ECONOMIC INTELLIGENCE FOR THE FUTURE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP83M00914R000300040020-7
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 8
• Document Creation Date: December 20, 2016
• Document Release Date: August 29, 2007
• Sequence Number: 20
• Publication Date: October 6, 1976
• Content Type: REPORT

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PRESIDENT'S FOREIGN INTELLIGENCE ADVISORY BOARD
June 4, 1982
Dear Mr. Casey:
Leo Cherne asked that I send you a copy.of your 1976 Economic
Intelligence report to the PFIAB.
In looking over this work I must say you were "right on the
target".
Sincerely,
FRED R. DEMECH
Captain, U.S. Navy
Deputy Executive Director
The Honorable William J. Casey
Director of Central Intelligence
Central Intelligence Agency
Washington, D.C. 20505
Enclosure
a/s
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 October 6, 1976
MEMORANDUM
TO: All PFIAB Members
FROM: William J. Casey
SUBJECT: Economic Intelligence for the Future
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Over the period 1977-85 policy makers will have a need for more precise
intelligence and estimates on
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- the level of the Soviet military effort and its impact on the Russian
people
who is benefitting and what are the consequences flowing from international
agreements to establish commodity reserves and maintain prices
- what economic political =ini'tiatives` Are other countries taking to secure
special protection with respect to sources of energy and other critical
resources. around the world - what are the-fopporttlnities .for us to secure
our own needs for energy and mineral resou_ice.ss,.?:
- the stability and the vulnerabilities of the Soviet economy and its ability
to carry the military burden placed upon it
the economic leverage we may have to induce the Soviets to scale down
their military effort
the significance of technological, financial and organizational impacts
provided by the West to the growth and vigor of the Soviet economy and
its ability to sustain a high level. of military effort
the economic vulnerability of Europe, Japan and the less developed
world and the degree to which our adversaries are seeking to exploit
those vulnerabilities to achieve political power or military advantage
how the arrangements arising from increasing efforts to co-ordinate
economic policies for the advanced free economies are working and how
well they are being adhered to
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- what are our political adversaries and economic competitors doing
to make other important countries technologically dependent on them
- what is the net cost to us of trade in technology in terms of the trade
balance, exchange rates, employment and government revenue
- to what degree are our political adversaries and our economic rivals
stacking the terms of trade by pricing to milk other countries, as the Soviets
have done with Eastern Europe, or by trade barriers to freeze us out markets
as the European Community's. associate memberships may do
- what imminent or likely technological breakthroughs could have serious
impact on our economic position in the world
There is no pretense that this is an exhaustive list. It is intended to
illustrate the kind of broad possibilities to which'policymakers should be
alerted over the years ahead.
When one is asked what new intelligence requirements will emerge in the
future, the first reaction is to think of additional information which should be
acquired or facts which are lacking. Except in a relatively few areas, it
appears that the economic information needed for policy formulation is
openly available. There will always be targets of opportunity on which it
Would be useful to know what someone wants or is about to do. But, except
in matters relating to national security in a pressing manner, I do not consider
this very important. There are not many basic economic facts that do not
emerge openly in the process of development and trade.
Where we are deficient is in the analysis of this information, in under-
standing relationships, the objectives of others, the pressures being generated,
the implications for us. That we don't have as far as I have been able to deter-
mine is a comprehensive economic analysis of the elements of economic strength
in the modern world and how economic strength is and can be converted into
military strength and political power. Just how does the acquisition of technology,
the development of resources, the availability of financing and efficiency in
organization, production and marketing contribute to military strength and
political power.
Until we have done that analytical work to our satisfaction, we will not
be able to sufficiently identify the economic and nonmilitary technological
intelligence we should be getting: We will not know how to evaluate and
use the economic intelligencd we do'-acquire.
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Therefore, the task of the intelligence community is to analyze the
value of nonmilitary technology, of resource development, of financing,
of managerial services, of trade which our adversaries want and seek to
acquire from us and our allies. This will identify the information needed
to make that assessment and the analysis needed to implement whatever
policy evolves from that assessment.
