LETTER TO IVAN SELIN FROM WILLIAM J. CASEY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87M00539R000500650002-1
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 12
• Document Creation Date: December 22, 2016
• Document Release Date: September 14, 2009
• Sequence Number: 2
• Publication Date: December 20, 1985
• Content Type: LETTER

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Central intelligence Agency
Dr. Ivan Selin
Chairman
American Management Systems, Inc.
1777 North Kent Street
Arlington, VA 22209
I read your letter on the fall meeting of the Military-Economic
Advisory Panel with much interest. As you note in your reports on the
last two MEAP sessions, we are making headway on some of the unresolved
issues in both the defense costing and the defense industry areas.
Your recommendations for further research strike me as very
useful. Many of them have to do with narrowing CIA/DIA differences on
military-economic estimates. We intend to pursue this work vigorously,
although not in quite the same way that you propose. As my letter to
General Perroots indicates, we would like to use an existing interagency
group as the focus for analysis of Soviet procurement of military
hardware. We will also revisit the paper that DIA issued a few years
ago to see whether more can be said about differences between CIA and
DIA estimates of total Soviet defense spending in rubles.
I agree that the SOYA research on Soviet R&D spending and force
projections represents a significant departure from the way these
estimates were made in the past. We are therefore--as you suggest--
reviewing the analysis, briefing, the preliminary results within the
Community, and asking for comments on the findings. We plan to
distribute papers on these topics prior to our JEC testimony in March.
I also agree that the overview paper on the Soviet weapons industry
is a candidate for unclassified publication. In my letter to you last
June I said that we were prepared to publish non-controversial research
on the Soviet and Chinese economies. We will review the sources and
findings of the weapons industry paper in this light.
In your report you again express reservations about our work on
expanded comparisons of US and Soviet programs related to national
security. We will of course consider carefully the detailed comments
that you are preparing. But as I said last June, I believe that it is
legitimate to show how our traditional comparisons might change if
additional activities that enhance national security are included on
both"`sides.
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Finally, I certainly recognize the importance of looking for early
indicators of changes in military-economic activity. Much of our
current analysis of Soviet economic plans is directed at this
question. I understand that your Panel concluded that Gorbachev has
embarked on a high-risk strategy with respect to his modernization
program, and possibly with respect to his support from both civilian and
military leaders. We will therefore--as you suggest--be searching for
indicators of the success or failure of Gorbachev's programs. Indeed, I
will ask that this topic be included on the agenda of a conference we
are sponsoring this spring on the February Party Congress.
In closing, let me again thank you and your colleagues for the
contribution they are making to our analysis. I believe that you now
have a blend of experience, talent, and enthusiasm that will serve us
well in the future.
William J. Casey
Director of Central Intelligence
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Distribution:
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MEMORANDUM FOR: Director of Central Intelligence
Deputy Director of Central Intelligence
VIA: Deputy Director for Intelligence
FROM: Douglas J. MacEachin
Director of Soviet Analysis
SUBJECT: Transmittal of Letters to Ivan Selin and
Leonard Perroots
1. As you requested, we have prepared the attached letters to Ivan Selin
and General Perroots for your signature. In the draft letter to Mr. Selin we
propose that you say that you share his interest in having more work done on
reconciling CIA and DIA military spending estimates but that you intend to
pursue that end through a somewhat different approach. We would like to
continue work that is already underway in an existing CIA/DIA committee. In
this committee, we have been reviewing our respective methodologies and have
commissioned projects for this winter and spring. Our proposed approach is
outlined in some detail in the draft letter from you to General Perroots.
2. The letter to Mr. Selin also reasserts your intention to deal with
alternative definitions of national security outlays in our forthcoming papers
on comparisons of US and Soviet defense programs (in dollars) and trends in
Soviet military spending (in rubles).
3. If you have questions about these letters, I could perhaps discuss
them with you at our Monday meeting.
 C\ t'.l. U l l \' l'..l_ Ll K t]. I A IU H I
ROtilINGSIt1,
16 DEC 85
Dore
Remarks
TO #5: Please prepare a response for DCI signature.
 American N1m,1 elllent Systemmis, Inc.
Ivan Selin
Lhj iiman
The Honorable
William Casey
Director
Central Intelligence Agency
Washington, D.C. 20505
Your Military Economics Advisory Panel recently concluded its fall
meeting, which was probably the best that we have ever had. Substantively,
significant progress has been made on a number of thorny problems with
which we have been wrestling for some time. I'm pleased to tell you that
the SOYA staff also did an excellent job in coordinating the work of the
two days. The administrative people were able to clear Ed Hewett in very
short time, so that he could take part in the meeting. It is already clear
that he and Steve Meyer are very strong additions to the Panel.
