DCI CONGRESSIONAL BRIEFING

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001900020022-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 64
• Document Creation Date: December 19, 2016
• Document Release Date: July 29, 2005
• Sequence Number: 22
• Publication Date: April 2, 1974
• Content Type: BRIEF

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DCI CONGRESSIONAL BRIEFING
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.DCI CONGRESSIONAL BRIEFING
Introduction
In response to your request for a briefing on the
economies of the USSR and the PRC, I will begin with the
USSR, stressing recent developments concerning Western
trade, the energy situation, and agriculture. I will then
turn to China and conclude with a discussion of the
military situation in these two countries. I will use
US-Soviet and US-Chinese comparisons when they seem
appropriate and useful.
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THE SOVIET ECONOMY
I. Overall Performance
A. By steadfast attention to industrial development,
the USSR has become the world's second largest
economic power.
1. It now has a gross national product of $660
billion, slightly more than half the size .
of US GNP.
/Plgure -- US-USSR GNP, 1950-737
2. Soviet economic growth was especially rapid
in the 1950s as the USSR recovered from
wartime devastation. After 1958 the pace
gradually slowed. Since 1970, the rate of
growth has been lower in the Soviet Union
than in the US.
3. In absolute terms, the gap between the US
and Soviet economies has increased in recent
years.
B. The major support for Soviet economic growth has
been the leadership's willingness to devote in-
creasing shares of national output to investment.
1. The share of GNP devoted to investment in
new buildings and eguipment has grown steadily
since the 1950s. The USSR now spends over
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Gross National Product
Billion 1971 US $
1200
1000
800
600
400
us
,
200 rE
a-r
8 ,
1950
1955
1958
Ii1;?1
-7f4
1960 . 1962
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one-fourthof its national product on new
buildings and equipment; the US spends less
than one-fifth for this purpose.
/Figure -- Total New Fixed Investment as a
Percent of GNP, 1950-737
. Soviet defense and space spending has been
growing about 3% per year since 1960. The
economy has been growing faster, however, and
the share of defense spending has declined.
3. Military expenditures impact on the Soviet
economy principally by appropriating some
of the best materials and highest-quality
skilled and professional manpower. But defense
requirements are not the principal Soviet
economic concern. Although the civilian
economy would surely benefit from having
more of :these scarce, high-quality resources,
the transfer of a substantial share of the
resources used in military programs to
civilian purposes probably would not boost
overall economic growth much. The problems
? bothering the leadership are of a different
kind, and I will turn to them later in my
? presentation.
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Totannvestmene.
As a Percent of GNP
31
1955 1960 1965 1970
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4. Because of the policy favoring economic
growth, the Soviet population has had to
be satisfied with a smaller share of the
national product than its US counterpart.
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Or-UM:A
a. In 1973 the average Sovict citizen consumed
about one-third as much goods and services
as a US consumer. But this comparison
fails to reflect fully the inferior quality,
assortment, and styling of Soviet clothes
and durables; the chronic shortages; or the
long queues at retail stores.
/Figure ? Per Capita Consumption, US-I.USSR7
b. Even compared with Eastern Europe, the level
of living in the USSR is markedly low.
c. Except for sewing machines, Soviet consumers
enjoy only a fraction of the durables owned
by US consumers. Many durables -- automatic
washers, dryers, and freezers -- are not
manufactured or sold in the USSR,
d. The situation is gradually improving
particularly for those on the bottom rung
of the economic ladder. In the last two
years, production at the new Tol'yatti
plant has brought about large increases
in passenger car output. This has reduced
the waiting period for a new car frail 6
years to 2-3 years. Soviet households
also can buy furniture and the better quality
refrigerators with less of a delay.
