ECONOMIC INTELLIGENCE REPORT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80M01133A000600020010-0
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 20
• Document Creation Date: December 15, 2016
• Document Release Date: April 8, 2004
• Sequence Number: 10
• Publication Date: August 5, 1975
• Content Type: MF

STAT
STAT
OFFICIAL USE ONLY
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MEMORANDUM FOR:
SUBJECT
IC-75-2458
5 August 1975
: Economic Intelligence Report
1. This is the beginning of the first draft; the
section on "The.Consumers" is not finished. You will recall
that there is a following section on the management apparatus,
which will include the EIC. Finally, there is to be a
section on Collection and a Part III on areas of possible
improvement.
2. Even though this report is a long way from being
finished, it would benefit from your review. Also, I would
appreciate any thoughts you have in points to be stressed in
the parts yet to be written.
3. I will see you later this week whenever you can
sandwich in a few minutes.
Distribution: '
Orig --Addressee
1 -IC Registry
--PRD Chrono
1--Subject File
1--ELA Chrono
Thank you,
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First Draft of Report
Economic Intelligence--A Brief Survey of Production,
Collection and Consumers
Introductory Note
This paper has been prepared for the use of White House
staff members concerned with defining the role of economic
intelligence in national security formulation and the priority
to be accorded to the collection of sensitive economic data.
What is economic intelligence? The must useful definition
is that it is the product of economic intelligence analysts,
the lion's share of which has been produce4 to support US
national security policy formulation and execution. These
concerns now embrace domestic policies as well as inter-
national ones. To illustrate, the United States has been
lagging far behind other leading exporting nations in
investing in new manufacturing plants (private capital
formation as a proportion of GNP); the serious consequences
of this comparative aging of US production facilities has
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led the Chairmen of the Economic Policy Board to point out
the need to overhaul our domestic tax programs.
The focus and emphasis of economic intelligence has
changed radically over time, depending upon the needs of US
? policymakers. Economic intelligence embraces the traditional
measures of a nation's output (GNP) and its allocation--
consumption of goods and services by the nation's people;
investment in productive facilities, etc.; and the expen-
ditures on governmental services, including military. From
this level, strategic capabilities of foreign nations have
?been measured in the broad. Narrower studies focus on
individual industries in key countries, transportation (air,
land, and sea), foreign trade, balances of payments and
reserves, international monetary developments, commodity
production and other segments of a nation's or a region's
economic makeup which impinge upon national security concerns.
In the past, at times a very large share of total
economic intelligence output has been military--economic in
nature--measuring the output of the military industries,
costing of strategic weapons systems and relating these data
to estimates of capabilities, as well as highly focused
analyses of individual transport routes, such as the Ho Chi
Minh trail.
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Today, as the United States becomes increasingly a
have-not nation, dependence on overseas supplies of commodities
such as oil and bauxite raises a host of new potential vul-
nerabilities to US domestic production, employment, and
national security. There is not only a vital need to import,
but to export as well, so as to earn the necessary foreign
exchange to balance our international accounts and protect
the dollar. (One Commerce Department estimate places the
1985 export need at about $230 billion, compared to about
$40 billion in 1970.) Hence, the agenda of economic analysts
in 1955 bears little relationship to the work program of
1975, and subjects such as intelligence support to key trade
negotiations, including those conducted under GATT auspices,
and an early warning system on foreign government plans to
impede the ability of US manufacturers to compete abroad,
become matters of national security concern.
This change in focus has raised questions of the relation
of economic intelligence today to national security in some
minds, who rightly recall that similar economic analysis
traditionally has been concerned with private, domestic
considerations, such as stock market investment. But our
new (and rapidly growing) international economic dependence
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gives rise to threats to national security which are fun-
damental, as the Arab oil embargo and the flood of petrodollars
into the West, including the US, (to invest in what?) clearly
shows today. In recognition of the heightened importance of
economic affairs in national security, *the Murphy Commission
recently concluded (Chapter 5, p. 68), "The need for effective
research, analysis, and intelligence in the foreign economic
field can hardly be overemphasized." While stated in other
words, the gist of this conclusion also appears in the
findings of the President's Foreign Intelligence Advisory
Board (PFIAB).
