USSR MONTHLY REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP83T00853R000300030004-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 39
• Document Creation Date: December 21, 2016
• Document Release Date: September 17, 2008
• Sequence Number: 4
• Publication Date: October 1, 1982
• Content Type: REPORT

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Contents
the Soviet Economy Problems
The Brezhnev leadership recognizes that it faces a convergence of
economic constraints in the 1980s, but the policies of the Five-Year
Plan (1981-85) are not bold or innovative. Brezhnev's successors are
likely to have a different style of leadership as well as a different
perception of the economic dilemma, which might allow a different
approach to economic decisionmaking and, in turn, lead to some
policy shifts
The slowdown in Soviet economic growth, particularly evident since
1978, is continuing in 1982. We estimate that Soviet GNP will rise
about 1.5 percent this year-the fourth consecutive year of growth
at less than 2 percent. The outlook for 1983 is for more of the
same-slow economic growth, industrial shortfalls, and little or no
gain in consumer living standards
25X1
Implications
The 11th Five-Year Plan is the Soviet leadership's blueprint for
wrestling with the economic problems of the 1980s. The policies
reflected in the Plan represent the tenacious plodding that.has
become the hallmark of the Brezhnev era. There is a wide diver-
gence of opinion within the leadership over some of these policies-
differences which are sure to increase as economic issues become
pawns in succession maneuvering.
State Dept. review completed
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At the Central Committee plenum on 24 May 1982, Brezhnev
announced a major new program to improve the production, process-
ing, and marketing of food products. The Food Program reorganizes
the administration of agriculture and food processing, redirects
investment resources, and increases financial incentives. Although
Moscow expects results soon, we believe that conflicts and inconsis-
tencies in the program will mean that it will have little positive
impact in the near term and will provide only marginal returns in
the late 1980s
predecessors.
Development
An increased number of weapon development programs and the
expansion of research and development facilities indicate a strong
Soviet commitment to continued growth in the resources allocated to
military research and development through this decade. If present
trends continue and are not altered by economic considerations, we
expect that the Soviets will develop and introduce into their forces
between 165 and 180 new or substantially modified major weapon
systems this decade-about 25 to 40 more than were introduced
during each of the past two decades. These systems in general will
be more technologically advanced and more expensive than their
Other Topics Soviet Trade Policy and US Economic Sanctions
The Soviets are trying to prevent their commercial ties with the
West from becoming a major source of unpredictability in the
1980s. For the short term they are attempting to maintain a reliable
network of suppliers in Western Europe; for the longer term they
apparently hope to reduce their dependence on imported Western
equipment and technology. Differences within the Soviet hierarchy
regarding trade, however, suggest that Moscow's trade policy is
subject to change in the coming political succession.
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Secret
Gromyko Rejects Japanese Territorial Claims
Although our current projection of GNP growth for 1981-85 is
almost the same as that of Wharton Econometric Forecasting
Associates, below this aggregate level our projections diverge in
several key areas. This article examines these differences.
Repression of Soviet Dissidents Increases
dissidents from foreigners.
A crackdown affecting all areas of dissent in the USSR-human
rights, religion, and Jewish emigration-has been under way since
the spring of this year. The crackdown, which coincides with party
secretary Andropov's ascendancy, includes a major effort to isolate 25X1
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Secret
Near-Term Outlook for
the Soviet Economy
Perspective: The Soviet Leadership's
Perception of Economic Problems 25X1
issue.
The Brezhnev leadership recognizes that it faces a convergence of eco-
nomic constraints in the 1980s that defy easy solution. Relatively new
constraints, such as raw material scarcities, a manpower shortage, a
slowdown in capital formation, and a decline in the growth of labor
productivity, have combined with such longstanding problems as lagging
agriculture and transportation and poor planning and management. De-
fense spending is acknowledged to be an added burden. Moreover, the
leaders realize that the rapid productivity gains necessary to offset
declining rates of growth in resources have not materialized. The result is a
continuing slide in economic growth as described in the lead article of this
The beginning of a new planning period (for 1981-85) gave the leadership
an ideal opportunity to take stock and to reach long-term decisions about
economic policy. The policies of the Five-Year Plan, however, are not bold
and innovative, but represent the tenacious plodding that has become the
hallmark of the Brezhnev era. This course is illustrated in Moscow's
approach to agricultural problems (see The Brezhnev Food Program) and
stems from the particular style of the Brezhnev leadership as well as the
way the leaders perceive their economic problems. They apparently believe
that economic problems can be held within manageable bounds without
major policy change (see The 1981-85 Plan: Economic Policy and Political
Implications). The failure of the economy to even approach the 1981-85
Plan goals after two years, however, may prompt the leadership to revise
the Plan in midstream as they did after the first two years of the 1971-75
25X1 Plan. Such a revision could surface when the Supreme Soviet Teets in mid-
November to approve the annual plan for 1983.
Brezhnev's successors are likely to have a different style of leadership as
well as a different perception of the economic dilemma. First, the power
balance and personality mix within the Politburo probably will be substan-
tially altered. Second, if current efforts to raise productivity are ineffective,
1 Secret
SOV UR 82-009X
October 1982
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as we believe likely, the leadership's views of the manageability of its
problems and the efficacy of its economic policies may also change.
Finally, the succession struggle itself could create a highly charged
political environment that would enliven the political process and open the
way for changes in policies. All these factors might allow a different
approach to economic decisionmaking:
? Possessing a longer time horizon, the new leaders might place a greater
emphasis on policies with a longer term impact.
? Harsher economic circumstances might justify tightened discipline and
control to effect economic policy rather than reliance on new economic
levers or incentives.
? The power transfer might be a propitious time to modify particularly
burdensome policies such as the continued rapid growth in defense
spending that the former regime had considered untouchable.
These changes in a new leadership's decisionmaking approach could lead to
some policy shifts:
? A modest cut in the growth of defense spending to prevent a further
decline in the already low rate of investment growth or an absolute
decline in consumption growth. Some 200 major weapon systems are
expected to be under development during the decade, and the new leaders
could have to make tough choices about which of these to introduce into
the forces, when to field them, and in what numbers.
? A larger share of investment funds channeled to machine building and
such bottleneck areas as transportation and ferrous metallurgy, possibly
at the expense of agriculture.
? In the consumer area, a sharper differentiation of material rewards based
on individual performance.
? Some shift in investment and manpower among regions to ease the
growing geographic imbalance in the labor force.
The leadership probably would not expect these new policies to be a
panacea for the economy's basic ills but would anticipate marginal
improvements that would allow them to continue muddling through. Of
primary importance to the new leaders would be the knowledge that such
policies would not diminish their power and would still allow them to
marshal resources quickly to overcome external or internal threats to their
security or stability.
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Secret
Soviet Economic
Performance in 1982 and
Outlook for 1983
The slowdown in Soviet economic growth, particularly
evident since 1978, is continuing in 1982. We estimate
that Soviet GNP will rise about 1.5 percent this
year-the fourth consecutive year of growth at less
than 2 percent. The outlook for 1983 is for more of
the same-slow economic growth, industrial short-
falls, and little or no gain in consumer living stand-
ards. If the economy is to be revived, Moscow must
find a way to reverse the decline in combined labor
and capital productivity that has occurred in the past
several years.
The Economy so Far in 1982
Industry: Serious Problems Continue. After a poor
start in 1982, industrial performance has shown some
improvement over the course of the year. Even so,
industrial production through the first eight months of
1982 was only 1.5 percent higher than in the first
eight months of 1981. Output in key sectors such as
ferrous metals and construction materials dropped
below levels achieved during the first eight months of
the previous year (see table 1). In ferrous metals, for
instance, production of crude steel, iron ore, and
finished rolled steel products all dropped approxi-
mately 1 percent. Even the production of steel pipe-
the only sector of the ferrous metals industry that has
performed reasonably well in recent years-was down
1.6 percent compared with the first eight months of
1981. Nonferrous metals output was stagnant as
electric power outages brought on by severe drought
conditions in Siberia, as well as delay in bringing new
generating capacity on stream, constrained produc-
tion of aluminum and other nonferrous metal prod-
ucts.
Growth in most other industrial sectors remains slug-
gish. In the chemical industry, for example, output of
plastics, chemical fibers, and sulfuric acid-all vital
raw materials for other industries-was below plan.
Civilian machine-building output, up 3.2 percent com-
pared with the first eight months of last year, is not
rising fast enough to meet plans for supplying pro-
ducer and consumer durables to the economy. Indeed,
production of such important items as electric motors,
Table 1 Percent growth a
USSR: Industrial Performance
Civilian industry
1.8
2.4
1.5
Electric power
2.4
2.2
2.8
Fuel products
0.9
1.1
2.1
Ferrous metals
0.2
0.4
-1.1
Nonferrous
metals
0.3
0.0
0.1
Forest and paper
products
2.2
1.7
Construction
materials
1.0
1.0
Chemicals
4.2
4.0
1.6
Civilian
machinery
1.8
4.4
3.2
Light industry
2.0
1.0
-0.2
a Percentage change in output between the indicated period and the
comparable period of the preceding year.
freight cars, diesel locomotives, and automobiles was
near or below levels of the comparable period in 1981.
25X1
The energy sector, in contrast, has performed
relatively well so far this year (see table 2). Although
oil production in January through August was slightly
higher than in the same period in 1981, we estimate
that production for the year will fall below the 1982
target of 614 million tons. Compared with previous
five-year plans, the 1981-85 target'of less than
1-percent average annual growth in oil output is
extremely modest. Even so, greater efforts to bolster
drilling activity and fluid-lift capacity will be required
to achieve even these goals.
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Secret
Table 2
USSR: Energy Production
1980
1981
1982 Jan-Aug
(Projected) 1981
Jan-Aug
1982
Oil
(million tons)
603
609
610-612
405
407
Coal
(million tons)
716
704
710-715
472
481
Gas
(billion cubic
meters)
435
465
497-503
303
327
We project a moderate gain in coal production this
year, marking the first time since 1978 that coal
output has risen. The improvement in coal production
can probably be attributed to the startup of a large-
capacity coal excavator at the Ekibastuz open pit
mine. Achievement of even this moderate increase,
however, could be jeopardized by a poor showing in
the remainder of the year-a problem that has af-
fected the coal industry in each of the past three
1976 77 78 79 80 81 82
Estimate
years.
The USSR should have little difficulty meeting the
1982 gas production plan of 492 billion cubic meters.
