THE CIA'S GOOF IN ASSESSING THE SOVIETS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP83M00171R001100010007-8
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 4
• Document Creation Date: December 12, 2016
• Document Release Date: May 9, 2002
• Sequence Number: 7
• Publication Date: February 28, 1977
• Content Type: MAGAZINE

I G E ECOI` OM1CS
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The,,;agercy seriously
mis.caiculcated how defense
fits into Russia's economy
Through three decades of the cold war,
U. S. policy planners have repeatedly
faced crises in which it was vitally
important to gauge.both the size of the
Soviet defense effort and the nature of
its military capabilities. Their security
blanket at such times was the reputation
of a group of Central Intelligence
Agency analysts-including hundreds of
economists--who were presumed to have
an unmatched degree of expertise on
how defense fits into the Soviet econ-
omy.
Each of the armed services always
had-and still has-its own intelligence
establishment. But the CIA's Sovietolo-
gists steadily gained ground at the
e of other intelligence agencies
expens
mainly because only the CIA had the vast E. Colby, then CIA director, told the
tore of data and sheer analytic man= Proxmire subcommittee that "expendi-
s
power needed to integrate jigsaw bits of tures devoted to [military] investment
information into a coherent pie.-.re of [procurement of hardware and construe-
the war-making capabilities of the tion of facilities] have dropped from
b ut 40" of total defense expenditures
c
o
.
Soviet economy.
For at least a decade, there have been in 1960 to about 20-r in 1972." But the cies in the State Dept. and the Pentagon.
critics who argued that the CIA's model CIA's current revision says: "Since 1970, This evidence included cost data ob-
of the Soviet economy was a hopelessly investment outlays have taken about tamed covertly for specific defense
complex superstructure that bore little 40'7c" of total Soviet defense spending. items, including shipbuilding, that were t
relation to reality-an example of secret Thus, the agency has not only doubled at variance with the. CIA's figures;
research gone wild. Yet for years the its total estim ofo~-iet" ouilaj s unexpected sophistication of Soviet
sheer weight of the resources devoted to during the 19706; it hz doutiledap ocyre- weaponry captured by the Israelis dur-
,-' ing the .1973 Mideast war; and stat2
the CIA's Soviet project allowed the merit s share of: that total.
agency to carry the day. e ,agency's expianations so far are ments made to undisclosed official it
But as Admiral Stansfield Turner- not adequate to account for the fourfold Soviet bodies by Communist Party
President Carter's second nominee for increase in the estimated cost of Soviet Secretary General Leonid I. Brezhnev
the sensitive position of CIA director- weaponry. This creates a strong pre- and by Premier Alexei Kosygin.
approaches his confirmation hearings, a sumption that the error was not limited At this point, a joint CIA-Defense
pall has fallen over the agency's to the CIA's underestimate of ruble prices Intelligence Agency (DIA) task force was
presumed Soviet expertise. The CIA's in the Soviet defense sector.'Quite possi- convened to review all available intor
Soviet picture has now been found to be bly, more fundamental errors are oration, including some culled from the
incredibly distorted, to an extent far involved, such as underestimating the intelligence services of other NATO coun-
beyond agency's admissions thus far. quantity or performance capabilities, or tries. The resulting consensus appears to
The hearings.'With the Carter Adminis- both, of Soviet weapons systems. have involved a massive upgrading of
tration trying to move beyond existing The Soviet pattern. The current CIA data . the presumed quantity or quality of
nuclear arms treaties with the Soviet also suggest a pattern of Soviet behavior Soviet weaponry, since the procurement
Union, toward both nuclear and conven- that is strongly at odds with earlier share of total estimated military outlays
tional arms reduction, it now appears views. Until the recent. revision of Soviet was doubled back.to the 40% level of
that at least four congressional commit- defense spending. CIA figures showed a 1960. At the same time, figures for other
tee, will soon examine the intelligence marked decline in the share of Soviet outlays were trimmed, so the total
communities' views or. Soviet defense. gross national product devoted to mili- defense figure remained at. about 67C of
Some of the most disturbing points Lary purpOSes-to about G;; in the mid- Gt:P, with the agency conceding that if a t
raised will center on the CIA's economic 1970s frog about 12-c ire. the amid-195(;x. varlet, of estimation factors had all
analy Si M,-lit" "burden" tended toward the low side, the true
The CIA now sa% this rti
s.