The economic analyst's agenda of key intelligence
questions raised by national security policymakers almost
certainly will be much different in 1985 than in 1975.
Hence, the attempt to sharply define "economic intelligence"
is pretty much a will o' the wisp. More important is to
realize that since World War II, economic intelligence
has made important and at times crucial contributions to the
formulation and execution of foreign policy, and almost
certainly it will continue to do so.
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PART I
A BRIEF HISTORICAL BACKGROUND
A. The Early Postwar Years
The expectation that the successful conclusion of World
War II would bring "peace in our time" proved to be very
short-lived. Within months, growing communist intransigence
in Europe had laid the foundations for the cold war, an
East-West confrontation of utmost seriousness. In 1948,
Soviet military forces barred the surface movement of goods
(including U.S. military supplies), between Berlin and West
Germany. Hungary and Czechoslovakia were taken over by
communist regimes.
Consequently, it became necessary for the U.S. Govern-
ment to reconstitute some of the wartime intelligence
apparatus that had been dismantled; it did this in part
through the formation of the Central Intelligence Agency in
1947. Requests by policy and action officials for economic
intelligence support were not long in coming. The Commerce
Department requested aid, for example, in drawing up a list
of strategic commodities to be embargoed for shipment to the
Soviet Bloc, as the USSR and its allies were then identified.
This was the start of a widespread interagency effort on
intelligence support of trade controls.
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Perhaps as as an indication of its importance, the first
postwar directive on economic intelligence was issued directly
by the National Security Council, rather than by the Director
of Central Intelligence (NSCID No. 4, 13 January 1948). This
directive did not attempt to assign dominant production
responsibility to a single agency, but instead recognized
the need of many agencies to produce economic intelligence
in support of their departmental needs.
When the Korean War broke out in 1950, it brought with
it not only direct U.S. military participation, but also the
prospect of a broad US conflict with the Soviet Bloc. In
1950, the National Security Council directed the CIA to make
a study of foreign intelligence requirements and facilities,
and to make plans and arrangements for meeting these requirements
? ('SC Action 282). The NSC directiVe'expahded ix NSCID 1'5';
led to the establishment of a major new economic intelligence
production unit in the CIA to operate as a service of common
concern. In order to meet the dominant national policy
needs the new research effort was directed to the economics
of the USSR and its allies. Since the availability of
reliable data needed to measure Soviet capabilities and
vulnerabilities was very limited the research manpower
requirements were not only very large, but were also beyond
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the resources then available research manpower requirements
were not only very large, but were also beyond the resources
then available to the intelligence agencies. At the same
time, the Economic Intelligence Committee was formed (NSCID
151 13 June 1951) and given a coordinating role within the
intelligence community.
It was not long before the vital contribution that
economic intelligence can make to national security policy
formulation was proven. The case arose in 1951, when
President Truman and Prime Minister Churchill became in-
volved in a controversy over China trade and transport,
which was crucial to deciding the effectiveness of a possible
naval blockade of the China coast. The economic research
.performed at that time included the sources, types and
tonnages of goods being imported into China, the routes
used, and the capabilities of the Trans-Siberian Railroad to
supply a blockaded China with essential imports. The results
of this research was embodied in various National Intelligence
Estimates and in the detailed EIC-Rl.report series. It
proved to be a major factor in settling the US-UK policy
dispute--the blockade was not carried out.
This brief review of the early contributions of economic
intelligence to national policy is not intended to be exhaustive.
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Nevertheless, it is helpful to recall some of those papers
which had a significant influence on important policy
officials in Washington. While many of these were initiated
by CIA, they frequently could be classified as community
projects. Example:
MIM
NIE-59, Probable Effect's of the Severance of
East-West Trade, April 1953, the gist of which was that
the Soviet Bloc could adjust to the loss of Western
exports, although at some increased costs. This analysis,
a community effort under CIA leadership, probably
helped to erase exaggerated ideas of the effectiveness
of trade controls as an economic warfare device against
the USSR.