Almost all of the increase in gas output is coming
from the Urengoy field in West Siberia, which by
1985 will account for at least 40 percent of Soviet gas
production. The future of the gas industry hinges
heavily, therefore, on building the six large-diameter
pipelines from the Urengoy field-each at least 2,800
kilometers long. To date, construction is on schedule.
On balance, we estimate that the rate of increase in
overall industrial production, which hit a post-World
War II low last year, will be even less this year-
about 1.5 percent (see graph). Soviet leaders are well
aware of the seriousness of their industrial problems.
Still, they continue to express confidence-at least
publicly-that all obstacles can be overcome by boost-
ing labor and capital productivity. Growth in labor
productivity, however, remains sluggish and capital
productivity is falling. The productivity of labor in the
industrial sector, for instance, increased only 0.8
percent in the first eight months of this year, below
the 1.7-percent growth achieved in January-August
1981 and far below the 4.5-percent annual rate of
increase targeted for 1981-85. Indeed, labor produc-
tivity declined in the first half of the year in such key
industries as oil, coal, ferrous and nonferrous metals,
and the meat and dairy industry.
Agriculture: Another Below-Trend Year. The Soviets
are facing a fourth straight disappointing grain har-
vest. The poor weather that has reduced grain output
is adversely affecting production of other crops as
well. As a result, substantial increases in supplies of
other quality foods, particularly fruits and vegetables,
are also unlikely.
In his speech in May 1982 unveiling the long-prom-
ised, highly touted "agro-industrial reorganization,"
General Secretary Brezhnev reiterated his commit-
ment to the food program and promised consumers
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that food supplies would improve this year.' In addi-
tion to the embarrassment and political risk that
would follow a substantial fall in the supply of quality
foods during the first year of the program's implemen-
tation, the regime must worry about repercussions in
other sectors of the economy. Shortages of quality
foods and other desired consumer goods would under-
mine worker morale and inhibit the gains in produc-
tivity that Moscow is counting on to stimulate eco-
nomic growth.
Transportation Bottlenecks. Freight turnover on the
railroads-the primary mode of freight transportation
in the Soviet Union-declined 2 percent in the first
six months of 1982 compared with the first half of
1981. This is the first time rail freight turnover has
declined since 1979, when severe winter weather west
of the Urals crippled rail operations, causing short-
ages of raw materials and fuel throughout much of
the economy. Although part of the decline is due to
reduced growth in economic activity in the USSR, the
main reason is a severe shortage of railcars; railcar
production has dropped steadily since 1976. The
shortage of railcars this year has been particularly
disruptive to the transport of mineral fertilizers, tim-
ber, and oil.
Capital Investment. State capital investment-which
typically makes up about seven-eighths of total capital
investment-totaled 54 billion rubles during the first
six months of 1982, an increase of 2 percent over the
same period in 1981. Investment growth planned for
the current five-year period is by far the lowest of the
post-World War 11 era. Achievement of the growth in
GNP and its component sectors implied by the 1981-
85 Plan depends critically on substantial increases in
capital productivity. Moscow's chances of substantial-
ly boosting capital productivity during the current
plan period, however, are remote. Indeed, the upward
trend in the amount of capital required per unit of
output of goods and services (capital-output ratios) in
recent years is the dominant feature of much of the
recent slowdown in Soviet economic growth and the
source of much of the leadership's difficulty in arriv-
ing at decisions on resource allocations.
Employment. Employment in industry during
January-August 1982 was 0.7 percent higher than in
the first eight months of 1981. This growth rate
exceeds the approximately 0.5-percent annual rate of
employment growth implicitly targeted during 1981-
85. During the first half of the year, the largest 25X1
increases in employment occurred in the energy sec-
tor-electric power, 2 percent; oil, 3 percent; gas, 1
percent; and coal, 2.6 percent. Larger-than-average
gains occurred in ferrous and nonferrous metals and
in the chemical industry. Employment in most con-
sumer-related industries either stagnated nr fell.
25X1
Foreign Trade: Payments Position Improves.
Moscow substantially im-
proved its hard currency payments position in the first
half of 1982. The trade deficit was an estimated $3
billion, about half that of the first half of 1981. In the
first quarter, for which more complete data are 25X1
available, a 50-percent jump in exports 2 combined
with a slight drop in overall imports sliced the trade
deficit to $1.3 billion. Gross debt to Western banks-
which which increased $2.5 billion in 1981-declined by
$ 1.5 billion during the first quarter of 1982, and the
usual drawdown of assets in Western banks was held
to less than $2 billion compared with $3 billion during
the same period last year.
For the year as a whole, hard currency outlays for 25X1
agricultural products are likely to level off at about
last year's record $11.5 billion, accounting for more
than 40 percent of all hard currency imports. Soviet
purchases of Western machinery and equipment are
likely to increase somewhat above last year's $4.5
billion level as deliveries of equipment for the Siberia-
to-Western Europe pipeline begin.
25X1
All things considered, Moscow has a good chance to
hold the trade deficit for the year below $3 billion.
Even if arms deliveries fall below the $5 billion level
of 1981, as appears likely, the current account surplus
could remain at about last year's $700 million level.
25X1
'Oil deliveries to West Germany, Belgium, the Netherlands, and
Italy and machinery shipments to Iraq accounted for most of this
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Outlook for 1983
The problems plaguing Soviet industry are certain to
carry over into next year. In particular, shortages of
iron ore and coking coal and outdated plant and
equipment will continue to restrict the range and
quality of machinery produced. Output of transport
equipment, particularly diesel locomotives and freight
cars, is likely to continue to fall, and transportation
will remain a major bottleneck in the economy.
Moreover, hard currency constraints will prevent an
increase in much needed imports of the kinds of
machinery and equipment and basic industrial mate-
rials needed to help alleviate the current strain on
industrial output.
The recent trends in labor and capital productivity
also are likely to continue next year. The slow pace at
which Soviet industry is being modernized and living
standards are improving, plus the likelihood of contin-
ued shortages of material inputs, makes a surge in the
growth of labor productivity unlikely. Moreover, given
the dim prospects for greater efficiency in industry
and the continuing upward pressure on capital-output
ratios from exogenous forces, it is not likely that the
downward trend in capital productivity can be re-
versed.
Performance thus far in the 11th Five-Year Plan
period and the outlook for 1983 make it clear to us
and probably to the Soviet leadership that the original
Five-Year Plan goals are unrealistic and cannot be
reached. The question is what can Moscow do about
it? Most likely the leadership will revise the original
targets downward to more realistic levels; it has done
this on numerous occasions. Economic difficulties in
1972, for example, forced Soviet planners to abandon
many of the detailed targets for 1973 that had been
set forth in the Ninth Five-Year Plan directives.F_
Such revisions, however, are merely paper exercises
and will do nothing to correct the imbalances and
deficiencies plaguing the economy. The more impor-
tant question is whether the leadership will change the
basic strategy behind the current Five-Year Plan. One
possibility is a return to the "old way" of achieving
economic growth, "throwing" more resources into
problem areas. With the growth in the labor force
slowing down, this would mean stepping up the rate of
investment. Indeed, the official view that the need for
increased investment can be substantially avoided by
higher capital productivity has already been publicly
challenged within the Soviet Union. The fact that
opposition views were published at all suggests signifi-
cant political support for such criticism and could
mean that a debate over investment policy is currently
under way in the USSR.'
We have no way of knowing whether the arguments
for higher investment will win out, but we believe it
unlikely at this juncture that the current Five-Year
Plan will be scrapped. Such action would cause
disruptions and require extremely controversial initia- 25X1
tives that seem beyond the abilities or desires of the
Brezhnev leadership. Increasing investment would
entail cutting either the consumers' or the military's
share of resources, or both. Any of these choices
would be painful considering the current international
climate and the apparent concern of the leadership
about living standards in the USSR. In any case,
substantially raising investment could not be done
quickly; certainly it would not have much impact in
1983. Boosting output in industrial sectors that either
produce investment goods directly-the machine-
building industries-or provide inputs to these sec-
tors-steel and construction materials-will require
substantial investment in these sectors first.
Finally, attention to economic reform as a potential
solution to Moscow's economic woes will intensify.
The numerous reforms in management and planning
devised in the last several years have done little to
raise the efficiency of the economy. Even so, some
new type of economic reform, if only cosmetic, may be
on the agenda next year. True reform that would
loosen central control and move the economy toward
greater reliance on prices and market forces, however, 25X1
seems out of the question, at least until a new
leadership has firmly established itself in power.
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The 1981-85 Plan:
Economic Policy and
Political Implications
The 1 I th Five-Year Plan is the Soviet leadership's
blueprint for wrestling with the economic problems of
the 1980s. The policies reflected in the Plan, however,
are not bold and innovative but represent the tena-
cious plodding that has become the hallmark of the
Brezhnev era. The Brezhnev leadership can be said to
favor:
? Short-term gains that emphasize results now with
little regard for long-run consequences-exempli-
fied by their policies on resource allocation in
general and investment in particular.
? Administrative solutions rather than basic systemic
change-the most recent example being the organi-
zational changes prescribed in the Food Program.
? An evenhanded but restrained use of the carrot and
stick for getting results (particularly apparent in
consumer policy) and an abiding belief in the ability
to motivate by nonmaterial means-an important
element in recent campaigns aimed at building
morale and getting in touch with the masses.
? Incrementalism-that is, piecemeal or experimental
introduction of major new policies-reflected in
reforms under way in both the industrial and agri-
cultural sectors.
? The preservation of untouchable policy areas-ones
that are largely immune to budget cuts or revision-
including growth in defense spending, stability of
25X1 consumer prices for basic goods, and large agricul-
tural investments and subsidies.
Nonetheless, there is a wide divergence of opinion
within the leadership over some of these policies. The
importance of these differing views increases as the
succession nears because economic policy choices
inevitably become intertwined with political maneu-
vering.
25X1
Key Policies of the 1981-85 Plan
Seven policy areas capture the essence of the 1981-85
Plan and reveal the major sources of contention
within the leadership 25X1
Resource Allocation. The Plan indicates that of the
three major resource claimants-investment, con-
sumption, and defense-investment was a relative
loser. The shift away from the traditional emphasis on
investment began in the 1976-80 Plan but was taken a
step further in the draft directives for 1981-85. Ap-
parently, as the economy continued to falter, there
were persuasive reasons for not cutting the planned
growth of defense and consumption, making invest-
Party secretary Chernenko warned publicly that if
popular needs were ignored for the sake of production,
not only the people, but production too, would suffer.
