. C. 20301
May za, 1977
SUB.7ECT: Military Economic Analysis
I would :Like to thank you for the preliminary analysis of non-
U.S, NATO and non-Soviet Warsaw Pact defense spending that you pro-
vided recently, A4y views regarding future work in this and other
areas are reflected in the attachment to this memo,
Economic anal.ys.is has come to play a significant role in our
assessment of the military balance between the U,S, and the Soviet
Union, In conjunction with physical measures of the balance and
an understanding of such. qualitative .factors as military doctrine,
training practices, strategy and depl.ayed technology, thE: eccraomic
estimates contribute to our understanding of the long-term competi-
tion with the Soviet Union. The purpose of this memo is to reiterate
the continued interest within Defense in military economic analyses,
and to provide guidance as 'to the direction of such analyses that
I would consider most useful,
.We find the reports and analyses currently being produced in
the area of military economics to be very useful; in fact, they are
the basis of the comparative economic analyses employed by Defense,
The dollar estimates provide the best, single aggregated comparative
measure of U.S. and Soviet defense efforts, The ruble estimates are
of value in assessing current and projected Soviet economic problems,
the way they view-their military forces and goals, and the ability
of-the Soviets to compete with us over the long tern.,
Almost all of the projects suggested in the attachment are
continuations, extensions ar refinements of the work already under-
way at CIA, DIA or sponsored jointly through the Military Costing
Review Board, The suggested activities are listed according to the
priorities agreed to by several interested OSD elements, with Lhe
highest priority activity listed first,
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The description of. each project indicates the general nature of our
interest, but is not intended to provide an exhaustive specification
far the content of each taslc. Andy Marshall will supply any additional.
guidance and specification that might be needed or useful.
Attachment
a/s
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17 May 1977
MILITARY ECONOMIC ANALYSES
1. Comparative delivery_ and inventory statistics for maior U.S. and
Soviet we~on s_ystems.. Economic estimates are most i.iseful when used in
concert with such non-economic measures as estimates of physical
quantities like manpower, size of facilities and weapon stockpiles and
deliveries. Long-term trends of 20-30 years in both weapo~~ deliveries
and inventories should provide a better understanding of comparative
weapon investments, modernization and des:i.g~ age. It would be most
use?uI tcx~have such time series far the NATO-and. Warsaw Pact nations as
well as for-..the U.S. and USSR... Both. the CIA: and the appropriate DaD
elements should establish proced-ores by which the data requ.i.red for
periodic reporting would be made available.
2. _Broader assessment of the "burden11 of defense. An accurate appraisal
of the portion of total resources devoted to the Soviet defense program
is only a single -- and probably not the most important -- factor in
assessing the ability of the Soviets to continue, or perhaps accelerate,.
the expansion of their military forces. For example, the high pr_i_ority
accorded to defense production allows the MOIL to preempt parts and
materials, accept only the high-quality products and employ some. of the
best trained people. Similarly, the defense support -- and subsidies ----
provided lry other ministries, such as communication and transportation,
should be included. The dislocations thus shifted onto the non-military
sectors should. be costed if we are to understand more about the ability
of the Soviets to support, or expand .their defense effort into the future.
Adjustment of GNP estimates to account far "second economy" may be
increasingly important. In addition, this issue should address the per-
ceptions that elements of Soviet leadership holds of the defense burden.
3. Tndependent checks of the economic estimates. Alternative costing
methodologies should be sought to provide independent corroUoration of
the ?`building block1? costing estimates. For example, greater exploitation
of emigre's or other human sources might usefully supplement the formal
estimation methods. Also, it might be possible to address more fully
the inter-relationships between the defense and the civil sectors of the
Soviet society through such methods as econometric modeling, Further,
it is passible that the investigation of alternative methodologies cou~.cl
yield some simpler methods by which the dollar and ruble costs could be
estimated without severely degrading the accuracy of the estimates.
OSD/Net Assessment
:~.'. _~ 111})
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4. Sizing comparisons of selected 1JS/USSR balances. Assessments of the
major. US/IJSSIt balances have concentrated an comparisons of manpower,
weapon system quantities, and mission differences, with a growing tendency
to ixicorporate intangibles such as doctrine, training and tactics into
the calculus. The addition of economic measures would be a useful addition
to our understanding of those balances.
To begin such an effort, I would suggest an economic comparison of the
Strategic balance; then, perhaps, the Central Front, Mi.l3.tary Investment,
Maritime, Power Projection and Northeast Asia balances might follow.
5. Ruble-based US/USSR sizing comparison. The dallar-based sizing
co~garsons have been cr.:ticized_as overstating the amount by which the
S~ief: fatal. defense program exceeds t'nat of tFie U. S. because of the "?index
number pro6lem.'P Reasonably detailed-`ruble-based comparisons would
understate the Soviet lead for the same reason, but would pi.>t a floor to
the size of the difference, thus both blunting the criticism of exaggerating.
the difference and. explicitly providing a range within which we can be
more confident- that the difference lies. We would hope that an approach
somewhat snare aggregated than that used in the current dallar-based analysis,
.and a correspondingly more madest effort, would be apprapriate.
6. Reducing "'Sovietization" asstun tiaras in the sizing comparisons.
Currently, the dollar comparisons tend to understate the cast to the
U.S. if we were to replicate the Soviet defense program because, in.some
cases, Saviet, rather than U.S., practices are used; personnel related
practices such. as retirement, dependent care, and creature comforts are
examples as may be some training expendables. In short, a re-examination
of the logic of SCAM should be underL-aken to assure that the methods are
consa_stent --- both internally and with the purposes for which the dollar
and ruble?estimates are prepared.
7. Costingthe US-NATO/USSR-WP defense pro i~-ams. T continue to believe
that it is important to have dallar cost estimates for total NATO and
total Warsaw Pact. That is, U.S. and NATO estimates should be additive,
as should those of the USSR and NS~?JP, to produce a full alliance
comparison. Further, this analysis should be supplemented with indicators
of the proportion of key resources (e.g., steel, oil, gas, electric power)
allocated to defense. 1't might be appropriate to initiate such a refine-
ment effort by looking at just one non-U.S. NATO and one non-Soviet WP
nation. ?
8. Cost of the Sina_-Soviet buildup. DIA is in the process of completing.
a casting analysis of the Savi.et defense effort deployed clang the USSR-
PRC border. It would be valuable to have a camplementary study focused
mox?e on suclY questions as the transferability and mobility of border
forces to other areas, the allocation of central effort (e. g., headquarters,
support, R&D) to those forces,