RUBLES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87M00539R001301650005-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 32
• Document Creation Date: December 22, 2016
• Document Release Date: November 15, 2011
• Sequence Number: 5
• Publication Date: November 13, 1985
• Content Type: MEMO

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Central Intdiigcncc
Executive RegiSti /
13 November 1985
MEMORANDUM FOR: William F. Martin
Executive Secretary
National Security Council
SUBJECT: Rubles
Per our conversation earlier today, attached are some off-the-shelf
items on this general subject that you might want to pass on to Tom
Dawson. If, after looking this over, he thinks anything else is wanted,
please let me know first thing tomorrow morning.
Hope this helps. Have fun in Geneva.
Attachments:
Exec've Secretary
0--/s~,>
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October 1985
The Cost of Soviet Military Progress
Measuring the Soviet Defense Effort
Over the last two decades the USSR has created an enormous military force.
It continues to make a tremendous effort every year to maintain and expand the
capabilities of that force. Overall measures of the scale of this effort are
important to judging the burden of defense or the Soviet economy and
comparisons of US and Soviet defense programs. Because of the difficulties in
comparing so many different physical quantities (missiles, planes, men), we
use money as a common denominator. Putting things in value terms generally
takes account of both quality (better things usually cost more) and quantity.
Soviet statistics are no help in estimating the USSR's defense costs.
Moscow publishes only one defense figure, and that is patently false. It
could only account for a fraction of total Soviet spending and is probably
intended as political propaganda. The CIA estimates Soviet defense costs from
the ground up in both dollar and ruble prices. Both measures aggregate all
the men, weapons, and material in terms enabling us to compare the figures to
other economic aggregates--defense spending in the United States or the USSR's
own GNP. Costs are not a measure of military capability (for this we look at
how many weapons and military units of each type are deployed and analyze how
they are used). But costs do allow us to get a sense of the effort--in
aggregate terms--that the USSR has devoted to its military forces over time.
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Costs also allow us to see shifts in priorities--for instance, favoring
offense over defense, tactical over strategic, or air forces over rocket
forces.
Comparisons with US Defense Activities
Estimates of the dollar cost of Soviet defense programs are useful for
making gross comparisons with both the levels and the trends of US defense
spending. For instance, over the last decade, the cumulative dollar costs of
Soviet defense activities (in 1983 prices) exceeded comparable US defense
outlays by about 35 percent (see figure). Soviet dollar costs have exceeded
US outlays every year since the early 1970s. The gap was at its largest in
1976 when Soviet costs were 50 percent higher than the US outlays. Since
then, Soviet costs have grown more slowly and US costs have grown at an
accelerating rate. As a result, the gap is now about 15 percent. The
estimated dollar costs of total Soviet programs in 1983 were $235 billion,
compared with US outlays of $204 billion.
The Burden of Soviet Defense Spending
Estimates of the ruble costs of Soviet military programs can be compared
with overall production in the USSR. The ratio of defense spending to GNP
represents the share of a nation's total product that is devoted to defense--
a number that is often called the "burden of defense." Soviet defense
spending now amounts to about 14 percent of GNP; the comparable ratio in the
United States is 7 percent. The share of defense in Soviet GNP has remained
roughly constant since 1965 because the growth of defense spending has matched
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overall economic growth.
The impact of defense clearly falls unevenly on different parts of the
economy. Some key industries must devote especially large shares of their
output to support defense programs. For example, more than 25 percent of all
machinery production is allocated to military procurement even though
procurement is no more than 7 percent of GNP. These resources are badly
needed by the civilian sector to promote economic growth through investment or
to bolster consumer morale by increasing the supply of consumer goods. Those
sectors where the impact of defense is especially heavy--high quality metals,
precision machine tools, electronic components--turn out the very resources
the USSR must have if it is to successfully compete economically and
technologically with the West.
CIA calculations show that between 1976 and 1982 the annual rate of
increase in Soviet spending was less than in-the late 1960s and early 1970s.