By the agency's own admissinrt, it has has been flat or declining within the figure could range as high as S`%.
seriously underestimated the level of 11r-to-13'r range between 1970 and The breakthrough. So as matters rested
Soviet defense spE?^( DG-in" his 1975. although the agency has not had in early 1975. the CIA's assessment for
flay, 1971;, pre's,-nt.: rttdvgdnPQC-s?ek $etc,2g92dO x/lcF :isC-I QP-a3 O()J7 r 1 d0f10>'=: ;gas about `?;
1 in 5-tl?:e
George Blush, the :ency s director at previous years. lilii,,n rubles. But by June
the tfnte, acknowledged that the CIA's But critics suspect that the agency's
current estimate of 50 billion to 55 inability to reconstruct earlier Soviet
billion rubles for Soviet defense outlays defense data reflects methodoid ical
in 1975 was "about twice" the agency's problems that continue to produce
earlier estimate. But throughout the underestimates. And some experts -
:+g-hearings, the joint subcommittee on gest that the Soviet military burden has
priorities, headed by Senator William actually continued on a steadily rising
Proxmire (D-Wis.), accepted agency as- course-to a 1975 C,\ P share of 1-1% to t
surances that virtually the only error 15% from a 1960 level of S'~7 to 9i l This
had to do with the Soviet union's etli- Would mean that the Soviets have' been
ciency in producing military hardware, placing an increasingly high priority on
and not with the quantity or quality of military strength at the very time when
that hardware. the superpowers were supposedly usher-
What the CIA has not yet disclosed, ing in a new period of detente.
however, is that the agency's earlier esti- The evidence. Little is known about the
mate of Soviet weapons spending was reasons for the CIA's abnipt about-face
far worse than its estimate of overall in its assessment of the Soviet defense
Soviet defense spending (chart). The effort, but BUSINESS WEEK: S investigation .
current CIA figures for SgiSek.tilitc~ 1 suggests that two distinct adjustments
_()f were involved.
investment outlays are about. Loy
their prey loos lei eing the agencys In late 1971 or early 1975 the era's
congressio presentation in 1974-the adamancy began to erode under the
last one prior to the agency's massive weight of mounting evidence advanced
officials of competing intelligence at e
New proof that Russia .
boosted military spending
while talking detente
 --11-01L' pi cat nta LV,I
to Congress-the agency's estimates of
the percent of Soviet GM' devoted to the
military were in total4ciit~nci,kedtTrrartf2el Asia On2~4 CI,A=ROPIK MI 001'lOaG10007-8'
analyst from the CIA and one from the
ntA had wangled permission to "go into
the field" in a long-shot attempt to get
classified Soviet assessments of their
own defense costs. What they came up
with was irrefutable evidence that the
CIA's overall figure for 1970 had been
only about half as high as it should have
been.
Even then, according to Lieutenant
General Daniel 0. Graham, a former DIA
director, it was only through the inter-
cession of former Defense Secretary
James R. Schlesinger that the CIA's SCANT
(Soviet Costing Analytic Model) was
finally called to task. "They all wanted
to squelch the evidence," he says, "and
impugn the credibility of very good
'evidence on :what the Soviets consider
their own defense costs to be."' But
Schlesinger, an economist and former
Rand Corp. specialist on national secu-
rity, insisted on the review procedure
that ended by certifying the authority of
the covertly obtained documentation. "If
it wasn't for that," Graham says, "we'd
still be stuck with the same ridiculous
figures."
Once certified as trustworthy, the new
evidence, which amounted to an unprece-
dented intelligence breakthrough, struck
the. CIA like a thunderbolt. "I doubt we
could ever have caught this by economic
analysis," one analyst says. But another
agency official reacts defensively "You
don't make a change every time you get
a small piece of evidence. If you change
every year, people are going to start
criticizing. That's a bureaucratic norm."