25X1
The cutback in investment growth was undoubtedly
highly contentious within the leadership. Historically,
the economic sectors most heavily represented on the
Politburo, such as heavy industry, have had gargan-
tuan appetites for investment capital. The major
controversy probably centered on consumption's right-
ful place in the pecking order. Serious opposition to
satisfying the demands of the defense sector would
have been unlikely at this presuccession juncture.
Criticism of the general policy to reduce investment
growth is beginning to surface in major economic
journals. Speeches by regional leaders also reflect
deep concern over the shortage of investment capital
and its effect on meeting local production goals.
25X1
Investment Priorities. The Plan's draft guidelines
revealed the general investment philosophy-funds
would be concentrated on those sectors that had the
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most potential for technological change and that were
related to "bringing fuel, energy, mineral, and raw
materials resources of the eastern and northern re-
gions of the country into national economic use." The
agricultural sector managed to retain the same share
of resources that it had in the previous Plan
Dividing an investment pie that has become only
slightly larger has exacerbated regional disputes as
well as the traditional rivalry between patrons of
heavy and consumer goods industries. The directives
specifically favor development of the eastern and
northern regions of the country at the expense of the
European part, and there is evidence that large new
Central Asian projects are being squeezed. Succession
politics have typically given regional leaders more
influence in national policy formation, and contending
factions will exploit this situation. The age-old contro-
versy over the relative growth of producer goods and
consumer goods has taken on a new sense of urgency
because of the Polish experience and the possible
adverse effect on productivity of failing to meet
consumer demands.
Consumer Welfare. The Plan's commitment to the
consumer requires sacrificing resources for tradition-
ally higher priority sectors. Just to maintain the per
capita availability of foodstuffs, for example, the
leadership has decided to import vast quantities of
grain and meat. These imports have cut deeply into
hard currency assets, perhaps at the expense of other
important goals such as growth in machinery imports.
Measures to keep consumer expectations from outpac-
ing the economy's potential are also planned. The
main points of the consumer program are continued
heavy expenditures on food-related areas, organiza-
tional/management changes to spur consumer goods
output, stimulation of the private sector, campaigns to
improve morale and communication with the masses,
and measures to restrain demand.
Leadership support for the consumer varies widely.
Party secretary Chernenko can be considered a con-
sumer advocate and has taken numerous steps to
cultivate a "populist" image. The leadership's tradi-
tional supporters of heavy industry, such as Kirilenko,
are allied with party ideologues against such blatant
"consumerism." A third group, perhaps the majority
of the leadership, may be labeled "realists" since they
recognize the legitimacy of consumer demands but at 25X1
the same time realize that satisfying them would
require sacrifices in other important sectors.
Economic Reform. The draft directives signal re-
newed interest in the general area of improving
planning and management and devote a section ex-
plicitly to this theme. Such a section appeared for the
first time in the draft directives for the 1966-70 Plan,
but was dropped in the 1971-75 Plan directives as
economic reform efforts ran into recurring and formi-
dable implementation problems in the second half of
the 1970s. The 1981-85 Plan is long on reform
rhetoric but short on concrete solutions, acknowledg-
ing that new ways must be found "to perfect the
economic mechanism." In effect, this encourages pub-
lic discussion of reform proposals without adopting a
reformist course. In response, the Soviet press has
been filled with articles touting reforms in Eastern
Europe and recommending the borrowing of ideas
from such divergent sources as the United States and
Lenin's New Economic Policy period.
The range of leadership opinion on the subject of
reform appears much narrower than that of the press
articles. Soviet leaders have never indicated a desire
for fundamental systemic change and, indeed, have
demonstrated a decided preference for improved bu-
reaucratic centralism and organizational solutions.
Currently, the leadership is embroiled in discussions
of two organizational/management issues. The first is
a debate over the relative merits of regional versus
functional organization of the economy, probably
spurred by the recent endorsement of regional agro-
industrial associations (RAPOs). The second issue is
the proper role of the party in economic management.
25X1
Agricultural Policy. The relatively consistent support
for the agricultural sector since 1965 has been due 25X1
largely to Brezhnev's personal interest and backing.
The 1981-85 Plan allocated more than one-fourth of
total investment resources to the farms. However, it
shifted the major focus away from increasing farm
productivity to increasing the efficiency of the entire
food production and marketing chain, particularly
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storage and procurement. The new Food Program
introduced in May also concentrated on this larger
area and featured a change in organization, shift in
investment, and improved incentives.
The policy of pouring money into the agricultural
sector has been a controversial one, however, and
Brezhnev's defensive rhetoric at the May 1982 agri-
cultural plenum indicated that its opponents are still
formidable. The issue of agricultural organization has
proved particularly contentious and promises to be a
pawn in succession maneuvering. Half measures taken
in the Food Program indicate still unresolved issues
over power sharing between Moscow and regional
25X1 authorities and suggest that Brezhnev had to make
significant compromises in his original program
High-level differences over the importance and strate-
gy of East-West trade are still evident, as they were at
the inception of Brezhnev's detente policy. Some
Politburo members have been enthusiastic supporters
while others have remained equivocal or silent on the
issue. In general, however, Politburo enthusiasm for
the pursuit of improved Soviet-US relations has been
on the wane since passage of the Jackson-Vanik
Amendment in 1974 and even more so after the Soviet
invasion of Afghanistan. The leadership has publicly
expressed determination to wean the economy away
from major dependence on the West for technology or
grain. Moreover, in conversations with Westerners,
Soviet officials have expressed disappointment over
the contribution of imported technology to industrial
output. The leadership seems increasingly aware that
importing foreign technology is not a panacea for
Manpower and Demographic Policy. The Plan indi-
cates that the effort already under way to ameliorate
the labor shortage in a number of conventional ways
will continue. This effort includes measures to in-
crease the supply of labor, such as making work more
attractive to women and pensioners, and to decrease
the demand for labor, such as placing ceilings on the
number of workers in certain sectors. Bolder policies
in three areas that would have a longer run impact
and potentially bigger payoffs-automation, regional
investment shifts, and raising the birth rate-have
been finessed for the most part, with one interesting
exception: a regional approach to demographic policy
was endorsed at the 26th Party Congress in 1981,
encouraging higher birth rates in the Slavic regions.
Regional sensitivities within the leadership, which are
traditionally given more weight in a succession period,
probably have been a major factor in postponing
further action.
East-West Trade Policy. The draft guidelines of the
Plan anticipated trade only "with those developed
capitalist countries that show an interest in coopera-
tion with the Soviet Union." Bearish prospects for
East-West trade were indicated by the modest growth
planned for the volume of trade with non-Communist
countries-only 2.5 percent annually compared with 5
percent in 1976-80. Subsequent speeches by the lead-
ership indicated that the pessimistic language was
aimed primarily at trade with the United States.
reversing the decline in economic growth.
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The Brezhnev Food Program
To stave off a rising tide of discontent and falling
productivity among the work force, Brezhnev has
launched a major new program for the 1980s to
improve the production, processing, and marketing of
food products. In past campaigns to boost food avail-
ability, the focus has been on production on farms.
The inclusion of stages in the food production chain
beyond the "farm gate" reflects official concern over
the prodigious losses of perishable foods as well as the
low quality of much of the food that finally reaches
the consumer. The new campaign to upgrade the
entire food production and distribution process is
referred to in the Soviet press as the Food Program.
Although controversy over this program abounds, as
reflected in the year and a half of bureaucratic
wrangling over its preparation, its announcement at
the Central Committee plenum on 24 May 1982
reflects the growing pressure on Moscow to do some-
thing in the face of three consecutive years of harvest
shortfalls, worsening food shortages, disgruntled con-
sumers, and rising food import bills. The program was
pushed through even though key questions were not
resolved concerning the organizational aspects, and
there is mounting evidence that continued disagree-
ments within the leadership may impede its imple-
25X1 mentation
higher wages, bonuses, and farm incomes.
Key Features of the Program
The Brezhnev Food Program includes three key meas-
ures aimed at improving food production and
distribution:
? A reorganization of the administrative structure to
promote "unified management" of farms, food-
processing enterprises, transport organizations, and
the trade network.
? An investment program to improve the system for
handling, storing, and processing food and to im-
prove housing and living conditions in the
countryside.
? An increase in financial incentives in the form of
Reorganizing the "Agro-Industrial Complex. " As the
centerpiece of the Food Program, the plenum ap-
proved the creation of agricultural-industrial coordi-
nating bodies at the national and regional levels (see
figure 1). Although severely watered down from earli-
er proposals, the decision reflects a move in the 25X1
direction of interbranch program management long
urged by leading economists and by Brezhnev.'
At the national level, the Presidium of the USSR
Council of Ministers will have a Commission for
Questions of the Agro-Industrial Complex made up of
the heads of the various ministries and state commit-
tees involved in agriculture and food processing. This
group appears to have no management functions nor
will it encroach on Gosplan's planning functions.
Union republics will have corresponding commissions.
Associations will also be created at the oblast, kray,
and autonomous republic level.
25X1
The reorganization to be carried out at the district
level is the most significant and controversial aspect of
the structural changes. The "rayon agro-industrial
association" (RAPO) -an innovative form of adminis-
tration that has been operating for a number of years
on an experimental basis in Estonia, Latvia, and
Georgia-was approved by the plenum for adoption
nationwide. RAPOs are self-financing associations
that include as members all farms, agricultural serv-
ice agencies, and processing enterprises in a given
district. As such, they cut across ministerial lines,
concentrating authority at the local level. RAPOs
theoretically have the authority to distribute and
redistribute resources within their regions and regu-
late economic relations among association members.
Traditionally in Soviet usage, the "agro-industrial complex" in-
cludes all ministries producing goods and services for agriculture
and food processing such as chemical products, machinery, and
repair and transportation services. For purposes of the reorganiza-
tion, however, Soviet officials have defined the "agro-industrial
complex" more narrowly to exclude ministries producing fertilizer
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Figure 1
Organizational Structure of the "Agro-Industrial Complex"
as Outlined in the Food Program
All-Union Level Commission Presidium of the USSR
Council of Ministers
Commission for Questions
of the Agro-Industrial Complex
Union Republic Level
(15 Commissions)
USSR Minister of Agriculture
USSR Minister of Fruit and Vegetable Farming
USSR Minister of Procurement
USSR Minister of the Meat and Dairy Industry
USSR Minister of the Food Industry
USSR Minister of Land Reclamation and Water Resources
USSR Minister of Rural Construction
Chairman, USSR State Committee for the Supply of Production
Equipment for Agriculture
Chairman, USSR State Committee for Forestry
Chief, USSR Council of Ministers Main Administration of the
Microbiological Industry
First deputy chairman, USSR State Committee for
Material-Technical Supply
First deputy chairman, State Planning Committee
Presidiums of Union Republic
Councils of Ministers
Union Republic Commissions
for Questions of the
Agro-Industrial Complex
Oblast, Kray, Autonomous
Republic Level
(157 Councils)a
Oblast, Kray, Autonomous
Republic Councils of
Agro-Industrial Associations
Rayon Agro-Industrial
Associations
Union republic counterparts of all-union ministries and
committees
Local organizations belonging to the ministries and state
committees, included in the "agro-industrial complex"
Farms
Agricultural research organizations
Food-processing plants
Storage and transportation facilities
Mixed feed plants
Construction organizations
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Such a wide-ranging mandate, in our view, will
inevitably produce conflict between the RAPOs and
the ministries to whom the individual farms and
enterprises within the RAPO are also subordinate.