To make our intelligence system capable of responding to these require-
ments we need some kind of a forum where matters of economic intelligence
are brought to be tested and thrashed out. We have this on weapons and
on military matters in the National Security Council, its verification committee
and other committees and working groups. We just don't go about deter-
mining what is going on and what is objective reality on these economic
matters as well as we do on military matters.
In economic matters, we seem to have more difficulty than usual
distinguishing between intelligence and policy. For example, I was naive
enough to think that having members of the intelligence community sit in with
the Economic Policy Board would help in bringing intelligence to economic
policymaking and guidance to the production of economic intelligence. It
hasn't worked at all. The EPB is dealing in policy, for the most part making
up its mind on what to do about some currently pressing issue like whether
to recommend that the President sign the tax bill or-impose countervailing
duty on shoes. The intelligence judgments needed by policymakers require
careful sustained deliberation and study, argument, and analysis over a
substantial period of time. We need the kind of framework for examining
not only economic facts and relationships but the perspectives of State
and Defense, Treasury and Commerce and others, to get agreed concepts
that we now have in the military area. This machinery should be working on
fundamental issues like evaluating the growth and vigor of the Soviet economy
and what the various insertions of technology contribute. Because we don't
do that kind of thing in any solid and continuing way, our control over
technology transfer of even military technology has pretty much fallen apart.
In the absence of a solid view, issues are dismissed on some such generality
as political benefits exceed any technological loss" or "if they don't get it
from us they'll get it from Europe or Japan. " If we had a solid evaluation of
the value of technology transfer we'd at least have a basis from which to push
our allies to pursue a common policy.
As you get down to looking closely- at the ingredients of economic
intelligence, you discover that science and technology bulk very large.
I have the distinct impression that the science and technology resources of the
intelligence community are focused so heavily on weapons and technical
collection that. there is little left "for the technological. aspect of economic
his should becorrected in, some manner-` if, as I- believe,
intelligence. -T
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policymakers will want more economic intelligence and technological
impacts to economic strength will come increasingly to the fore.
More and greater inter-disciplinary efforts should be made. I believe
all of us have been impressed by the ability the community has developed to
forecast crops by applying a combination of photographic and agronomic
skills. The re-evaluation, which Director Bush discussed on the Hill on
Tuesday, of the size of the Soviet military effort in relation to the Soviet
economy, twice as great as we had thought. it was, has obvious collateral
implications on how we appraise the importance cfWestern inputs, on our
judgments as to capability of Soviet plant and machinery. I understand that
the Community is putting new data into an econometric model of the Soviet
economy to measure some of these collateral consequences of this re-
evaluation of the relative scale of their military effort. That's well and good.
But, that kind of macroeconomic analysis is of doubtful value for policy
purposes unless it is supplemented by the specific implications of the providing
or withholding of financing, technology and such inputs. Since machinery,
production methods and technology are so varied and affect so many sections
of the Soviet economy, what is needed is cross-disciplinary work between
economists, engineers and scientists in the government and executives and
engineers of the Western companies who are either doing business, submitting
bids and specifications or implementing scientific agreements with the Soviets.
I don't believe this task is as big as it may sound and, as far as I can make out,
it has yet to be tackled.
* Finally, let me make a few disjointed comments, by way of illustration,
about policy judgments which may appear to flow from political or budgeting
considerations which may result from economic pressures. Or they may
become virtually mandatory because intelligence about these pressures and
their implications was not arrived at and presented to policymakers in a timely
manner.
We may be facing a cost and financial squeeze on our ability to defend
ourselves. We may be facing a resource war,A tightex domestic economy
with less fat for investment arising out of more fat for social programs will ~j
put pressure on military budgets and our ability to keep up in military
competition. As Johnny Foster has spelled out so well, expensive military
hardware is likely to be priced out of the market. All this will work to the
disadvantage of those societies where the public can escalate social programs #F
and resist taxes and defense spending. It will work to the military advantage
of those societies where the public has little to- say.
Increasing importance will attach to technological competition to get
more defense for the buck --,to;.achi,eve military breakthroughs -- to make
competing economies more capable of sustaining needed -military strength.