The question remains, however,
whether the agency's analysts have any
deeper understanding of Soviet develop-
ments than they did prior to the revi-
sion. BUSP,"ESS WEEK'S findings do not
preclude the possibility that agency esti-
mates were, in essence, just doubled
across the board to achieve agreement
with the overall defense figure obtained
by the two analysts who went covert. In
-other words, the agency may have no
firmer grasp on the proportions of
Soviet defense costs than it did in 1974, Rasesrch, deve;opment,.
for only 207c of the total. And it may Troo
food and
a
p p
y
,, --have no sounder conception of the
personal equipment .. R 5 in 5
.jvt JUL
v.~r. .~ -..., ::e---... _- ~...-.. ?ti-"tz~e. "z'^ .T }" 'i'c The civilian sector. This kind of uncer- a=oc^$ pr=caiem' -ard -
tainty is troubling not only to experts in c" :'':rutit;on of T:`
i
nterests span Lite, entire Soviet economy. otai ................. . ...21.5........52.5........ 90.9%
The whole point of the military "bur-
den" calculation is that whauever goes R ':?r.r':.?'.'."r? -?"`q r z?.-;r ~e~ ?^+, :i;1':- ..+.?-'.`,' .r: '-3: a---? :r .,..?r-tte??~; ,ssrsyt,:^; ~ F
Even before latest revisions, .. .
their dollar estiimat^s showed that the Soviet 4
e ?7
military effort was bigger and growing faster than that of the U.S. `._,
into military costs trust come out Of GNP ,,,r.t;,,,_: ? ....~i'..fi:,:?'..L--.:~"e~s~.a'- t~? ~a.ii_~..~iar,...3.e- -: ... ~ ~ .
Approved For Release 2002/06/18 : CIA-RDP83M00171 R001100010007-8
rc htinue
 tion or civilian these to create indices of real GNP' h',- from both points of viely. But
m
h
p
as consu
suc
Z!F- S lent. With defence in s~ ~ r i t srv. nn / ~/ r I~I~bQ so -uit make such confusion possi-
,.l...l..l- f-T, ,i ?f^'i`, Folt 17C~T.~i~'~t~'t~'t2tiDitio~$Ll t+C~f~ilirlt5'itrY'3 1 1 1 NQr~l~t~ ~~t~~~~t?~ eco:lon,ic.
-
--
f
-..,.
o v
li?=:;, CO G\1' irsell to Ut- ru
? Ming In l ;t 1 a h u a ~el and rial product, which i; narrower than the as4t~sment will precisely coincide only
(r
susp
t
H
._
a?. u.~... ....
e stet
i h, I IL
at this adjustment will trim annual net- and those in many of the personal price structures. In all other cases, each
ill
f
d
bl
i
-
o
m
en
ts own
l- growth by 0.5% to 1S . service industriesdo not enter into the approach provides
d c
id
rations
- ---- r h , - ---- .t_
`.
OER
an
ons
e
Iditional defense spending that the CIA must obtain data on ruble outlays for - The "threat assessment" is simply an
U.S. to duplicate every aspect of the
penditures in the Soviet economy. So But the OER'S acts ^of approximation Soviet military- establishment, while
_ _..1 TT C .. .-?tes
, t _ _
g all
Covert operation to get performed by the agency's Office of and making all purchases at U. S. prices.
iassiiied Soviet documents Strategic Research, the niore~ly The question it answers is thus rather
t the CIA dazed classi ie sop . at attempts to recon- narrow- Is the U. S. defense effort as
people ..L_ ,. a._ r `l
` T.T; ;o_ 1? as it would he if it simply matched
D
f
e
ers
e
as some suspect, a large part of the try. v every part of the Soviet effort'.