There are reports that factions opposed to the reorga-
nization-notably the central ministries-are resist- 10
ing giving RAPOs such broad authority.
Redirecting Investment Resources. As in 1970 and
1978, Brezhnev has succeeded in gaining Central
Committee approval of agriculture's share of total
investment well in advance of the next plan period.
The 1981-85 Plan allocates 33 to 35 percent of new
fixed investment to the "agro-industrial complex"
(broadly defined) and the Brezhnev Food Program
claims the same share of investment for 1986-90.
During the 1980s, investment resources are to be
distributed somewhat differently than in the past to
build up what Moscow considers the weak links in the
food production chain-sectors producing machinery
for agriculture and food processing, social overhead
projects such as housing and roads to improve living
conditions in the countryside, and the food-processing
sector itself. This new investment strategy addresses 0
many of the complaints long made by critics of the
"agricultural lobby" and therefore probably com-
mands stronger support within the leadership than the
previous investment policy.
Increasing Financial Incentives. In addition to larger
investment in rural housing and other facilities, the
Food Program contains other measures to keep the
agricultural labor force in place and to attract well-
trained technicians to farm jobs. To this end, the
program calls for further reduction in urban-rural
income differences. Farm wages will continue to
increase faster than those of other workers. Managers,
professionals, and semiprofessionals are to receive
additional pay and bonuses.
To raise farm income and production, higher procure-
ment prices for cattle, hogs, milk, grain, sugar beets,
potatoes, vegetables, and "other products" will go into
effect on 1 January 1983. At the same time, prices
paid by farms for equipment, fertilizer, and fuel will
be lowered. The financial position of farms will also
be improved by grants from the state budget to
finance investment projects and by writeoffs and
deferments of farm debt.
Figure 2
USSR: State Outlays for Procurement
and Processing of Selected Livestock Products
1980a 83
Beef
Subsidy
Retail price
80a 83
Mutton
80 83
Pork
80 83
Butter
? Retail prices covered less than half of state ruble outlays per kilogram for procurement,
marketing, and processing of beef and mutton in 1980.
Source: Finanry SSSR, Number 7, 1982, page 10. (Figures for 1983 are official Soviet
projections.)
Goals for Farm Output in the 1980s
To meet Food Program targets, shown in the table,
average annual growth in farm output would have to
return to the long-term rate achieved during 1951-
70-about 4 percent per year.' We estimate that
annual increases in plant and equipment and growth
in labor and material inputs will be well below earlier
rates. The output targets, therefore, imply a substan-
tial growth in productivity.
' Average annual rates of growth were derived by incorporating
Soviet plan data for agricultural commodities into the CIA index of
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Annual Average Production of Selected
Agricultural Commodities
Million metric tons
(except where noted)
1971-75
l
1981-85
Plan a
1986-90
Plan a
Actua
Crops
81.6
217.5
205.0
240.5
252.5
8
89
102.0
82.6
88.0
91.0
.
96.5
88.7
101.5
102.5
Sugar beets
7.6
5.3
6.7
7.4
Sunflower seed
NA
0.5
1.4
2.2
Vegetables
23.0
28.1
26.3
32.0
38.0
25
0
Fruits, berries, and grapes
ducts
k
12.4
16.9
15.2
19.2
.
pro
Livestoc
15.3
14.8
17.2
20.2
95.0
92.7
98.0
105.0
Eggs (billion)
51.4
59.5
63.1
72.0
78.5
Net farm output b
(average annual rate of growth in percent)
a Midpoints of ranges given in plan documents.
b In calculating growth rates, midpoints of given ranges were used.
Net domestic farm output is the sum of net output of crops and
livestock valued in 1970 average realized prices.
Will the Food Program Work?
Although Soviet officials have said that Moscow
expects positive results from the Food Program within
two or three years, we judge this expectation to be
highly unrealistic. Too much planning remains to be
done before the program gets off the ground, let alone
shows results. Even in the long run, the Food Program
faces a number of obstacles to achieving its central
goals of reducing the USSR's dependence on imports
of foodstuffs and closing the widening gap between
domestic supply and demand for food:
Jurisdictional conflicts are likely. By trying to
appease territorial interest groups without offending
central ministerial organizations, the organizational
features of the Food Program are likely to result in
much bureaucratic infighting with few gains for
agriculture.
? The dependence on productivity gains is un-
warranted. We believe the productivity gains neces-
sary to meet output goals will not occur because
RAPOs will fall short of their potential, incentives
to boost worker productivity are too little too late,
and the investment program may not be fully
funded.
? Improvements in on-farm technology are occurring
too slowly. Improvements are needed not only to
raise yields, but to lessen the impact of weather
fluctuations on year-to-year crop sizes in the USSR.
? The price system inhibits success. Perhaps the
greatest impediment to success of the Food Program
is the Soviet price system. Prices paid for agricultur-
al inputs and farm products do not reflect relative
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resource costs and therefore cannot provide ade-
quate signals and incentives for efficient use of
resources. The Food Program does not come to grips
with this problem, necessitating further increases in
farm subsidies.
Implications for the 1980s
Because of the conflicts and inconsistencies inherent
in the Food Program, we judge that it will have little
positive impact on the economic well-being of the
population in the near term and will provide only
marginal returns in the late 1980s-if it survives that
long. Of more immediate concern is the possibility
that the Food Program may become both a vehicle for
and a victim of succession maneuvering.
Political Impact. The marked difference in the way
Soviet leaders have treated the organizational aspects
of the Food Program in their speeches since the
plenum suggests that support for the proposed reorga-
nization is thin. There is evidence, moreover, that the
two leading candidates to succeed Brezhnev are on
opposite sides of the issue. Party secretary Chernenko
has taken the most active public role in supporting the
reorganization. Of the leading officials who have
spoken out on the issue so far, only he and several
others closely associated with the reorganization have
dealt with it in strongly positive terms. Even the party
secretary for agriculture, Mikhail Gorbachev, who
evidently supported Georgian RAPO experiments and
presumably had a major hand in drafting the pro-
gram, only mentioned the reorganization briefly in a
25X1 recent article and stressed the less controversial as-
pects of the Food Program.
The entrance of Politburo member Yuriy Andropov
into the succession race may further politicize the
debate. Andropov avoided any mention of Brezhnev's
Food Program in a speech earlier this spring, and
there is some tentative evidence that Andropov sup-
ports an alternative approach that combines strong
central planning and direction of the economy and
greater managerial autonomy at the enterprise level.
Economic Impact. Because the Food Program con-
tains no provisions that are likely to increase the rate
of on-farm technical progress or to improve the price
structure, agricultural output in the 1980s will be
heavily dependent on weather conditions, which may
be no better than the long-term climatic norm. Some
production gains are likely, but we consider the output
goals of the Food Program to be out of reach. Major
reductions in waste will not be forthcoming because
organizational aspects of the Food Program will not
be implemented sufficiently to provide enough incen-
tive throughout the food production chain to upgrade
product quality.
As Soviet economic growth continues to decline and
the Food Program fails to provide material relief from
shortages, the regime will be forced to pursue more
familiar strategies to keep domestic food shortages
manageable. For example, sizable food imports proba-
bly will continue in the 1980s. The exact size of the
imports and the share of per capita consumption gains
coming from them will depend on the magnitude of
food production, the degree to which domestic farm
waste and losses can be reduced, and the magnitude
of per capita consumption gains the regime feels
obligated to support. Shortages of hard currency will
be a continuing constraint, forcing the leadership to
choose between keeping consumer grumbling at a
tolerable level and maintaining nonagricultural im-
ports. 25X1
Failure of the Food Program to produce the results
promised could also heighten Soviet interest in pur-
chases of Western agricultural equipment and tech-
nology. Recent signs of interest in such purchases
suggest that at least some Soviet policymakers are
anticipating very slow agrotechnical improvements
from domestic sources. 25X1
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Indicators of Increased
Soviet Military Research
and Development
An increased number of weapon development pro-
grams and the expansion of research and development
(R&D) facilities indicate a strong Soviet commitment
to continued growth in the resources allocated to
military R&D through this decade. If present trends
continue, we expect that in the 1980s the Soviets will
introduce into their forces between 165 and 180 new
or substantially modified major weapon systems-
about 25 to 40 more than were introduced during
each of the past two decades (see figure 1).' The
weapons under development generally are more com-
plex than previous systems, and their costs almost
25X1 certainly will be greater. The facilities that develop
these weapons are expanding at about the same rates
Increased Activity
More Weapons Under Development. We believe that
the Soviets will have some 200 major weapon systems
under development this decade-more than in either
of the past two decades. We expect 165 to 180 of
them to reach initial operating capability (IOC) by
1990:
? Over 40 of these entered the testing stage in the
1970s and either reached IOC in 1981 or are
expected to be deployed by the end of 1982.
? About 95 other systems are known to be under
development.
? Beyond these, about 65 more systems are projected
by the Intelligence Community to be introduced by
1990. This projection is based on the availability of
' Major weapons include aircraft, missiles, naval ships (surface
combatants, marine warfare and amphibious ships, and major
auxiliaries), submarines, military space systems, major munitions,
and principal land arms (tanks, armored vehicles, artillery, and
antiaircraft weapons). Decades are defined as 1961-70, 1971-80,
Figure 1
Number of Major Soviet Weapon Systems
Introduced, by Decade
technology and the perceived force requirements not
satisfied by those systems identified under develop-
We believe that while the individual systems that
eventually appear may differ somewhat from the
projections, the additional number introduced will
probably be close to 65. Although these Community
projections are made without regard to economic
constraints, the military R&D establishment is large
enough to accommodate the development of these
systems. In the past these projections in the aggregate
have been fairly accurate for the near term but have
tended to underestimate the number introduced five
or more years in the future.