Important steps forward were taken in three areas that we have
discussed with you before -- CIA/DIA work, the estimate of Soviet spending
for R&D, and the projection of Soviet procurement expenditures related to
force projections.
CIA/DIA Work. In my last letter to you I wrote at-some length of
the differences between the two agencies on military economic estimates.
CIA and DIA use different approaches to estimating Soviet ruble defense
outlays which are difficult to reconcile and have not been adequately
explained. Although the general methodology of dollar pricing is similar
in the two agencies, there are important differences in particulars.
Finally, there have been major divergences in estimates of the order-of-
battle and production in physical units. The result has been confusion and
intelligence community disarray in the eyes of consumers and of the public
generally.
On this latter point, we received a remarkable report on the
progress of the joint working group on Soviet defense production, in
preparation for the Interagency Intelligence Memorandum on that subject.
It is clear that each agency, and the Community as a whole, have greatly
benefited from the process in the form of better substantiated production
estimates for a number of military procurement items. In particular, this
work has shown that there are areas in which CIA can learn from DIA, as
well as the converse.
The working group's chairman attributed the progress in large part
to the guidance -- the two agencies were told to document their work and
1777 North Kent Street ? Arlington, Virginia 2209 . (703) S11-44)6l . Telex 64638 ? Answerback AAtSIiNC
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 explain their differences, not to paper them over. He also attributed a
great increase in reasonableness to the fact that each analyst had to
justify his data, his analysis and his conclusions to his peers.
But there is no progress to report in the more fundamental area of
ruble estimates. In May we recommended two steps intended to document
DIA's methodology, to allow CIA and DIA to try to reconcile their
differences. and, above all, to keep both agencies fully informed of changes
in methodology and analysis their staffs might undertake. One involved
unilateral DIA effort, the second called for a specific CIA/DIA joint
project. Your response to our letter suggested an approach to pursuing the
joint work, but this suggestion has not resulted in the joint work being
pursued. Since the objective is so important, we have decided to take
another tack.
We recommend that you and the Director of DIA pursue a joint
CIA/DIA project, modeled after the joint working group on defense produc-
tion. The project would document, reproduce, and eventually reconcile the
CIA and DIA ruble estimates of Soviet military expenditures. The two
agencies need not agree, but they should be able to highlight their
differences and measure the effects of each.
Eventually we would like to extend the group's charter to
examine DIA's interesting methodology for determining employment in a
number of important defense industry ministries, with an eye to building
such employment estimates into CIA estimates of defense production.
Estimates of Research and Development. Over the past 10 years --
particularly in the working group report in July, 1983 and the MEAP's
subsequent letters this panel has repeatedly emphasized the fundamental
weaknesses in the CIA's analysis of Soviet R&D expenditures. In response,
SOVA has developed a completely new methodology, has built a new data base,
and has produced preliminary estimates of Soviet R&D. We were pleased to
see how far the new methodology has been realized. The new methodology is
much more defensible and useful than the old one; its virtue is that it
builds on hard intelligence information on the Soviet military R&D
establishment. Its introduction is a tribute to CIA's willingness to
accept constructive criticism and to continuously improve its work.
The preliminary results must still be completed and thoroughly
checked. Provisional though they are, the revisions do seem significant.
We await the next version of these R&D estimates with great interest.
Reconciling Force and Resource Projections. In June of 1984 I
wrote to you concerning the anomalous situation in which each force analyst
projected sharp growth in his individual area, leading to an overall growth
projection at an implausibly sharp rate. The problem was to figure out a
way to bring overall considerations -- after all, changes in total resource
allocations do not occur that abruptly -- into the force projection
process.
 Here too we can report significant progress. The first step was
to get the analysts to present a range of force projections, including an
earliest and a latest date for introduction of new systems. Results were
immediate -- the analysts had been tending to use the earliest projection
as their best estimate, clearly a mistake.
The second step was to combine the individual force projections as
probabilities, in order to obtain a range of resource projections. When
this step was carried out, it turned out that the most likely resource pro-
jections fell into a supportable range.
We note two positive aspects of this analysis:
(1) The use of a range of, individual force projections instead of
a single projection, thus improving the projection process;
(2) The beginning which has been made in combining the individual
force projections, and in reconciling them with the resource
projections.
I would also like to return to three topics that we have discussed
in the past, namely burden estimates, publication policy, and monitoring of
indicators of change.