"
d
'
en assessment
s Block has described The alternative bur
.erlooked military expenditures were The State Dept.
i
l S
"
et
ov
an exer- attempts to cost the actua
istakeniy being counted as investment, research on Soviet. defense as
h
d i
i
h
n t
e
ces an
e pr
great deal of theorizing about the cise in meta-Intelligence. Analysts en- defense program at t
ce3sive capital intensity and sluggish gage in the exegesis of obscure texts, currency in which it is actually paid
d
b
e compare
odactivity of the Soviet Union's cen- guess at unexplained residues, hunt after for-ru bles. This figure can
- -3t-----,1-. ---:al_
,-n4-;n of
e......4 --o Th
h
e
t
e
k
l
oc
,ea of amendment. On this tx>int. B
. s that fhe revision "may mean that t~ since it represents the share of total
titian investment is slightly more ZE Soviet output that is diverted to military
use is called the mile art "burden."
use,
roductive. This raises so many ques
What the ciA has suddenly decided is
___ --? -?-
I7 )
a on productivity that the knot can't
4
L.___7 1..... ..., ?....17.. 1, .... r,
Z~rlzr
Soviet
.exgson of Harvard University prob r. R ,+` in the 1 c
b1v the ranking U. S. expert on the least the 19#C1 7a pe.lod. This is more
fT Z C-- -I
very disconcerting. It raises the ques- A4 dt t every - ` A - U.
r.
eviision, or will there be more. I think i; U. S. burden has reached this range only
articular area years of the Korean War.
.. ?1,;r
p
t
t
b
egilns ,Ls es
ima
ion
Questions over the revision have t-' - ire ratios. The CIA
ow good the CIA's economics can ever = ing to price each of the items in the
' x' Soviet arsenal. Over the years of compil-
ergson "The basic' fact `} ou
s F
e S
~
t
at
in mind is that the calcula- s= - ing threat assessments, it has built up a
kee
a
t
p
,
e
o
stock of dollar value estimates for the
ions must proceed on very meager t- z r _ - "
_ .. , 1 _ - ??~_"~~ _ i,.,r.7,. are the Soviets are knntc-n to },a4e
4
the
?--- .- ?? - -
file cfistortions. Since a 1901 reorganiza- L.ee: He charges that even
ion, the CIA's Soviet work has been estimates of Soviet strength are low. burden assessment. For this purpose, the
ll
bl
li
f
ar
eo
st o
ru
pportioned between two distinct offices. ospmaintains a long
hi
h
f
tio
eac
v
'
w
c
o
ersion ra
s,.-;
Econbmic analogues, and indulge in assumptions. con
nd in the CIA's Office of
all that considered appropriate to defense items I
the last analysis
f tlie'staff And in
l0
b
,
,
>~ o
out
:esearch, where a
f t-uodfeds concentrates on the econo- systematic intelligence assessments can of various specific types. Owing to the I
-
-
xrts believe that the estimates pro- light on the fundamental military ques- of these ratios between the ruble and 44
in
r
- -
t
l
bl
i
hi
.. ... Y?.. -- -
g
r ...~:.- -
e ma
n a
o
era
t
fat- been kept w
or error. Since data bearing on G\P and deciding whether one military estab- of technologically related cn rlran iocTs.
i
t a
h
me la
"
s
s no
ses, moreover, ere
than anot
er in
o
similar measures are not classified by lishment is really better
e Pussians the OER relies heavily on without - resorting to the traditional close fit between Soviet and U. S. civilian
,
published Soviet sources. But even here, test-war. items, so the dollar cost used to calculate
data are incomplete and subject to The assessments. The CIA employs two the conversion ratio will itself be only an
cxrnsiderable distortion because of alleg- basic approaches to the comparative estimate of what an article of given
edly faulty Soviet collection procedures measurement of competitive war ma- specifications would cost if it were
anti the existence of incentives encour- chines: threat assessment and burden produced in the U. S_
aging misrepresentation by plant assessment. Usually, these two ap- Finally, the OsP's last full-scale com-pi-
managers and other bureaucrats. So proaches will disagree on the proportion lation of Sol-ie; -civilian c,ods4rices ?rs
wherever possible, the o=:e works from by which one nation's defense program base on the price reform of 1955.