Our current estimates suggest that growth picked up in the last year or two
although the evidence is weaker for recent years. Even though there has been
slower growth, Soviet defense spending has climbed to such a very high level
that the USSR has added very large quantities of weapons to their forces. For
instance, between 1976 and 1983 the Soviets purchased 1100 ICBMs and more than
700 SLBMs for their strategic forces. At the same time they bought about 300
bomber and 5000 fighters. The modernization of the ground forces proceeded
rapidly with the introduction of more sophisticated armament, including more
than 15,000 new tanks. The Soviets acquired substantial numbers of major
surface combatants, nuclear-powered ballistic missile submarines, and attack
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submarines.
We are not sure why Soviet defense costs grew more slowly over the 1976-82
period. Several factors probably played a role.
o The Soviets may have encountered unanticipated technological
problems as they tried to deploy the next generation of advanced
weapons. We know they have had difficulty translating the results
of research and development into weapons systems.
o Unanticipated economic problems, particularly transportation
bottlenecks, almost certainly contributed to the period of slower
growth in defense spending.
o Finally, we believe Moscow took some decisions in other areas that
slowed the growth of military procurement. The Soviets recognize
that they lag behind the West technologically and have given
increased priority to modernization of defense industry and those
sectors supporting military production. At the same time, the Soviet
leadership has increasingly felt compelled to pay attention to
modernization in economy generally.
The Decisions Facing the Soviet Leadership
We know the Soviets plan a substantial modernization of their strategic
and conventional forces during the next ten years. This goal presents
Gorbachev with a dilemma. According to our estimates, this modernization
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would push up total Soviet defense costs by as much as 4 percent a year for
the next decade, twice the current rate. During this period when the Soviet
economy is likely to grow at a substantially slower rate--perhaps as low as 2
percent. Defense will retain its longstanding priority, but Soviet leaders,
including Gorbachev, recognize that in some situations adherance to this
priority will make economic conditions worse.
The Soviets are committed to major increases in investment for the food
and energy programs. Since assuming control, Gorbachev has reinforced this
commitment to strengthening the civilian economy and has begun to lay out an
ambitious program to replace the USSR's aging stock of plant and equipment.
At projected levels of economic growth, investment in the energy and food
programs that required by defense could take so much of the new investment
that little would be left to increase investment in new industrial plant and
equipment, the transportation sector, or for-the production of consumer
durables. Ignoring these customers would impair future economic growth and
limit the growth in consumer goods important to worker morale. The
fundamental problem is that the Soviets will find it extremely difficult to
modernize their military forces and rejuvenate their economy at the same time.
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US Draft Report Submitted to NATO Economic Committee
The Soviet Defense Effort and Prospects for
The Twelfth Five Year Defense Plan
Summary
Over the last two decades the Soviets have pursued a vigorous and
relentless effort to expand and modernize their military forces. They have
attained rough strategic parity with the US and greatly expanded their
conventional forces along the Chinese border and opposite NATO. Soviet
defense expenditures reached almost 80 billion rubles (constant 1970
prices) in 1984, double what was spent in 1965. The Soviets are now
spending about one-sixth of their GNP on defense.
Military procurement expenditures, which account for roughly two-fifths
of total defense spending, have increased by almost half since 1965. Most
of this growth took place prior to the mid-1970s; since then, the annual
rate of growth has been less than 1 percent. A number of factors
contributed to this period of slower procurement growth. These included
Soviet difficulties in developing the next generation of technologically
advanced weapons, manufacturing constraints in bringing these advanced
weapons into serial production, and poor overall economic performance
during the period, particularly for industry. We think it likely that
Soviet leaders, in recognition of the above problems and to make their
defense establishment more competitive in the long run, made policy
decisions that resulted in the slower growth of procurement.
The Soviets are now on the eve of the 12th FYP. We project GNP growth
is likely to average in the 2 to 3 percent range. Performance has improved
some in the last two years but depletion of their raw material base, slow
growth of the labor force, and limited prospects for growth of productivity
all constrain future growth prospects. While the Soviet economy will
undoubtedly have difficulty simultaneously meeting the increasing demands
of the major claimants--defense, civilian investment, and consumption--our
evidence suggests that Soviet military procurement will grow at annual
rates up to 3 percent. Even if procurement grows slowly--less than one
percent--the already very high level of military procurement will allow the
Soviets to deploy numerous modern weapon systems, many in large numbers.
These include the SS-X-25 ICBM, the nuclear powered aircraft carrier, the
Blackjack long-range strategic bomber, the MIG-29 aircraft, and the T-80
tank.