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I have not seen any analysis of the interplay between the Soviet
resources, Soviet agriculture, Soviet industry and the Western technology
which the Soviets seek to acquire. We know the basic facts, i. e. , Soviet
agriculture is inefficient and the Soviets have to lay out huge amounts of
cash every year to feed themselves -- the Soviets have raw materials and
they have to sell their oil and gas then gold and minerals to get the necessary
cash -- Soviet industry is inefficient and they have a difficult time managing it
and finding enough people to man it while they have to commit unusually large
proportion of the population to farms and to military service -- they try to
overcome this by importing Western technology and d organization -- this, plus
the need for huge amounts of cash to buy food has put them heavily in debt
and impaired their borrowing power for the first time -- thus, they can only
acquire technology and productive equipment from the west on credit, which
only the European and Japanese Governments and American bankers will
provide for them, and the American bankers are becoming gun shy.
That's a bare outline. Marshall Goldman of Harvard has put together
some numbers but these equations have never been thoroughly analyzed.
Nor have we evaluated Soviet economic initiatives or those which they
support to see to what extent they may be designed to offset, compensate
and redress these imbalances in the Soviet economic position. To cite a
few:
(a) grain purchase manipulations;
(b) oil embargo and price increases;
(c) efforts to acquire Western technology with credit;
(d) commodity price agreements and commodity stabilization funds.
Some LDC's are pushing very hard for commodity stockpiles and price
agreements which would have the effect of stabilizing and increasing raw
material prices. The United States is inclined to make concessions to get
these conferences behind it. There have been no adequate studies of the
implications of these commodity proposals. They would certainly have the
effect of pushing prices up sharply. They may benefit the Soviets primarily.
They would benefit countries like Canada and Australia which are not poor.
They would benefit some mineral-rich, less-developed countries. But all
of this would be at the expense not only of the industrialized countries, but
of the very poor countries, like Pakistan and Bangladesh, which are without
resources.
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The Soviets exceed us in the ability to put large numbers of engineers
and scientists on developments which promise a large increment of military
power, i. e. , laser applications. It is not only important for us to know this
but it may become increasingly important for this kind of intelligence to he
shared with the American people.
Although the USSR and PRC are currently rivals, both are still adversaries
of the U. S. and hostile to the theory and practice of capitalism. Each in its
own way -- and using different methods -- seems to be conducting a Resource
War against the U. S., Japan and the Common Market:
(a) The USSR by using diplomacy, treaties, naval power and a
Cuban ForeignLegion to "seal off" key mineral areas of
the Third World and/or sit astride the fuel-lifelines to
the West with Russian warships;
(b) China by tutoring and sipporting the anti-capitalist block
in the UN in its attacks on private investment, MNCs and
the financial infrastructure of capitalist banking;
(c) both major Communist Powers -- albeit separately -- by
encouraging "liberation" movements, the formation of new
Cartels to use "raw materials weapons" against the capitalist
world, anti-American propaganda and terrorism.
U. S. emergency stockpiles of critical materials have been depleted
or degraded. We are more dependent in 1976 on Arab oil than before the
embargo of 1973-74. Our Merchant Marine lags far behind that of the Soviet
Union, as surely as by formal naval conflict between warships.
Already, the promise of deep-sea mining is being sabotaged by the
anti-capitalist, Third World Bloc at the Law of the Sea Conference. The
resolutions and final communique of the Non-Aligned Conference -- recently
adjourned in Colombo -- were equally sinister in their attitudes towards MNCs,
private capitalism and prospects for economic warfare against the West.
I submit that the mere recital of this range of forces shows that the need
for economic intelligence is not for more facts but for a continuing analysis
and for a framework which will provide policymakers with the same kind of
continuing assessment and forum to thrash out economic intelligence questions
that now exists for intelligence on military forces, weapons and strategies.
Much of the analysis needed to meet these economic intelligence needs for
the future can be made available to the public and private scholars. Also, the
community can accelerate and intensify its analysis and increase public acceptance
by encouraging taking the lead-in stim- alating private research on many of these
questions. Finally, in my View, these needs will not be met unless we get a
broad understanding within the government that_,oper.itrng departments will not and
probably cannot do on their on the kind of analysis.a,nd provide the kind of
long-term perspective and continuing focus which is required to meet economic
intelligence needs.
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