"
:E.aftLdavs rule-ciullar e m-
raw data on the I;hysic' : volumes of 'at per t nipetitor and it n cant n
Approved For kelea~'se 20~ /'~~f~$ CIA-RDP83M0O171 R001100010007-8
 updates reflecting estimated Soviet ci- behind U. S. eficiency while _ the _
- whole -.y of its efficiency-tyllepe nL errors c extent
rl,
vilian price trends. The ore is now s
ectrur
f t
h
l
p
n o
ec
no
o~~estr g
,,,~, r}'~~~ ,?~ ive research--or
completing an overhaul /!- {911Qve rFOr R -A$ee2 ' q 6?c~,iM M 11nc'it`ll'PVar t ~ig ence
once ,reakthruugh of
manuals issued by than Russians follow- hibits
t
1
. i
l
ac
ua
1
mp
y that the Russians
ing . the price reform of 1967. Books adapted slightly more efficiently than
covering the more recent reform of 1975 the U. S. to 1970-75 changes in weapons
are not yet, and may never be, available. complexity. Steven Rosefielde, professor
Obviously, the ruble-dollar conversion
process does expose the ost efense
speni}ing estimates to acorisider?able
potential for error."
1n facf,the CIA would undoubtedly like
to believe that every bit of its 280%-or-
more underestimate of Soviet procure-
ment and construction outlays was due
to the use of ruble-dollar conversion
ratios that were much too low, and that
all of the errors in these ratios were due
to an exaggerated sense of the Soviet
defense production sector's efficiency
relative to Soviet civilian industry. This
would mean that its civilian sector
pricing was basically sound, and that
only the burden estimate would be
affected. Soviet weaponry was in no
Higher defense spending
cut estimates of Soviet
GNP growth by 0.5% to 1%
unprecedented proportions.
Most Soviet experts do not place treat
weight n tt 1e possiF lit;; that the 5 ~~_iet
Unio.r s arsenal is bi l
er th
th
r
an
e CIA
of Soviet economics at the University of ] believes L to };c Stir!
cor
o
.
nu,t .o,e-
\'orth Carolina, does think the CIA's fielr e acknowled es a linnzering uncer-
error was particularly had in high-tech- tainty. "I don't know why they're so sure
no o areas but stilt believes much of
the error is unexplained by technology.
As for the idea of a growing U. S. effi-
they're right on the number of weap-
ens," he says, "but everyone says so."
,
o
ers, p
aces
ciencv advantage over the Soviet Union, greater emphasis on the likelihood that
he says, "There is no evidence of that quality underestimates may have loomed
occurrin
"
g
. large ui t ie_c!A s goot.~ne high govern-
As a result of the apparent inadequacy men' official-outside the CIA says that
in the CIA's attempt to account for its the agency's real mistake was in think-
l__1 that _ t, -
t
~=?'?a'~? some ^-
per
-
mistakes have contributed to underesti- f Big question: Does Russia
There are three possibilities: t~3an he Cif admits?
a The ore correctly e.-f;1.,,.,f......
ti
.ami
es
and qualities of Soviet uAapons, --but ing "the Russians were prmitive, under-
underestimaies~~that theiryproduction developed, not very sophisticated."
costs wou e Tor .-S industry If the While the agency says that its revision.
CIS riow admitted this kind''of error, amounts to no more than a downgrading
Defense Dept. arguments for higher of Soviet defense sector. efficiency, the
budgets might become more strident, same official says flatly that "by far the
since a higher level of U
S
spendin
"
.
.
g greatest majority
f thii
oe revson
sense underestimated, according to this would appear to be called for from the reflects an upgrading of the Presumed
view,. but only the resources the Soviets point of view of matching the Soviet complexity and performance capabilities
had to use to produce these weapons. -effort. But no change in the estimate of of the weapons being turned out by the
The implication. Experts do agree that the quality, quantity, or combat effec- Soviet defense sector. In other words,
the CIA's ruble-dollar errors were ser- _ tiveness of Soviet arms would follow.. - costs may be higher in. part because
ious. But the question remains as to' st "This is undoubtedly- a major pLrt of the weapons - q aTitYis-"Higher and n~
how much of the CIA's revision, particu- CIA's error," says 1 rrTI'am T. Lee, an
bec us+ efficiency is ]giver.