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We almost certainly have not yet identified all the
weapon systems under development. Historically, we
have been unable to identify many weapons, es-
pecially those for ground forces, until just before or
even after deployment. Moreover, Soviet practice
suggests that many of the systems that recently
reached IOC will undergo major modification or
redesign in this decade to improve mission capabilities
or to incorporate better subsystems. To date, there
have been references to over 20 weapon systems under
development that we know very little about (and
which have been excluded from our list of 95 firmly
identified programs). Man of these could be systems
that reach IOC by 1990.
Not all of the systems identified or projected to be
under development, however, will reach IOC in this
decade-some will be canceled and others will en-
counter development difficulties that will delay de-
ployment until after 1990. Considering the large
number of systems under development, the Soviet's
historical track record on development difficulties,
and the nature of the individual development pro-
grams, we expect that between 165 and 180 of the
estimated 200 systems will eventually reach IOC
during the 1981-90 period.
Implications for Defense Spending
Unless the current trend is altered by economic or 25X1
political considerations, defense spending will proba-
bly continue to grow through most of the 1980s.
Expenditures for military R&D and weapons procure-
ment account for about half of total defense outlays, 25X1
and resources for both categories appear to be grow-
ing. The precise rates of growth will depend on how
many of the new systems under development the
Soviets decide to introduce into the forces, when they
decide to field them, and in what numbers. New
leaders would have a wide variety of program options
to choose among, and even if they decided to moder-
ate the growth in defense spending by canceling, 25X1
deferring, or curtailing some programs, significant
improvements in Soviet forces would continue through
this decade and into the next.
R&D. The large number of weapons under develop-
ment and the amount of new technology introduced
into these systems suggest that defense R&D outlays
will continue to grow. The percentage of these devel-
opment programs that are new designs-rather than
redesigns and modifications of already existing sys-
tems-is higher than it was in the last decade (see
figure 2). The development of new designs generally
requires more resources than do redesigns and modifi-
cations
More of these development programs than in the past
appear to be higher risk efforts instead of programs to
develop the evolutionary systems the Soviets tradition-
ally have emphasized. Compared with the 1960s and
1970s, the Soviets in this decade are developing two to
three times the number of programs based on ad-
vanced (for the Soviets) technologies. These pro-
grams-such as the new space plane and space-based
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October 1982.
Two of the graphs in the October 1982 issue of the USSR Monthly Review
contained plotting errors. The corrected graphs are provided below:
Figure 2
New-Design Systems as a Share of
Total Soviet Weapon Systems
Introduced Annually, 1960-85
Percent
Jewish Emigration From the USSR, 1970-82
I I I I I , I I I I
1970 72 74 76 78 80
25X1
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Figure 2
New-Design Systems as a Share of
Total Soviet Weapon Systems
Introduced Annually, 1960-85
Percent
I I I I I I I I I I I I I I I I I I I I I
0 1960 65 70 75 80 85
antisatellite laser-involve major development and
resource risks. Consequently, there is a greater likeli-
hood that false starts and development problems will
occur, lengthening the development cycle and increas-
ing costs.
Procurement. The large number of programs under
development suggests that the resources devoted to
procurement of military hardware also will continue
to grow through most of the 1980s, particularly if the
Soviets choose not to reduce substantially the number
of systems they are already producing or are gearing
up to produce. Many of the weapons currently being
produced will still be in production in the late 1980s.
In addition to these programs, the Soviets are prepar-
ing to produce many new weapons in the next several
years. Of the systems identified under development,
over 40 are already in the testing stage. The Soviets
rarely cancel a program once it reaches this stage, and
the decision to produce a weapon is usually made
before the test period. Most of the other systems
under development probably will enter production
after the mid-1980s. In some weapon categories, the
Soviets often produce new weapons in quantities
sufficient to replace older systems nearly 1 for 1, and,
in the case of ground force weapons, they sometimes
produce more of the new units. The higher life-cycle
costs associated with the production, operation, and
maintenance of many of the newer systems add to the
likelihood of increased defense spending through the
Economic Implications
If the defense R&D effort continues to grow at its
present pace, it probably will place a greater strain on
the Soviet economy during the late 1980s than it does
now. Many of these systems incorporate newer tech-
nologies and exotic materials and will require ad-
vanced equipment for their development. They will
continue to draw heavily on the nation's higher quali-
ty raw materials and equipment, as well as on its
scientific and technical elite-resources urgentl
needed in the civilian machine-building sector.
Over the past several years, however, Soviet leaders
have publicly urged the military-industrial complex to
provide more support to lagging civilian sectors. This
indicates that the leadership is concerned with the
economic consequences of the relatively low priority
historically accorded the nondefense sector. Defense
technology and R&D manpower reportedly have been
transferred to assist industries that are critical to
of technical expertise are expected to be the type of
economic support rendered by the defense industries
over the next several years. 25X1
We believe that these transfers will not have a
signficant impact on military R&D programs, at least
not for some time. From what we have seen, they are
relatively small-scale movements that would not dis-
rupt development cycles for programs in train or the
25X1
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basic technology research being conducted for the
weapons of the 1990s. Furthermore, Soviet acquisition
procedures, once a decision has been made to develop
a weapon, impart considerable momentum to the
development of that weapon. It would be difficult to
arrive at a decision to curtail resource allocations for
these programs in midstream. Soviet planners usually
are aware of the approximate cost of weapon pro-
grams before they give approval to develop them. And
decisions to step up development in key civilian areas
usually involve new plant and equipment in those
areas rather than transfers of currently allocated
resources. We have not seen evidence of any develop-
ment program cancellations or program delays due to
resource shortages. Finally, construction programs
now under way suggest that recent decisions have
been made to initiate new weapon development pro-
grams and to allocate the resources required for their
development
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Other Topics
Soviet Trade Policy and
US Economic Sanctions
The USSR, reacting to US efforts to curtail East-
West trade, is working to prevent its commercial ties
with the West from becoming a major source of
unpredictability in the 1980s. For the short term the
Soviets are attempting to maintain a reliable network
of suppliers by exploiting disagreements between the
United States and Western Europe over East-West
trade limitations. For the longer term they apparently
hope to reduce their dependence on imported Western
equipment and technology. Differences within the
Soviet hierarchy regarding the advisability of trade
with the West, however, suggest that Moscow's trade
policy is subject to change in the coming political
succession.
Growing Trade and Growing Concerns
During the 1970s, the value of Soviet hard currency
imports from the West increased more than ninefold
in current prices (see figure 1) and more than tripled
in constant prices. Although still small in relation to
gross national product (less than 5 percent of GNP),
those imports-especially machinery, ferrous metals,
and foodstuffs-have played a critical role in many
high-priority industrial, agricultural, and military
programs, including those for raising energy produc-
tion and meat consumption and improving missile
performance. Moscow's import capacity was boosted
sharply by increased prices for oil and gold-two key
sources of foreign exchange (see figure 2)-and a
burgeoning Third World market for Soviet arms.
Soviet concern about the future of East-West econom-
ic relations, however, almost certainly has risen as the
volume of trade has increased. US trade policy,
tighter Soviet hard currency supplies, and some
doubts about the contribution of trade to the economy
have prompted a more guarded Soviet attitude toward
East-West commerce. Official confirmation of this
stance was made in November 1981 by State
Planning Committee (Gosplan) Chairman Baybakov,
who said that the volume of non-Communist trade
with the USSR would increase by approximately 2.5
percent annually in 1981-85, compared with more
than 5 percent in 1976-80:
? Since Congressional passage of the Jackson-Vanik
Amendment in 1974, which required increased Jew-
ish emigration in exchange for reduced US trade
barriers and expanded credits, Moscow in its public
statements has increasingly pictured the United
States as an unreliable trading partner. Soviet me-
dia have portrayed Washington as an obstacle to
East-West commerce in general because of its ef-
forts to obtain European and Japanese participation
in the sanctions imposed against the USSR follow-
ing the invasion of Afghanistan in 1979 and the
imposition of martial law in Poland in 1981. 25X1
Our analysis indicates that foreign ex-
change earnings probably will remain level or even
decline in real terms through at least the mid-1980s.
Oil exports will probably fall, and earnings from
natural gas and other exports are unlikely to make
up completely for the drop in oil revenue. Moscow
probably recognizes, moreover, that credits will be
more costly to obtain than in the 1970s.
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Figure 1
USSR: Hard Currency Imports, by Type
587587 9-82
? The Soviets have expressed disappointment with the
contribution of some Western goods and complained
publicly that productivity of imported plant and
equipment has often fallen victim to the domestic
resource shortages and organizational shortcomings
that the imports were supposed to ameliorate.'
Moreover, in a speech in early 1982, Academy of
Sciences President Aleksandrov said that reliance
on imports has retarded domestic research and
development. This statement suggests that some
Soviet leaders are concerned that the USSR is
exporting important domestic resources such as oil
and gas in exchange for continued dependence on
Western products that are highly important to
Soviet industry.
' For example, in a November 1979 Central Committee plenum
speech, President Brezhnev criticized the Ministry of the Chemical
Industry for importing a mineral fertilizer plant for which the raw
material inputs to make fertilizer were lacking. At the June 1980
plenum, he added "the import of equipment" to his standard list of
major economic problems. In a Soviet newspaper interview in mid-
1982, Oleg Bogomolov, Director of the Economics of the World
Socialist System Institute and a longtime advocate of East-West
trade, said that much of the Western equipment and technology
Taking Defensive Measures
Although Moscow still sees a substantial need to
continue purchasing Western goods and technology, it
has been moving in the past year to protect the
economy from further Western trade restrictions.
Premier Tikhonov said in a June speech that the
socialist countries cannot become "isolated from the
world economy," but Moscow appears intent on sever-
al measures to ensure against trade disruptions that
could become increasing costly as Soviet economic
resources are stretched tighter and real import levels
lag behind import needs.
Pursuing Alternative Suppliers. The most immediate
Soviet response to US sanctions is an effort to avoid
direct and indirect reliance on US goods. Moscow still
prefers some US industrial products-such as energy
production equipment and some types of computers-
and is still seeking agricultural products from the
United States. A "don't-buy-American" policy re-
garding equipment and technology imports has been
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Figure 2
USSR: Hard Currency Earnings, by Source
Dividing the United States From Europe. Soviet
efforts to establish a reliable network of suppliers are
based primarily on encouraging West European dif-
ferences with the United States over trade and credit
limitations. The Soviets almost certainly view West-
ern Europe as the largest market for their raw
material exports (it accounted for more than two-
thirds of total Soviet hard currency trade in 1981) and
as having the strongest economic and regional securi-
ty motivations for trading with them. They probably
thus see an opportunity, particularly through long-
term trade agreements such as the gas pipeline deal,
to raise Europe's stake in trade and widen differences
within NATO over the utility of trade restrictions.
emerging in recent years, however, and, according to
top Ministry of Foreign Trade officials, has become
firmer since the December 1981 embargo.