Burden Estimates. We were shown working papers on the supple-
mental measures of burden of national security, ranging from civil defense
to foreign economic assistance. We were relieved to see that these topics
were relegated to the status of supplements, rather than components of the
basic time series on US and Soviet expenditures.
Nevertheless we had serious reservations about the approach to
broadening the defense concept. We will make detailed comments available
to SOYA.
Moreover, in addition to professional considerations that argue
against publishing that work, there is a practical consideration as well.
Recently US defense spending has increased more rapidly than Soviet
spending; in comparative terms the activity levels of the two countries are
roughly equal; and recent analyses will revise downward the estimates of
the dollar cost of Soviet defense programs of the last decade. It does
seem to us that the introduction of these new supplemental measures at this
time could be interpreted as a diversion, which would damage CIA credibil-
i ty.
Publications. Since May of 1984 we have been following the
so-called "Omni" paper, "The Soviet Weapons Industry: An Overview",
describing the Soviet defense industry in generalist terms. We think that
the final paper turned out very well. If it were declassified, it would
also be a perfect example of the type of publication that we have been
advising you to make available to the public. It deals with background
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factual information rather than policy information; it is retrospective,
not predictive; it is of interest to a community of scholars whose partici-
pation and support can help the agency; and it is a very good paper.
On a related topic, we welcome the steps that the DDI has taken to
bring outsiders into the review process through his Military Advisory
Panel. Inviting such excellent observers to read and comment on key papers
before publication should prove a useful step in keeping the CIA open to
and aware of outside opinions.
New Directions and Indicators of Change. In December of 1984 I
wrote to you about the need to emphasize early indicators of change in
military-economic activity, in situations in which we might expect signifi-
cant shifts in Soviet performance or behavior. We received several
briefings on the Gorbachev economic program, and believe that the advice on
indicators is relevant here.
Gorbachev is trying to make changes which have a high probability
of not succeeding, and the outcomes of which will be very significant. Of
course, CIA should analyze the obstacles he must overcome and assess his
chances of succeeding, but you can do much more. CIA should also identify
in advance what to look for in the way of indicators of his success or
failure in these efforts, as a guide to collection as well as to further
analysis.
CIA has had a successful experience with this approach, in the
paper by O"The Development of Soviet Military Power Trends
Since 1965 and Prospects for the 1980s" of April 1981.
As you can see from the frequent citations of past correspondence
in this letter, we feel that this MEAP session was very successful in
following up on a large number of issues that we have raised with you and
with the CIA in the past. Not all recommendations have been responded to,
and not all the responses have been completed, but all in all we are very
pleased with the degree of follow up and responsiveness.
These results give us good reason to look forward to our next
meeting in May, and to the steps that we and SOVA have agreed to do in the
interim.
 Lieutenant General Leonard H. Perroots, USAF
Director
Defense Intelligence Agency
Department of Defense
Washington, DC 20301
My Military Economic Advisory Panel has recently reported to me on its
fall meetings. In its report, the Panel recommended that CIA and DIA work
jointly on reviewing their estimates of machinebuilding output and Soviet
military expenditures.
I believe that a joint effort by the two Agencies could advance their
research and narrow their differences in these two areas. We do need to
examine and understand the differences in their respective assessments on
the growth of Soviet military and civilian machinery output. CIA and DIA
now use very different approaches, with conflicting results. Each
organization should carefully review the other's work and discuss the
differences at the working level. Perhaps it would be useful to produce a
joint paper on the results of this work. In any event, the joint effort
could be presented to a future meeting of the Military Economic Advisory
Panel.
The second joint effort would involve narrowing the differences
between the CIA and DIA estimates of the dollar costs of Soviet military
procurement. As you know, over the past few years there have been
significant differences in the way the two Agencies have portrayed trends
in Soviet military procurement during the most recent year or two. They
made some progress last spring in understanding the reasons underlying
these differences. Meanwhile, an interagency project currently underway is
likely to narrow the gap in our respective production estimates. Any
remaining differences in their estimates of procurement are probably
attributable to the methodologies they each use. I believe we should
continue this work with a view toward reconciling our respective approaches
and producing estimates that are consistent with one another.
Both of these efforts could be pursued within the framework of the
Soviet Military Economic Review Group, an interagency group that was
established with the charter to coordinate our military-economic work. I
intend to ask our SOYA managers to work along the lines I have described,
and I urge you to have your people in DB-4 do the same.
William J. Casey
Director of Central Intelligence