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Per Capita Consumption, 1970
USSR as a Percent of US
Education
Health 1 36
Personal Services 30
Durable Goods 10
Soft Goods
20
^?trrill:7777.7:7377:75777
Food
Total Consumption .;.?"4:af4411,iazau,4
34
56
67
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/Figure ? Stock of Consumer Durables, US-USSR7
e. Soviet consumers receive enough to eat in
terms of daily calories. But their diet is
heavily weighted witli starches and low in
meat, vegetables, and fruit. Although per
capita consumption of meat has increased
by one-fourth since 1965, the ?average
Soviet citizen still eats only about 40%
as much meat as his US counterpart.
Under Brezhnev, the USSR has made meat
consumption the basic plank in its con-
sumer program.
/figure -- Average Diets, US-USSR7
II. Performance by Sector
A. Turning now to the Soviet strategy of economic develop-
ment in which industry has been the showpiece.
1'. During most of the postwar period, industrial
production grew faster in the USSR than in the
United States.
figure -- US-USSR Industrial Growth?.
2. Industrial development in the USSR has emphasized
heavy industry. In its sirgle minded focus on
economic growth, producer goods have been
favored to the neglect of consumer goods.
figure -- Output of Producers' Goods, USSR
as a Percent of US7
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Stocks of Consumer Durables, 1970
Refrigerators
Washing Machines
Radios
Television Sets
Automobiles
Vacuum Cleaners
Sewing Machines
Units per 100 People
9 USSR
:7-irsr.T=TP,-.67.47:Tr?.Isr
14
22
26 US
158
20
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''-'1'7:1177:11 14
? ? 16
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Average Diets, 1971
Composit' )n of Diets
USSR
Meat and Fish
Vegetables,
Fruits, Eggs, etc.
Grain Products
and Potatoes
52%
3200
Sugar
Milk and
Milk Products
(Excluding Butter)
US
Fats and Oils
Grain Products
and Potatoes
" 25%
Calories per day per person
3330
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Industrial Growth
Irri: 1960-100
0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
or
1950 1955 1960 1965 1970
USSR
US
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Output of Producers'Goods11971
USSR as a Percent of US
Steel
Aluminum
Cement
Electric
Generators
Electronics
Computers
Trre.r* ? `r.""1.!:"rT;'.7
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Trucks and Busses 30
Automobiles 6
57 (est.)
Crude Oil 80
Natural Gas
.c>;.
33
177'71.7PIV::74:f?-
Electric Power . 44
139
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3. In the past, Soviet industrial production has
been deficient in quality and variety. The
leadership has been striving to overcome these
shortcomings.
4. Soviet industrial managers, however, are hampered
first by the relatively low technological
levels of their plant and equipment. The
planners also criticize their inefficient use
of industrial materials, although the managers
can blame in turn the shoddy equipment turned
out Ly domestic machinery enterprises and
failures in industrial supply.
5. Efforts to upgrade Comestic machinery and
economize on the use of industrial raw materials
during the past two years have had only limited
success.
B. Soviet industrial strength has been basJ.d above all
on abundant raw material and energy sources. These
resources are still available but are more expensive
now.
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1. The USSR's production of metals and minerals
is sufficient in most cases to provide for
both domestic requirements and Eastern
European needs. The major exceptions are tin
and rubber, which have to be imported in large
quantities.
2. Nevertheless, the Soviet Union has already
exploited many of its most accessible mineral
deposits. The bulk of the remaining reserves
are located in Siberia or the Far East where
the severe climate and lack of transportation
and local labor hinder development.
ffig ure -- Comparison of Output of Metals and
Minerals in the US and the USSIg
3. As in the US, Soviet economic growth has also
depended on the exploitation of huge energy
resources.
a. But there are substantial differences in
the pattern of energy consumption in the
two countries.
gigure -- US-USSR Primary Energy:7
b. The shift toward oil and gas in the Soviet
energy balance has been rapid. Petroleum
has also been supplied to Eastern Europe
and the West in growing quantities.
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Copper
Chromite
Manganese Ore
Iron Ore
Nickel
Bauxite
Phosphate Rock
Output of Metals and Minerals, 1970
US as a Percent of USSR
?
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195
?