"burned" by US sanctions too often and has taken the
following actions:
? Soviet purchasing agents have been instructed since
1981 to import from the United States only if
equivalent technology is unavailable elsewhere.
? Several US-Soviet projects, including oil and gas
production equipment orders, have been shifted to
other suppliers.
? The United States is not treated as a reliable source
of technology and equipment in Soviet long-term
economic planning.
25X1
Restrained Allied support of US sanctions in recent
years has probably persuaded Moscow that unified
and sustained Western sanctions are preventable, at
least in the short term. Since the West's failure in the
early 1960s to mount an effective embargo on oil and
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gas pipe, Moscow has believed that some industrial
countries will always be willing to abstain from major
trade restrictions.2 Following the sanctions imposed in
1979 and 1981, the Soviets played successfully on the
West Europeans' political and economic motivations
for expanding commerce by alternately promising
major new projects such as the gas pipeline if US
policy went unsupported and threatening a major
long-run downturn in trade-particularly in energy-
if serious restrictions were adopted.
Prospectsfor the 1980s
Despite recent successes in advancing the gas pipeline
project, the USSR probably views the future stability
of East-West trade with uncertainty. It probably
believes that its efforts to prevent major Western
trade restrictions will be successful over the next few
years but that the United States will continue pushing
for limitations that eventually could find increased
West European support
Moscow may believe that political developments could
eventually dilute the West Europeans' current com-
mitment to expanded trade with the USSR. In that
regard, the emergence in October of the Christian
Democratic government in West Germany-the Sovi-
ets' largest trading partner-is almost certainly of
some concern. Although Moscow probably believes
that a substantial, immediate change in West German
trade policy is unlikely," it probably also is concerned
that. the new government's desire to maintain good
relations with the United States might prompt Bonn
to favor some sort of trade limitations.
' When West Germany imposed an embargo on large-diameter pipe
sales to the USSR in 1962, Moscow increased its own pipe
production and filled remaining needs with imports from Sweden,
the United Kingdom, and Japan. The Soviets have frequently cited
this episode in arguing that the 1979 and 1981 embargoes would be
ineffective.
' Moscow publicly hinted at a scaled-down energy relationship
following the Afghanistan sanctions, and Trade Minister Patoli-
chev, in a strongly worded statement in Pravda after the December
1981 embargo, warned that Soviet-West European trade could
quickly be "dismantled" if US sanctions were supported. According
to widespread press reporting, during meetings last June with West
European firms manufacturing turbines for the Siberia-to-Europe
gas pipeline under US license, Gas Minister Dinkov warned that
contractual penalties and future loss of business would occur if the
US embargo were enforced
The Soviet media have noted the Christian Democrats' reluctance
in recent months to oppose the pipeline deal, and they have long
touted the influential role of West German business in advancing
Economic developments could also weaken the West
Europeans' commercial motivations for expanding
trade. The decision by the French and West Germans
to reduce gas purchases under the pipeline deal-
because of downward revisions in their projected gas
requirements for the 1980s-has probably led Mos-
cow to conclude that continued sluggish Western
growth could substantially limit European demand for
Soviet energy and raw materials. Although a Western
economic recovery could increase foreign demand for
those products, Moscow probably recognizes that non-
Soviet supplies could expand by the late 1980s or
early 1990s, edging the USSR out of some trade
deals.
The Soviets have been trying to diversify their export
base to get away from a heavy reliance on oil and
natural gas, but with little success. Schemes for
development of other Siberian raw materials such as
coal, timber, iron ore, and copper-the most likely 25X1
basis for major new Soviet-West European trade
agreements beyond gas-almost certainly would not
equal the pipeline deal in hard currency revenue or
the number of West European countries involved.
Moreover, the huge cost of many potential projects
and the uncertain market for their products have
dampened Western interest
Increased Self-Si4ffciency
Faced with uncertain prospects for East-West trade,
the Soviets are attempting to step up their output of
some important goods now being purchased abroad.
Although Moscow has long pursued this objective, 25X1
official publicity given it in recent months has reached
campaign proportions, particularly regarding the in-
tended substitution of Soviet equipment in construc-
tion of the gas export pipeline, the primary target of
US sanctions. Moscow has also been trying to en-
hance production of other industrial equipment, such
as construction and agricultural machinery, in part by
seeking Western turnkey plants and production tech-
nology. According to public comments by several
Soviet officials, the USSR will now concentrate its
Western purchases on inputs and technological infor-
mation that enhance its own R&D program and the
manufacture of important industrial material and
equipment.
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The Soviets probably will also push Eastern Europe to
provide more high-quality equipment. A stronger
orientation toward intra-Bloc commerce was indicat-
ed by Gosplan Chairman Baybakov in November
1981, when he announced that total planned Soviet
trade would increase with CEMA more substantially
than with the West. Several party and government
officials have said publicly in recent months that
CEMA would have to protect its "economic and
technological independence" by increasing intra-Bloc
trade.
The Soviets probably view both the domestic and
CEMA efforts at greater self-reliance as offering
essentially long-run payoffs. They almost certainly
believe that achieving a substantial increase in the
domestic supply of most high-quality materials and
technology-such as specialty steels, machine tools,
and microelectronics-will take up much of the
I 980s. They probably do not expect the economically
strapped East Europeans to provide any immediate
alternative to most Western goods and services.
Potential for Change in Trade Policy
Although the USSR appears intent on attaining
increased self-sufficiency and a greater reliance on
Western Europe for those goods that it does import,
its trade policy is probably not set in concrete.
Differences within the Soviet hierarchy over the
proper approach to trade could-in the context of
political maneuvering during the succession struggle
and evolving East-West relations-lead to a more
expansive trade program or strengthen Soviet resolve
25X1 to further reduce dependence on the West
Some political forces within the party and government
almost certainly still favor expanded trade with the
United States. Among the leaders, party secretary
Chernenko, through his public statements, appears to
be one of the strongest backers of US-Soviet detente.
Some within the government probably still believe
that Soviet-US relations can be improved, as suggest-
ed by recent comments of some Soviet trade officials
and foreign trade experts, and may see expanded
Soviet-European trade at the expense of US business-
es as eventually reducing Washington's willingness to
apply sanctions. The Soviet media have argued for
years that US business wants to expand East-West
trade and objects to trade restrictions.
Another faction probably favors continued but stable
trade and believes that persistent US-Soviet tensions
will require that Europe-and to a lesser extent
Japan-remain the focus of East-West commerce.
Tikhonov and Kirilenko appear to hold this view 25X1
among the leadership.' Other proponents probably
include industrial ministries currently reliant on
Western equipment-such as the oil and gas indus-
tries-and the military, which almost certainly favors
continued imports of defense-related technology.
On the other hand, critics of Western trade almost 25X1
certainly will retain considerable influence. Many
important research and development institutes proba-
bly favor greater Soviet technological self-sufficiency,
as suggested in a recent speech by Academy of 25X1
Sciences President Aleksandrov. This view may be
shared by some industrial ministries that believe too
much Soviet capital is allocated to imports rather
than to domestic investment.' In this context, a con-
tinued high level of Soviet-US tensions not only would
strengthen arguments for focusing on trade with 25X1
Western Europe but might also prompt a redoubling
of efforts to reduce dependence on imports in key
economic sectors as a hedge against a possible general
souring of East-West relations.
' Tikhonov said in his 26th Party Congress speech in 1981 that the
USSR would direct its trade with the West primarily to countries
taking "a constructive approach to international economic coopera-
tion," which, he added, thus far excluded the United States.
Kirilenko said in a recent speech that in Western Europe "by no
means everyone is disposed" to support US policy on East-West 25X1
relations.
6 In mid-1981, the Minister of Power Machine Building, responsible
for developing turbines for gas pipelines, complained publicly that
Gosplan over the years had allocated too much for imports of gas
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Secret
Repression of Soviet
Dissidents Increases
In its latest crackdown on dissent, the Soviet regime
indicted one of the three remaining members of the
Moscow Helsinki Monitoring Group' on a charge of
anti-Soviet slander, causing the group to disband on
8 September. The move is part of a crackdown that
has affected all areas of dissent-human rights, reli-
gion, and Jewish emigration-and has included a
major effort to isolate dissidents from foreigners. The
increased repression coincides with party secretary
Yuriy Andropov's improving fortunes and probably
was approved by him in his former role as KGB chief.
The demise of the Helsinki Group, while of little
practical consequence, symbolizes the success of the
regime's long-term policy of repression.
Coercion of Dissenters
The latest crackdown, which can be dated roughly to
March of this year, has zeroed in on the few well-
known activists still operating in a relatively overt
manner:
? Oleg Popov, of the Moscow chapter of Amnesty
International, was forced out of the country.
? Leningrad feminist Natalya Lazarova was given a
stiff prison sentence, even though she recanted her
views in public (those who recant are usually re-
leased or given a suspended sentence).
? The authorities appear to be using a loophole in
Soviet law to build a criminal case against Sergey
Khodorovich, administrator of the Solzhenitsyn
Fund.'
A diverse group of intellectuals on the fringes of the
human rights movement, some with influence in
dissident circles, also have been arrested. In an opera-
tion reminiscent of Stalin-era police tactics, 50 homes
of intellectuals in Moscow were searched during the
night of 6 April. Twelve arrests were made and great
UNCC)DFD itities of samizdat material were confiscated.
' The Moscow Helsinki Monitoring Group, which was the leading
force in the human rights movement, was founded in 1976 by Yuriy
Orlov to monitor Soviet compliance with the CSCE agreement
his coordinated effort appears to be a
"mopping-up" operation. Some sources
speculate that with the main body of the
human rights movement out of commission, the KGB
has lowered its threshold of action, warning those it
once ignored and arresting those it once only warned.
25X1
^
25X1
25X1
The final blow for the Moscow Helsinki Group came
on 6 September, when Sofia Kallistratova was in-
formed that she would be arrested for her activities on
behalf of the group. The maximum sentence for the
charge she is threatened with is three years in prison;
but the 75-year-old Kallistratova is in poor health,
and, if she is brought to trial, she probably will receive
a light or suspended sentence. The other two members
of the group were spokeswoman Yelena Bonner, who
spends most of her time in Gor'kiy with her husband,
Andrey Sakharov, and Naum Meiman, a 67-year-old
Jew who has been trying to emigrate since 1974.