Iarly in weapons procurement, can be inc e1 pendent consultant on Soviet affairs The`i
to
n
rmation gap A similai
.r vew was
accounted for by the agency's retreat on and 11-year veteran of the agency. advanced last June when the CIA
this particular issue. As exemplified by e The CIA correcth? estimates the quan- unveiled its revision and its preferred
the testimony of CIA Deputy Director for titles of tHe`:varous Sotaet ?eapons, lint explanation. Lieutenant General Samuel
Intelligence Edward Proctor to last doe `not have complete information 'on V. Wilson, director of the DIA, refused at-
year's Proxmire subcommittee; the en- their quality and complexity
and there t
diff
'
,
wo
erent points to sed thA
cone CIs
tire CFA revision process amounts to this: fore underestimates their costs: -For stress on new-found inefficiencies in the
"What we have come to is a realization exammile,,-it-?was?-not-untihthe' Israelis Soviet defense industry. "I am not sure
that the Soviet- military production'- captured large numbers of armored enough to buy the additional adjectives,-
comnlex is alt -"i lout a f ns efticient.as` vehicle
d
i
h
1
7
`
s
ur
ng t
e
9
3 war that MC CIA t
f lffii'
aress ecent than we had earlier
rug tt, argil mach closer to the civilian discovered that such Soviet vehicles have believed," he said during one exchange-
fi~iciency." Z~"Hite embarrascirig enough for sev
l
b
"
era
years
een equipped with
I h flih
,ave aeeng tat they [the CIA] are
his disclosure can only account fora costly ventilating and other devices to "ascribing more significance to it than I
00% increase in estimated procurement foil nuclear chemical and biol
l " nh h
, _
g
W
"' ???b - " 111111u aouu %o worm of inemciency_.
herefore, is that the agency has actually this kind affect both ruble and dollar So the fact is that the revision, rather
-aised the procurement estimate b
r S
i
t _ h _
esti
t
ov
e
es o
y
ma
rror, the CIA would have to discover sure of greater Soviet military ca
abili-_
f
p
pro
ound information At thii
gam,s pont,
hat Soviet defense industry is only one ties than were previously suspected. ten, e Cii7IAA's revision hal a dual signif-
uarter as efficient as had been thought r The most fu
d
t
l
ibi
n
amen
a
poss
lity= that I i U Slik
.cance:.. pocy-maers now know
ut this would have the rather novel -would have contributed to the CIA's th
h
at t
e Soviet Unio h dtd
nasevoe a
triplication that it is actually the civilian sudden discovery that the Soviet Union _ 1 greater effort to armaments than was
ector that is twice as --r; ci
t
h
b
en
as
as
een spending fou tih 1
rmes as muc on r previously thought and that it is a lot
"e{ePCP T1rAflnct inn No non -.nA,.r; ....
t_ _ ,. .. t _ _
as
d
i
1,ar
e to est
mate this effort accurately
he CIA, would go that far. - _ v they simply have been producing more of than was previously thought. This
Some CIA spokesmen press the further those armaments than the agency real- carries the further implication that the
xplanation that since. the agency's ized. Like incomplete quality informs- S
i
U
i
ov
et
n
on may have mod b
re anetter
verly generous appraisals of Soviet effi- 'ion, this kind of miss would affect all wea
on
tha
th
h
p
s
n
e CIA
as Net akl
cnotv-
iency' were concentrated in higher tech- three dimensions of the Soviet military edged. This does not close the" book gyn.
ologn? weapons, the CIA's pricing error establishment: ruble burden dollar '; de
tente but it mea th fii
,nsene prnt
welled over time-t1:c? ivoiical weai,on threat, and cnmhat effe(?t!v:?n,>sc, For 4!
must be studied more cautiously.
r
Approved For Release 2002/06/18 : CIA-RDP83111100171 R001100010007-8 -
But Rosefielde
like
th
l