185
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Nuclear
Nook 1 Hydro
Primary Energy
Consumption
Percent
1960
Nuclear
Negl. I Hydro
1971
USSR
Natural Gas I Hydro
1960
NuclearNegL
Hydro
Reserves, 1971
USSR as a Percent of US
1971
Natural Gas
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c. In recent months Soviet petroleum
officials have complained about the
headaches that the world energy
crisis has given them.
(1) They claim that the USSR does not
have enough oil to simultaneously
meet its own requirements, fill the
needs of other socialist countries,
and continue to expand deliveries
to established markets in capitalist
countries.
/Figure -- USSR Imports and Exports of Oil
and Gas7
(2) Although crude oil output was
below plan in 1972 and 1973, the
threat of shortages similar to those
facing the US is not imminent.
The USSR is a net exporter of about
2 million barrels per day of oil,
almost one-fourth of total domestic
production. About one-half of these
exports go the West, especially
Western Europe.
(3) Moscow has little, if any, uncommitted
oil, with which to expand sales to the
West, even though, its present prices,
they earn a great deal of hard currency.
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d. The expanding demand for oil and gas
comes at a time when production from
existing fields is leveling off. The
development of Siberian and offshore
deposits must fill the gap.
(1) The exploitation of these new
sources will require a huge inve.4tment.
(2) Moreover, without foreign -- and
especially 177S -- help, development
willJbe delayed because the USSR
lacks some of the critical technologies
needed to drill at great depths and
' offshore or to pipe gas across the
Siberian permafrost.
e. The USSR stands to profit from the interna-
tional oil situation, particularly in the
long-run.
(1) Soviet hard currency earnings should
rise sharply because Moscow will get
higher prices for its oil and gas from
Western importers, even if the quantity
sold remains at, or near the 1973. level.
f. Soviet ability to exploit the situation in
the short-run is limitea by its inability
to expand production rapidly and by Soviet
commitments to supply a major share of
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Easterq Europe's oil supplies through 1975
at fixed prices -- about $2.50 per barrel
-- approximately one-fourth of the current
market price.
(1) Nevertheless, Moscow is unlikely to
reduce its commitments to Eastern-.
Europe to permit larger sales to the
West. The ,.:conomic disadvantage of
such sales is offset by a strong
political motive to avoid upsetting
the East European economies.
Moreover, in the short-run thc Soviet
Union also has been stung by the higher
prices the Arab countries are charging
for oil procured from them.
(1) Although the quantities are relatively
small (300,000-400,000 bpd), most
of this oil is delivered on Soviet
account to other Communist countries
primarily to Eastern Europe, which
relies on such deliveries for 15-20%
of its total oil imports.
Oat
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(2) During 1973 the Soviets obtained oil
from Arab countries at relatively
low prices under barter aid and trade
arrangements. Therkin December Iraq
and Libya halted deliveries of crude
oil to the USSR because Moscow refused
to pay higher prices -- about $17 a
barrel. Iraq also requested that the
?
Soviets pay for oil in hard currency.
(3) Since December 1973, Iraqi crude oil
seems not to have been shipped to the
USSR. As a result, Soviet plans to
obtain 400,000 barrels per day of
Iraqi oil during 1974 may not be
realized.
C. Let's turn now to a real economic headache. Soviet
farms remain the weakest link in the economy despite
the massive investments devoted to agriculture under
Khrushchev and Brezhnev.
1. Of all sectors of the US and Soviet economies,
agriculture offers the greatest contrast in
terms of organization and efficiency.
a. Successive Soviet leaders have had recurring
difficulties in assuring an adequate food
supply for a growing population.
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b. While the USSR has been expanding sown
acreage in an effort to increase production,
the United States -- until recently -- had
been reducing the, area under cultivation
and struggling with farm surpluses.
2. Soviet agriculture is handicapped by a short
growing season and an extreme continental
climate. As ?a result, production is highly
variable. The crop failure of 1972 followed
by a record 1973 harvest is only the most recent
example of the large swings in the crop yields.