Harassment of Jews
Jewish "refuseniks" (those who have applied to emi-
grate but have been refused permission) also have
come in for increased harassment. Jews in Moscow
and Leningrad have received warnings to cease meet-
ing with foreigners or face arrest. The latest form of
retribution taken against Jewish scientists who seek to
emigrate is the revocation of academic degrees. In
most cases, applicants are automatically fired from
their jobs and are also banned from lecturing, teach-
ing, or publishing the results of research.
The decline in Jewish emigration, which began in
1979, has been precipitous. The projected total for
1982 is barely 3,000 as compared with 9,100 in 1981
and 20,300 in 1980 (see chart). This is the lowest level
of emigration since 1970, making it an increasingly
impractical alternative for those wishing to escape the
Soviet system.
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Jewish Emigration From the USSR, 1970-82
reports of any type of "anti-Soviet" activity are rare,
there is enough religious activity to have prompted a
vociferous attack on the Roman Catholic Church in a
recent issue of the republic's main newspaper.
The authorities have expressed their concern over
religion in two ways. First, they are repressing those
most active in the propagation of religion. Baptists,
Pentecostalists, and Lithuanian Catholics have been
severely hit by harassment and arrests, probably
because they have been most successful in attracting
converts. Harassment has included everything from
dispersal of prayer meetings and confiscation of reli-
gious literature to beatings and arrests. Children of
believers have been taunted and beaten by their
classmates, often with the consent of teachers. Three
Lithuanian Catholic priests have died under suspi-
cious circumstances in the last two years, and ac-
quaintances believe they were murdered by the KGB.
Repression of other denominations is not as intense, 25X1
but harassment and arrests are common.
Repression of Religion
Despite its limited influence, the growing popularity
of religion is causing concern among the leadership.
increasing numbers of young peo-
ple are seeking out the church or using it as a means
of showing dissent.
Baptist and Pentecostal sects are perhaps the fastest
growing denominations, with many young people and
blue-collar workers in the provinces joining their
ranks. The Russian Orthodox Church is experiencing
some revitalization, as many Russians look to it to
rediscover social and cultural roots and gain a sense of
national pride. In Lithuania, the Catholic Church,
which is inseparable from Lithuanian nationalism,
has developed a fairly unified stance toward the
atheistic state and demonstrates a degree of militancy
in the cause of religious freedom. In the western
Ukraine, the underground Uniate (Roman Catholic)
Church is quite strong. Even in Belorussia, where
Second, a nationwide antireligion campaign has been
under way for over a year. In newspapers and on
television, in public lectures, and in speeches by some
leaders, religion is attacked as a tool of subversion
employed by the West. There have been particular
emphasis on the dangers of young people being at-
tracted to religion and many calls for more effective
atheist education in schools. The propaganda often
disparages the personal qualities of religious leaders
by claiming they are involved in religion for personal
gain or because they are mentally unbalanced. Anoth-
er theme which has been voiced occasionally is that
religion breeds pacifism, which is a direct threat to
the national security of the country. This theme seems
to reflect the fear that the West European peace
movement might find some resonance among young
believers in the USSR
Inhibiting Contact With the West
The regime recently has taken new steps to curtail
contact between dissidents and foreigners, particular-
ly Westerners. By cutting off direct-dial telephone
service to and from Western countries, the authorities
are better able to control telephone contact between
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Soviets and foreigners. Because of constant interfer-
ence in the mail service, dissidents and refuseniks had
increasingly used the telephone to communicate with
supporters abroad.
In the last several months, there also has been
harassment of foreigners on a scale not seen since
1978. In April and again in August 1982, US diplo-
matic personnel were prevented from keeping appoint-
ments with dissidents. They were subjected to abusive
language and roughed up. In September, members of
an official delegation of the Canadian Jewish
Congress were beaten and robbed by unidentified
assailants when they attempted to visit a Leningrad
refusenik. A US journalist has been expelled, and
there have been several crude attempts to intimidate
other correspondents. Western tourists who have met
with religious believers or refuseniks have received
unusually heavyhanded treatment, including threats,
strip searches, and interrogations.
By cutting off contact with the West, the regime is
attempting to strip away the protection this contact
provides. Foreign publicity has been the key to the
longevity enjoyed by the human rights movement
since the signing of the Helsinki Accords in 1975.
Without that publicity, dissidents will have to rely on
their own resources in facing the regime.
Foreign and domestic policy considerations both prob-
ably played a part in the decision to increase repres-
sion at this time. With the US-Soviet relationship
already severely strained, the Soviets may feel that
they have nothing to lose by intensifying the crack-
down and that any bad press incurred will abate over
time, as it has in the past. On the domestic side, the
leadership may wish to limit the chances that dissent-
related problems will arise during the delicate succes-
sion process. In addition, there are indications that the
leadership is becoming increasingly worried about
popular unrest due to consumer frustrations and other
social ills. By tightening down on dissenters, the
regime may hope to dissuade members of the general
population who might decide to speak out on "bread-
and-butter" issues
Who Is Responsible and Why?
The intensified crackdown on dissent has coincided
with Andropov's ascendancy and has picked up steam
since his move to the Secretariat and assumption of
the ideological portfolio. Many Soviet dissidents, how-
ever, blame the increased repression on the new KGB
Chairman Vitaliy Fedorchuk, who as KGB chief in
the Ukraine gained a reputation for ruthless suppres-
sion of Ukrainian nationalism and other forms of
dissent. Fedorchuk's reputation as a hardliner on
dissent may deflect domestic and international criti-
cism from Andropov, but the crackdown probably was
approved by him. As former chief of the KGB,
Andropov supervised a policy of harsh repression of
dissent which has been carried out with varying
degrees of severity since 1977.
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Briefs
Further Cuts in Ithe USSR has advised Czechoslovakia and
Soviet Oil Exports East Germany that it will reduce further its crude oil exports to those countries
to Allies next year. The cut in deliveries to Czechoslovakia is rumored to be about 16,000
barrels per day from this year's level 25X1
We cannot confirm that Moscow intends to implement a new round of cuts. T1--
25X1 USSR reduced by about 10 percent its planned deliveries for 1982 to East 25X1
Germany, Czechoslovakia, and Hungary.
Soviet oil deliveries would be cut by another
25X1 20,000 barrels per day, in September the GDR announced that Soviet oil exports
next year would be 342,000 barrels per day, which we believe is the 1982 level.
Moscow probably is concerned over stagnating domestic output and declining
availability of oil for hard currency sales, but it will have to weigh these
considerations against the effect further cutbacks would have on Eastern Europe,
which already faces serious economic problems. The annual cost to Czechoslovakia
of replacing 16,000 barrels per day of crude oil at current world market prices
Sakhalin Offshore Reacting to the impact of the US embargo on oil and gas goods and technology,
Oil Development Japan's Sakhalin Oil Development Corporation (SODECO) is proposing a new 25X1
25X1 strategy in proceeding with the offshore oil projects being developed jointly with
the USSR. Two offshore fields, Chaivo and Odoptu, are affected.
completed with existing Japanese and west European technology, but that
exploration and development of the geologically complex Odoptu field will be
difficult without US technology
The Japanese proposal would allow SODECO to proceed with development of the
Chaivo field (which contains over half of the area's combined oil and gas
condensate reserves and nearly two-thirds of its natural gas reserves) while still
complying with the US embargo. A hold on development of the Odoptu field is
probably acceptable to SODECO
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Backward Step In an unusual move, Moscow has reversed one of the energy-saving measures
in Energy enacted in 1981 and allowed much of the heavily populated and industrialized
Conservation western USSR to revert to Moscow local time. The conservation measures involved 25X1
adopting "summer" daylight saving time nationwide and forcing many areas to the
east of Moscow to set clocks according to their own time zone rather than Moscow
time, which is more convenient for transportation and communications. As a
result, peak demand for electricity was to be lower, as each time zone drew
maximum energy from the national net at different times, reducing the need for
expensive supplemental generators. The Soviets estimated annual energy savings 25X1
at 2.5 billion kilowatt-hours, or about 1 million tons of fuel.
Apparently this conservation measure was so unpopular in the affected regions
that it caused the public and the local executive committees to complain to the
central government.
25X1
25X1
Soviets Want Closer Soviet candidate Politburo member Boris Ponomarev 25X1
Relations With Moscow "is prepared to do everything
France necessary ... to give Soviet-French relations the necessary dynamism that had
been typical of them for many years." Ponomarev contended that bilateral 25X1
relations are not now as positive as "existing opportunities" permit. These
opportunities include France's defiance of US economic sanctions and an alleged
similarity of views between Moscow and Paris on Middle East problems. French
Socialist Party (PS) officials told US Embassy officials in Paris late last month
that their party had responded favorably to recent Soviet requests for more
frequent interparty contacts. 25X1
Moscow has steadily turned up the volume on its calls for a return to the "special
relationship" that the USSR enjoyed with France under President Mitterrand's
predecessors. Trade problems and Mitterrand's fundamental distrust of the Soviets
will continue to affect relations, however. A significant improvement in the PS-
CPSU relationship probably would make the French Communist Party's role in
the government even less important to Moscow
Gromyko Rejects Soviet Foreign Minister Gromyko, during his meeting at the UN with Japanese
Japanese Territorial Foreign Minister Sakurauchi on 4 October, reaffirmed Moscow's refusal to
Claims) recognize Tokyo's claim to the disputed Northern Territories. Gromyko, according 25X1
to Japanese officials, also revived the idea of a treaty of "good-neighborliness" as a
substitute for a peace treaty-a notion that the Soviets originally proposed in
1978, when the two sides could not settle their territorial dispute. He appeared cool
to the idea of his visiting Tokyo in the near future-telling Sakurauchi he did not
feel the atmosphere in Japan was favorable now, particularly when the Japanese
keep bringing up the territorial dispute.
Secret 32
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Secret
Viewpoint
Soviet Economic Growth
Prospects: An
Alternative View
Our preliminary projections show that Soviet eco-
nomic growth will continue to decline in the 1980s.
We expect annual GNP growth to average less than
2 percent per year in the rest of this decade. This
slower growth will sharpen competition between the
military and civilian sectors of the economy for claims
on resources.
Our major tool for deriving these growth trends is a
large-scale econometric model called SOVSIM. The
only other such model currently in use is SOVMOD,
which is maintained and used by Wharton Economet-
ric Forecasting Associates (WEFA). The purpose of
this article is to compare our results with those
obtained by WEFA and briefly explain the reasons
for the differences. We first present our results to
provide a reference point for the comparisons.