Various NIEs and research papers dealing with
Soviet capabilities (an annual general overview plus
others addressed to specific subject) which explained
how the USSR could be such a formidable military
challenge to the United States, even though the Soviet
economy was less than half the size of the American
one.
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HMI
An EIC community series of reports on Soviet
economic activities in the developing world, which had
become a significant weapon of Soviet foreign policy.
B. Economic Intelligence and Vietnam
For at least the first ten post World War II years, the
economic intelligence community was focused very largely on
basic research of the communist countries, particularly the
u$SR....The overriding reason for,this.effort was .(and is).
that the strengL and vigor of their economies are basic
determinants of communist military posture and the conse-
quent threat to US security interests. After the initial
decade, increasing and urgent demands for intelligence
support on other geographic regions required the diversion
of economists from in-depth assessment of communist economic
strengths and weaknesses. Extensive computerization of data
and the application of computer-based analysis was one major
technique which allowed in-depth research to continue at
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respectable levels in the USSR and China despite growing
demands for coverage elsewhere. Nowhere were these demands
more insistent than in the wake of US involvement in Vietnam,
or more broadly, in the Indochina War.
However, the agenda of reports on Indochina grew rapidly
to include the full gamut of military-economic studies--
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vulnerability analysis of North Vietnam's economic sectors
and the economy as a whole to blockade, estimates of civilian
casualties resulting from US air strikes against North
Vietnam, and the probing of the Viet Cong economy and its
vulnerabilities (to what extent and how was it meeting its
logistic and manpower needs in the South through elaborate
tax, conscription, and requisition systems?). With DIA
economic analysts fully occupied with the war and State
Department capabilities quite limited, the increasing burden
of military and military-related studies fell on CIA economic
research shops. Some of their studies, such as, bomb damage
? :; : ? ? ?
assessment, were joint CIA/DIA products. Others, such as
order of battle assessments of communist strengths, were
. often independently produced by CIA.
Why
studies?
problems
were the economists called upon to
In retrospect,
associated with
to the economic
The former were
the appropriate
analysts
it would seem that
turn
many
out these
intelligence
the Vietnam war fell more logically
than to the military weapons experts.
sufficiently flexible to develop
analytical
used earlier for assessing
pabilities of Iron Curtain
good stead.
techniques. Research
strengths, weaknesses
and apply
methods
and ca-
countries stood the analysts in
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A major requestor early (1965) in the war had been the
Interdepartmental Vietnam Coordinating Committee, chaired by
the State Department's Ambassador Unger. Later, requests
came from the Secretaries of Defense, and most prominently,
from the President himself. In the first half of 1967,
there were seven Presidential requests which came to CIA's
economic shop, which produced, for all requestors, a total
of 84 reports in this time period, absorbing about 25 percent
of available research manhours.
A perennial question raised by consumers was that of
North Vietnam's vulnerability to blockade. The answer,
given with increased sophistication over a ten year period,
was that North Vietnam's economy consisted of a thin layer
of industry spread over a thick base of subsistence agriculture,
ebsentia iMpOrtS o military gO0d8 absotbing-on y
a fraction of available land route capacity, North Vietnam
was relatively invulnerable to blockade. This response was
never received with pleasure at senior policymaking levels,
since there were always vocal advocates of interdiction.
Indeed, negative findings on proposed economic warfare
measures (such as sanctions against Allende's Chile) were
generally the rule, and the subsequent policy response was
equally flat.
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During 1970 and 1971, the Vietnamese Special Study Group
in CIA prepared a series of special reports (the NSSM 99 series)
at the request of Dr. Kissinger, who later revealed that this
series was used by President Nixon as his Vietnamese policy
proceeded. There were parallel responses by the Departments
of State and Defense.
The demands on economic research shops continued after
the cease-fire in Vietnam. CIA was tasked with producing a
weekly series of logistic and manpower development reports,
and in conjunction with DIA analysts, comprehensive studies
of North Vietnamese order of battle.