3. Soviet farm production has climbed far above
the level of a decade ago. But It is still
not large enough to provide the quality diet
that the Soviet population desires. As in
other developing countries, the demand for meat
is rising faster than incomes, placing a severe
strain on the Soviet grain-livestock economy.
4. Changes in the size of the Soviet grain crop
have world-wide repercussions.
a. since 1965, Brezhnev's program to provide
the Soviet people with a better diet has
? pulled up the demand for grain for use as
feed.
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b. Through 1971, grain production did not keep
pace with demand, and deep inroads were
made into government stocks.
c. In 1972, with stocks at a dangerously low
level, bad weather produced a poor grain
crop. Rather than abandon the livestock
goals, the regime imported massive quantities
of grain -- over 24 million tons in fiscal
year 1973. Of this total, 18 million tons
were wheat, to replace the Russian wheat
that had been fed to livestock.
d. The United States supplied most of the
Soviet grain imports -- 10.5 million tons
of wheat, 3.7 million tons of corn and a
little rye and barley. These supplies of
foreign grain probably would not have been
available -- at least not on such a large
scale -- if detente had not improved US-
Soviet relations.
5. In 1973 the gross Soviet grain harvest was a
recoLd.-- about 222 million tons. After dis-
counting for unusually high moisture content,
we estimate the net usable grain at about 170
million tons.
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a. The record harvest means that the USSR will
have to import considerably less grain in
fiscal year 1974 -- perhaps 6 milliontons
of wheat and 6 million tons of other grains.
About 10 million tons will be supplied by
the US.
b. The record crop and continuing imports will
not only permit a rebuilding of stocks'and
continued exports to client states but also
will allow the Soviet Union to offer grain
for political purposes. The loan of 2
million tons of wheat to India last year
? demonstrates the flexibility the Soviet
regime now enjoys.
c. The leadership, however, is well aware of
the annual variations in grain output. The
? possibility of another poor grain crop and
increased need for grain imports undoubtedly
will continue to influence their attitude
toward detente for many years to come.
III. Looking at Soviet Perceptions of Their Economic Situation
We See That:
A. Soviet leaders view the past economic record with a
sense of accomplishment and are not apologe'ic about
their prospects.
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B. Nevertheless, the Politburo -- like other governments
in the worl e.?. -- has some persistent economic
issues to deal with.
.The fact that, despite great progress, the USSR
remains far behind the US in a number of key
areas troubles Soviet leaders; the emergence
of Japan as a major economic force has add to
this discontent.
2. The slide in the GN.. growth rate of course
worries the leadership because catching up with
the West depends on vigorous economic growth.
Declining rates of growth in productivity are
the core of their problem.
a. Past growth was based on large increments
of productive farm land, new plants and
equipment, and workers. Except for labor,
growth rates have declined sharply.
b. The chart that we are showing now sheds some
light on this problem. It shows the rates
OF growth of manhours worked, fixed capital,
'and farm land in the Soviet economy. The
chart also presents our rough estimate of
the extent to which changes in both the
quantity and the productivity of manhours,
land, and capital were responsible for past
growth in GNP.
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gigure -- Growth of Manhours, Capital and
Tactor Productivity in the Soviet Economy,
1950-807
From 1950 to 1958, very rapid growth of capital
stock and the farm land added in Khrushchev's
virgin land campaign helped push the rate of
growth of GNP to almost 7% per year. (The
rate of growth of manhours was held down by
the delayed effects, of the low wartime birth
rate.) But -- at the same time -- the pro-
ductivity of land, labor, and capital increased
almost as fast as combined factor inputs d:d.
c. Before Khrushchev's fall from power, Soviet
growth slowed becausz rate of growth of
inputs declined and because the productivity
of land, labor, and capital fell off. The
Brezhnev coalition was able to pull the rate
of Soviet economic growth up somewhat in
1965-1973. But Brezhnev's success depended
on a faster rate of increase of manhours
worked in the economy. The combined productivity
of land, labor, and capital continued to fall.