CIA's Economic Projections
Our projections depend on a number of baseline
assumptions.' The findings of ongoing research on
selected topics may result in changes in the assump-
tions that concern the economic environment, and, in
the coming months, new information is likely to
clarify Soviet policy decisions that affect other as-
sumptions. In brief, the results presented here are
tentative.
Sources of'GNP Growth. Our projections indicate
that Soviet economic growth will continue to decline
in the 1980s as the average annual rates of increase of
labor and capital decline and productivity increases
fall short of plans (see graph).
Substitution of gas for oil will continue, and produc-
tion of nuclear power will increase. Nonetheless,
according to our projections, these trends will not be
sufficient for the Soviet economy to avoid a serious
shortage of oil in the second half of the decade.' The
oil gap will represent 10 to 20 percent of oil require-
ments but less than 5 percent of total energy require-
ments. This emerging shortfall will raise yet another
problem for Soviet planners, although even without
this bottleneck Soviet economic growth would contin-
ue to decline. 25X1
Prospects for industry, which contributes roughly 35
percent of the national product, are dismal compared
to its performance in the 1970s. Besides facing the
economy-wide problems of slower growth of labor,
plant and equipment, and other inputs, industry also
must cope with a rapid depletion of raw materials
production capacity in traditional areas. This means
that more and more investment resources are needed
just to maintain production levels as new raw material
deposits are developed in the high-cost areas of Sibe-
ria. F_ I 25X1 25X1
I Our calculations result in an ex ante oil shortage in the Soviet
economy. Ex post, such shortages are rarely observable because of
adjustments made in the economy over time. The adjustments the
Soviets could make include increased investment for energy conser-
vation and energy production or less than full utilization of
production capacity. Our projections assume the main Soviet
Secret 25X1
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Secret
CIA Projections of Soviet Economic Performance a
Average Annual Growth (Percent)
Sources of GNP
GNP
0
-2
0 1971-75 76-80 81-85 86-90
aGrowth of defense is assumed, rather than projected by the model.
587968 10-82
6
6
4
4
M
2
2
M
]I
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er, and defense (see graph).
Agriculture is still the most unstable sector of the
Soviet economy, with performance in any year being
highly dependent on weather conditions. Because
weather conditions in the years ahead cannot be
predicted, future crop yields are estimated on the
basis of historical trends. Thus, the growth estimate
for farm output for 1981-85 (3 percent) is deceptively
high because it primarily reflects a return to trend-
line crop yields in 1985 compared to the below-trend
yields of 1980, which resulted from poor weather. E
Uses of GNP. Slower growth of production means
slower expansion in the availability of goods and
services to be divided among competing claimants-
resources for future growth (investment), the consum-
If Soviet defense spending in the 1980s increases at
about 4.5 percent per year, consumption and invest-
ment will expand at record low rates of increase for
the postwar period. The immediate impact of slower
expansion of investment is fairly small. Nevertheless,
the rate of increase in production capacity is reduced,
because growth in the stock of plant and equipment
will eventually follow growth in theflow of investment
Despite the emphasis in the 1981-85 Plan on increas-
ing the supply of consumer goods and services, the
arithmetic implies negligible improvements in average
living standards, especially in the second half of the
decade. This will have an adverse effect on labor
productivity, as continued increases in money wages,
taken together with large holdings of personal savings,
create a reservoir of purchasing power that greatly
exceeds the amount of goods and services available for
wage earners to buy.
in 1985 and 17 percent in 1990
As a result of defense growth exceeding growth of
GNP, the defense burden increases to over 15 percent
Key Resources. We expect the increase in the labor
force in the 1980s to be less than half of what it was in
25X1 the 1970s-roughly 9.5 million compared with nearly
20 million (see graph).
Our projections indicate that new fixed investment in
the I 980s will increase at about one-third the rate of
the 1970s because of the slower growth in production
of machinery and new construction starts and the
rising share of durable goods going to the military.
The greatly increasing share of investment going to
the energy sector will depress the expansion of invest-
ment in the nonenergy sectors.
WEFA's View on Soviet Economic Trends 25X1
The WEFA model of the Soviet economy was first
developed in 1974.' Although it has gone through
several versions since that time, the essential structure
of the model has not changed. WEFA's early work
provided us with a useful guide in our own initial
25X1
Today the two models differ substantially in their
descriptions of the Soviet economy; therefore, it is
somewhat surprising that the results they yield-at
least in the aggregate-are so similar: we project
average GNP growth in 1981-85 of 2.1 percent per
year, while the WEFA model yields 2.3 percent per
year. Nevertheless, at lower levels of aggregation, the
two estimates are quite different. The most important
areas of divergence are: (1) domestic energy require-
ments, (2) productivity, (3) uses of GNP, and (4) trade
L5X I
Difference in the Energy Balance. We have compared
the energy picture that emerges from our baseline
projections with the most current estimates available
from WEFA (table 1).? Our assumptions on aggregate
energy production are fairly close to those made by
WEFA, but we differ in projections of energy re-
quired, energy consumption, and net energy exports.
25X1
Using our projections of Soviet plant and equipment,
and allowing for a continuation in the historical trend
of improvement in the efficiency of energy use, we
project that Soviet energy requirements in 1981-85
will increase at 3.3 percent per year. WEFA projects
'See Donald W. Green and Christopher I. Higgins, SOVMOD I: A
Macroeconometric Model of the Soviet Economy, 1977, for a full
description of this initial research.
he most recent WEFA projections appear in Centrally Planned
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Table 1
CIA and WEFA Energy Projections for the USSR
Average annual
rate of growth
Million barrels per
day, oil equivalent,
(percent, 1981-85)
1985
CIA
WEFA
CIA
WEFA
Energy production
1.9
1.6
30.5
29.5
Energy required
3.3
1.0
27.9
23.9
Energy consumption
2.1
1.0
26.3
23.9
Net energy exports
-0.5
4.5
4.2
5.6
an average growth of only 1 percent. The difference
amounts to around 4 million barrels per day of oil
equivalent (b/doe) in 1985. The WEFA estimate is
based on the judgment that the Soviets will be able to
sharply improve their efficiency in using energy,
while our projection basically reflects a continuation
of historical trends.5
In the WEFA projections, energy consumption will
always be the same as the energy requirement. This is
not the case in our model, and our preliminary results
indicate a shortfall between energy requirements and
availability of about 1.5 million b/doe by 1985.
Consequently, the domestic economy is forced to
absorb the impact of this bottleneck in energy avail-
ability through reduced production activity. The dif-
ferences in energy consumption estimates also result
in corresponding differences in net energy exports.
With its substantially lower energy consumption esti-
mate, WEFA projects considerably higher net energy
exports (shown in table 1) than we do.
Difference in Productivity Projections. We have a
higher labor force growth assumption than WEFA
because we allow for increased participation of pen-
sioners in the 1980s. WEFA's assumption simply
reflects anticipated growth in the able-bodied popula-
tion, with which we are in agreement. Because its
projection of labor force growth is about one-half of
Average growth of domestic energy use was 3.7 percent per
twice that in ours.
ours, while currently its projections of GNP growth
are about the same as ours, aggregate labor productiv-
ity growth in the WEFA projections must be roughly
The production relationships-that is, the rates at
which capital and labor are transformed into goods
and services-in our model reflect the comparatively
poor performance of the Soviet economy in the second
half of the 1970s. Apparently the WEFA production
relations reflect a longer period of history, which
includes earlier years when productivity growth was
more rapid. Therefore, WEFA's projections implicitly
assume higher productivity of Soviet labor and plant
and equipment in the various producing sectors than
we do.
Difference in Uses of GNP. Both models treat con-
sumption as a residual in the accounting for end uses
of GNP. Thus, given that the CIA and WEFA GNP
and defense growth projections are about the same,
the WEFA projection of consumption growth of just
1.3 percent per year (which implies negligible per 25X1
capita improvements) must be explained by the higher
WEFA estimate for investment expansion.
In our projections, total investment is calculated as 25X1
the difference between production of investment
goods (machinery and construction) and other claims
on this production, such as those of the military and
exports. WEFA's model incorporates a similar rela-
tionship. Nevertheless, the WEFA estimate of invest-
ment growth in 1981-85 is substantially higher than
our projection (table 2) and does not appear to be 25X1
consistent with the Soviet plan.6
The Soviet economic plan does not necessarily contain
accurate projections. In the case of investment, how- 25X1
ever, we believe that our projection receives support
from being close to the Soviet plan because, as a use
6 The CIA and WEFA projections of investment shown in table 2
cannot be compared directly to the projection based on the Soviet
plan because of a difference in the way investment is measured.
Some rough adjustments to take account of this difference suggest
that the WEFA projection would be about twice the average
growth implied in the Soviet Five ,Year Plan, while our own
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Secret
Table 2
CIA and WEFA Economic Projections for the USSR
exports of other commodities such as machinery and
manufactured consumer goods.' Our assessment is
that the USSR has little potential in this area, given
the low marketability of its products and the chronic
shortage of goods in the domestic economy. We
assume that there will be no real growth in Soviet
nonenergy exports to the West.
AARG a (percent) 1981-85 The higher WEFA projections for imports are not
Macroeconomy explained by different borrowing assumptions, be-
GNP
2.1
2.3
Industry
2.0
2.7
Investment
1.2
2.5
Imports
33.6
55.0
Net hard currency debt
21.4
14.6
a Average annual rate of growth.
b The countries involved are hard currency partners in the case of
CIA's projections and non-CPE (centrally planned economies)
trading partners in the case of WEFA's. The difference consists of
countries such as Finland and India, with whom the Soviets trade on
a nonconvertible currency basis.
of GNP, investment is subject to more control by
policymakers than, for example, productivity growth.
The faster investment growth obtained by WEFA
probably is explained by greater expansion of both
production and imports of investment goods than we
calculate.
Difference in Western Trade. Both models estimate
imports from the West according to Soviet ability to
purchase them.' This ability depends in large part on
energy exports. Therefore, WEFA's substantially
higher projections of exports and imports (table 2) are
explained mostly by its higher estimate for energy
exports (table 1). WEFA also projects some growth in
' In the WEFA projections, Western trade is defined as trade with
non-CPE (centrally planned economies) trading partners, while in
our projections it is defined as trade with hard currency trading
partners. The difference consists of countries such as Finland and
India, with whom the Soviets trade on a nonconvertible currency
cause WEFA's net debt number in 1985 is substan-
tially below ours. 25X1
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