C. Research Manpower-A Declining Resource
ihadthce
economic
intelligence is that, in the face of an increasing burden of
consumer demands, professional resources declined sharply.
?As Table I below shows, between 1953 and 1973, economic
research strength within the intelligence community was cut
sharply--roughly 50 percent between 1953 and 1973. These
data are based upon surveys taken by the Economic Intelli-
gence Committee. The 1973 data unfortunately are incomplete.
Because of the growing diversion of analyst resources to
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The National Security Council, (NSC), chaired by the
President, on which the Vice-President and the Secretaries
of State and Defense sit, has been the top advisory group to
the President on the integration of domestic, foreign and
military policy since 1947. Its focus.is largely military
and political rather than economic. The NSC is served by
the National Security Council Intelligence Committee, which
has an Economic Intelligence Subcommittee (EIS), chaired by
the A.s61stant'Secretary of the Treasury for International
Affairs. The EIS is essentially a committee of senior
customers whose needs for economic intelligence support it
. . .
. .
considers. The composition of the EIS is very broad. In
addition to Treasury, State, Commerce, Agriculture, Defense,
ERDA, the Ex-Im Bank, CEA, OSTR, and the NSC staff attend
meetings, as does the Chairman of the USIB Economic Intelligence
Committee.
The network of key officials concerned with international
economic policy, most of whom are .not members of. the USB,
is briefed daily by a combined Treasury-CIA team. This
includes senior officials of the White House staff (CEA,
OSTR, CIEP and Presidential Assistants), the Department cf
Commerce, Federal Reserve Board and the Federal Energy
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;ministration. Briefings cover current economic develop-
,o4its of national policy interest as a rule, rather than the
waings of in-depth studies. This briefing practice has
great value of feedback to the intelligence producer,
t,.let only questions on the subject matter presented, but
aormation on which specific policy matters will be coming
for decison in the near future. It is a major step in
:vercoming one of the major difficuluties in providing
..telligence support, that of determining the senior policy
fficials hear-term agenda.- Or as has been remarked, what
lakes the perfect policymaker is what makes the perfect
grl--accesiibility.
Support from the economic intelligence producers,
?articularly from CIA/OER, can come in the form of a report
oral briefing direct to a senior policy official, or as a
*pecialiay
to a'gt:aff offibei, who then-IncorporateS it
Arith his own material to produce the product desired by,
lay, a Cabinet officer. Since CIA/OER serves as an office
. common concern, and since its staff is relatively large,
lion's share of requests for intelligence support falls
ln that shop. (See table below for the volume .of such
quests.) This is not to say that the economic research
116ps in Treasury and Commerce, in particular, do not field
V large volume of monetary and trade-related requests from
14.14ir own resources.
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The preparation of Key Intelligence Questions (KIQs)
has been a major forward step in specifying the likely needs
of policy officials for intelligence support over the coming
year. KIQs are prepared by the Director of Central Intelli-
gence in consultation with senior policy officers of the
principal executive departments. They are ratified by the
National Security Council Intelligence Committee, which is
chaired by Secretary Kissinger. By definition, all KIQs are
ofiriiipPftanbe-. They 'deive' mit only to kovide colleCtiOn
guidance, but also are valuable as guides to economic
research: Under IC guidelines, the .ielevant KIQs have been
refined into specific economic questions.
Another channel for the furnishing of intelligence
support is the National Intelligence Officer for Economics
hd-tnetgy (NIO/E): genibr-6taf f'? )f.fi'Cer
representative for economic intelligence affairs, both with
respect to production and collection. He can call upon CIA
QoPPoneAts for cpntributions to studies on economic subjects
?
by national policy importance, as well as the other members
and associate members of the Economic Intelligence Committee,
on which 24 departments and agencies are now represented.
Other National Intelligence Officers with supervisory
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responsibilities for geographic areas, such as Western
Europe or Southeast Asia, can also tap CIA's or the Corn-
rnunity's intelligence production resources for contributions.
The NIO structure usually is used for high-level support--
preparation of briefings for the President, the Secretary of
State, etc.
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