LETTER (SANITIZED) FROM WILLIAM J. CASEY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85M00364R000500690001-4
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 7
• Document Creation Date: December 20, 2016
• Document Release Date: February 8, 2008
• Sequence Number: 1
• Publication Date: December 5, 1983
• Content Type: LETTER

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EXECUTIVE SECRETARIAT
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Executive Secretary
16 December 1983
Date
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December 13, 1983
Mr. William Casey
Director
Central Intelligence Agency
Washington, D.C. 20505
Dear Bill,
This will be the first MEAP report to you since we delivered the major
review of the CIA efforts at estimating Soviet military resources. All of
the current MEAP members participated. in that review and are very inter-
ested in the follow-up, and so our fall meeting (November 4 and 5)
concentrated on points related to that review.
The SOVA staff briefed us on their reactions to our review and, more
importantly, on what steps they are taking to implement the recommenda-
tions. By and large we are pleased with the response of SOVA, and have no
analytical issue concerning their response to bring to your attention.
There is, however, a new area of review that we identified last spring
and which we discussed extensively at our fall meeting. In answer to your
question, this area will be a major topic on our agenda in 1984. The
review that we performed for you assumed that the force quantities were
correct, and consistent with that assumption we concentrated on the way
that CIA priced the quantities, both in dollars and in rubles. At our last
meeting we performed an initial review of the processes by which the
quantities are estimated.
The traditional way in which force estimates are made is essentially as
follows:
1. A series of working groups are organized, for Navy forces,
strategic forces, etc.
2. These working groups are further broken into more specialized
groups, such as surface ships, ICBMs.
3. The specialized groups make force estimates, based on
evidence, trends, doctrine, and whatever seems relevant.
4. These individual best guess estimates are aggregated, and
in aggregate they form the basis for the estimate of Soviet
forces.
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The problem with this bottom-up process of forecasting quantities, is
that it does not lend itself to top-down considerations, such as over-all
Soviet economic or budget constraints. Furthermore, the process implicitly
assumes that each of the programs will make its plan, that none will slip
unexpectedly, and that no competition for scarce resources will lead to un-
expected delays in those programs that lose out in the bureaucratic in-
fighting. In fact, we do know that some programs will sl-ip, hit snags, or
be relegated to lower priorities in future struggles for scarce resources,
although we do not know which programs they will be.
This phenomenon leads to the contradiction that we observe each year.
Looking back, we see that individual programs or services sometimes enjoy a
sharp increase in investment, but Soviet defense spending trends as a whole
change very slowly. Our forecasts, however, invariably show an across-the-
board increase starting in the coming year, an increase that in practice is
never so sharply realized.
The current force forecasts, when priced, imply that each and every
part of the Soviet procurement program is about to increase, simultan-
eously, at as fast or faster a rate than we have ever observed. This
phenomenon, if it occurred, would be distinctly non-Soviet, and appears to
us to be more a result of the force--estimating methodology than a real
conclusion.
SOVA is acutely aware of this problem, and has made laudable first
efforts to look at the over-all force estimates from a top-down, historical
economic point of view. We commend this effort and hope that it will con-
tinue to be supported.' However, in order to be useful, the community will
have to be willing to change the form of its estimates.
It is plausible that the SOVA military-economic analysts may end up
with a conclusion of the form, "whereas we believe that each of the indi-
vidual force estimates represents a most, likely estimate for that compo-
nent, we also believe that the overall procurement will fall x% short of
the program obtained by summing the individual components. However, we
cannot now specify where this shortfall is likely to occur, since it will
depend on technical progress and strategic decisions that have probably not
yet occurred". In short, you may have to consider over-all estimates that
are somewhat different from the sum of the lower level component estimates,
without now being able to pinpoint where these differences are most likely
to occur.
Related to the question of quantities are the well publicized
differences between CIA and DIA estimates. We have started to look into
this, beginning with an initial DIA briefing at our November meeting.
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There are some serious questions on which we will focus for the next year
or so. We will report the results to you when we have something more
definite to say.
There is one more topic that I do wish to draw to your attention. As
you will recall, we were very critical of the R&D estimates and strongly
recommended that they be specifically excluded from over-all Soviet
military economic projections until improved results were available. This
conclusion is especially important in estimating Soviet defense spending
growth since without the assumed rapid growth in R&D there is no growth in
Soviet military spending in the last few years. We are generally satisfied
with the steps planned or underway to improve the R&D estimates, but con-
tinue to believe strongly that the incorporation of the current, poor R&D
estimates into the over-all Soviet defense estimates must be changed.
In this report I have tried to concentrate on the two salient issues,
rather than provide a more comprehensive and perhaps balanced report of
MEAP activities. I have done so because the Panel feels that these two
points require your attention. These are somewhat novel points which
probably require more discussion than is feasible in a short letter, and so
on behalf of the Panel I am requesting a meeting with you to discuss them.
Sincerely,
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25X1 I
 Central Intelligence Agency
Office of the Deputy Director for Intelligence
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DDI.'
Central Intelligence Agency
5 DEC 1983
Bob Gates recently passed along to me a glowing report on the results
of the Military Economics Review Panel that you chaired. I understand
from Bob that SOVA's reactions to the Panel's. report were recently dis-
cussed with you and that SOVA is already actively implementing a number of
the Panel's recommendations. In particular, SOVA intends to devote most
of the additional analyst positions made available in the current fiscal
year to expansion of military economic and defense industrial research,
much along the lines recommended in the Panel's report. Realistically,
though, even these new resources will not allow us to act now on all the
recommendations you and your colleagues made, although I can assure you
that we will review each recommendation thoroughly.
Bob also mentioned that he has given the report wide distribution.
Copies were sent to all members of the National Foreign Intelligence
Board as well as the chairpersons of the President's Foreign Intelligence
Advisory Board, the Senate Select Committee on Intelligence and the House
.Permanent Select Committee on Intelligence. This distribution in turn
has led to a number of.requests for briefings on our defense spending work
which will certainly help improve its understanding among some of our major
consumers.
I want to add my appreciation to that of Bob's for the thorough and
objective job done by the Panel. No area of our analytical work is more
controversial or more important than our estimates of Soviet defense
spending. Your Panel has provided an important basis of professional
support for the technical integrity and usefulness of that work. I also
know from my own reading of the Panel's report that you have provided a
number of recommendations for improvements in our military-economic
analysis that should strengthen that work in the future.
Sincerely,
./AL WWI=m J. Casey
William J. Casey
Director of Central Intelligence
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