Soviet leaders have repeatedly singled out this
productivity problem as their chief economic
concern. They realize that in the future their
economy will have to depend on productivity gains
rather than on massive additions of men and
equipment.
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Approved For Release 2005/08/22 : CIAADP85T00875R001900020022-2
,
Approved For Release 2005/08/22 : CIA-RDP85T00875R001900020022-2
SECRET
3. Another way of looking et the question of
productivity is to compare labor productivity
in the USSR and the US. In spite of a
volume of investment per worker nearly up to
US 7,eve1s in recent years, Labor productivity
in Soviet industry is roughly half_the
OS level. Soviet industry
grew faster than US industry because employ-
ment, not productivity increased more.
Similarly farm labor is only about 10% as
productive in the USSR as in the United States
and the gap is not shrinking, even though
Soviet agriculture has received much .Larger
investments in the past decade.
4. The consistently poor performance in productivity
? stems from the many managerial problems
of a centralized and bureaucratic socialism.
Rewards and pressures are directed toward
? increasing output, while the introduction of
new technology involves risks of failure.
- 15 -
SECRET
Approved For Release 2005/08/22 : CIA-RDP85T00875R001900020022-2
"??
Approved For Release 2005/08/22 : CIA-RDP85T00875R001900020022-2
SECRET
a. Until recently, Communist planners
believed that intensive domestic R&D
plus "borrowing" the latast Western
technology would enable the USSR to
gain economic superiority. However,
they underestimated the pace of
Western technology, particularly in
Germany and Japan, and overestimated the
efficiency of their own R&D effort. As
a result, the gap between Communist and
Western technologies has gradually
widened, leading to increasingly
intensive Soviet efforts to acquire
Western technology.
b. Thus, Marxian concepts concerning the
inevitability of Western economic
collapse and the superiority of
commuLism have quitely given way.
Instead, Moscow now considers trade with
the developed West as essential to close
the technological gap.
c. The major channel that the USSR uses to
acquire technology from abroad is the
outright purchase of machinery and
equipment.
- 16 -
SEP"ci
JI.L.
Approved For Release 2005/08/22 : CIA-RDP.85T00875R001900020022-2
,
Approved For Release 2005/08/22 : CIA-RDP85T00875R001900020022-2
el
SECRET
(1) Other channels have includd the
acquisition of technical data, con-
tacts with Western firms and scientists,
and formal arrangements for joint
research and exchange of scientific
and technical information.
(2) None of these channels has lived up
to Communist expectations. Western
equipment fr6quently is not as
productive in a Communist Getting
as it is on native ground. Attempts
to exploit foreign technical data or
copy foreign machinery have had mixed
success. In some military fields,
the results of reverse engineering
have been good; in civzlian sectnrs,
the outcome has been less happy.
d. The onset of detente has dismantled
some of the traditional obstacles to Soviet
acquisition of US technology. Medium-
term and long-term credits were extended
by the United States after May 1972, re-
sulting in a ldrge increase in Soviet
imports of US equipment and technology.
The relaxation of US export controls since.
Approved For Release 2005/08/22 : CIA-RDP85T00875R001900020022-2
?
Approved For Release 2005/08/22: CIA-RDP85T00875R001900020022-2
RCM'
. detente contributed to the rise in
imports, although controls continue to
? limit access to very specialized and
sophisticated foreign technology.
5. The commitment to give the consumer a higher
level of living is another major concern of the
Soviet leadership; quality foods and a better
assortment and quality of durables are the
primary objectives.
6. The dwindling supply of cheap resources, parti-
cularly oil, also is high on the current economic
agenda.
IV. How have the Soviets Responded to these Needs and Problems
A. The leadership team that assumed power in 1964 has
proceeded on a number of fronts in attacking their
economic problems.
I. The current regime unlike its predecessors, has
given agriculture a consistently high priority.
a. Since 1965, the share of total investment
-going to agriculture has averaged almost 20%.
American agriculture gets less than 5% of
US investment.
b. Average incomes of farmers have risen by
over one-half duirng the Bre-hrv regime
while nonfarm incomes increased by one-third.
- 18 SECRET
Approved For Release 2005/08/22 : Cl
Approved For Release 2005/08/22: CIA-RDP85T00875R001900020022-2
SECRET
c. Brezhnev has just announced an enormous
program to increase and upgrade the farm
lands of European Russia.
(1) Last mont. 1 he declared that 35
billion rubles would be spent during
1976-80 in the first phase of a 15-year
project to develop the non-black soil
region of the Russian Republic. This
amount is equivalent to almost one-fourth
1
of the total agricultural investment
? planned for 1971-75. The plan calls
for reclamation or improvement of 124
million acres -- 79 million of crop
land and 45 million of grazing land.
The crop land would be equivalent to
? about 15% of current sown acreage.
? Although the non-black soil area has
large tracts of boggy, uneven 1Pnd,
it has high annual precipitation and
responds well to the application of
lime and mineral fertilizer. The Soviets
hope that the non-black soil region
will provide steady growth in grain
production to counter erratic production
in the new lands and the sometimes dry
black soil zone.
- 19 -
SECRET
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Approved For Release 2005/08/22 : CIA-RDP85T00875R001900020022-2
SECRET
(2) The Soviets do not have a good
track record in land reclamation, and
the Brezhnev program is unlikely, to
work out as announced. In any case,
major benefits from the new program
will not appear before 1980.
2. Organizationally, the 1965 economic reform
attempted to improve ,economic efficiency by
making managers cost and profit conscious.
It enjoyed very limited success because managers
were still told to meet output goals at all
costs. Continued tinkering with the system has
not fundamentally altered managerial attitudes.
3. As interest in the economic reforms dwindled,
Soviet attention to economic relations with
the West increased.
a. Traditionally, most of Soviet foreign trade
has been conducted with Eastern Europe.
b. But 'rade with the West has become especially
important since the late 1960s.
/Figure -- USSR Foreign Trade by Major Area7
-20 -
SECRET
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_
Approved For Release 2005/08/22 : CIA-RDP85T00875R001900020022-2
USSR: Foreign Trade
? by Major Area
(Exports plus Imports)
$26.3 Billion
Other
; 10%?. Communist
$16.2 Billion
t 55%
9%
truaT1'.zt.
L, .18/0,I.0
, .
Eastern
Europe
Less
14% Developed
Countries
Developed
West
1960 1965 1971
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SECRET
Approved For Release 2005/08/22 : CIA-RDP85T00875R001900020022-2
c. Recently, the emphasis has shifted to
trade with the US because only the US
had the grains the Soviet Union desperately
needed in 1971-72 and because the US relaxed
the controls on sales of machinery to the USSR.
d. Almost all Soviet trade with the developed
West and some less developed countries is
paid for with hard currency, as distinct
from barter trade. An upsurge in imports
from these areas has not been matched by
increased Soviet exports, resulting in a
hard currency deficit averaging about $250
million annually during 1960-71. Until the
mid-1960s, these deficits were financed primarily
by gold sales. By the end of 1965, Soviet
gold reserves we%e down to about 900 tons. After
1965 Western government-guaranteed medium-
and long-term credits applied to Soviet pur-
chases of capital goods replaced gold as the
chief element in financing Soviet deficits.
/Figure -- Hard Currency Merchandise Trade of
?
the USSE7
(1) During 1966-71, the USSR sold very little
gold, and reserves grew to an estimated
1,750 tons. Trade deficits were covered
by an increase of Soviet
- 21 -
.i..1
SFCP,C7
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""TTAIrmrt,M7.11.1,',77 ,
Approved For Release 2005/08/22 : CIA-RDP85T00875R001900020022-2
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ipwrirrI.Marrn!
???1
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