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8 October 1985
DRAFT REPORT
The Soviet Defense Effort and Prospects For
Defense In The Twelfth Five Year Plan
Introduction
1. The present paper updates the previous report on this subject. It
is based on the results of a meeting of the Economic Committee with
national experts and provides findings based on estimates, in rubles, of
the annual cost of Soviet defense since 1965 together with a discussion of
prospects for the future.
2. The estimate of Soviet defense expenditures for 1984 is, as in
previous years, such higher than the single annual figures published as the
official Soviet defense budget. The budget is intended to give the
impression not only that defense expenditures have failed to increase but
that they have actually declined. Since 1970 the Soviets have announced on
four separate occasions slight reductions in their defense budget. This
trend is incompatible with known Soviet force levels and military programs.
In 1985 the Soviets did announce an increase in the defense budget to 19.1
billion rubles, an increase of almost 12 percent above-1984. Even this
announced increase, however, significantly understates their actual
expenditures.
3. Our expenditure estimates for Soviet defense indicate that in
1984 the Soviets again funded the largest defense effort in the world, as
they have since the early 1970s. This reflects the continuing commitment of
resources to the Soviet military establishment. We estimate the Soviets
will continue to increase the capabilities of their forces throughout the
12th FYP (1986-90).
Purpose of The Estimate
4. The ruble estimate reveals both the level and trend in the volume
of Soviet resources devoted to the military. It permits an assessment of
the priority accorded to the military and the resulting impact on the
economy. Comparisons of the spending trends for the major classes of
weapon systems also permits us to assess the relative importance assigned
by the Soviets to the various types of forces.
Methodology
5. The NATO definition of total defense expenditures is used in this
paper. Soviet leaders, however, are thought to have a wider concept of
defense expenditures that includes such items as expenditures for internal
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security forces, part of civil defense, strategic stockpiles, and those
space programs which in the United States are financed by the civil
administration, but in the Soviet Union are the responsibility of the
Ministry of Defense.
6. The estimates presented in this paper are based on the
"building-block" or "direct-costing" method. Where the intention is to show
trends in real growth, i.e., excluding the effects of inflation, constant
1970 prices are used. To the extent Soviet pricing policies capture true
economic cost, however, current prices are a better measure of the shares
of resources going to the various end-use categories of GNP and the burden
of defense on the economy. Indeed, Soviet perceptions of the share of
resources going to defense are most likely to be based on current prices,
although our lack of knowledge of how the Soviet Union defines "defense"
prevents us from fully understanding the leadership's perception of the
burden. It should be borne in mind that there is some uncertainty in our
estimates of the Soviet military effort which calls for a degree of caution
in the interpretation of the findings presented below. In particular, we
have much more confidence in the general trends of the estimates than in
specific year to year changes.
7. There are other methods of estimating Soviet military
expenditures that involve detailed analysis of Soviet economic and
financial data from both open and classified sources. These approaches
provide estimates expressed in very aggregate terms: the data cannot be
broken down into the detailed expenditure categories provided by the
building-block approach. Although they provide levels that are roughly
consistent with those of the building-block approach, the many
uncertainties--including missing data, incomplete information about Soviet
prices and economic statistics, and ambiguous definitions--prevent a
complete reconciliation of the methods.
Soviet Defense Programs, 1965-84
Soviet Military Forces
8. Since 1965 the Soviets have introduced hundreds of billions of
rubles worth of new military equipment into their armed forces. This
spending has bought both force expansion and modernization throughout the
Soviet strategic and conventional forces. In the following paragraphs we
examine the most important trends in each service.
9. Since 1965 the Strategic Rocket Force expanded from more than 200
to almost 1400 launchers. It was then almost completely reequipped with the
deployment of fourth generation missiles such as the SS-17, SS-18, and
SS-19 ICBMs, and the SS-20 IRBM. These missiles are more accurate than
their predecessors and carry multiple warheads. The increased capabilities
of these missiles owing to their greater accuracies and larger numbers of
reentry vehicles (nearly a five-fold increase) clearly overcame the
previous inferiority to the United States ICBM force.
10. The capabilities of the National Air Defense Force increased as
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the Soviets replaced older aircraft with more modern ones such as the
MIG-25 Foxbat, SU-27 Flanker, Mig-23 Flogger B/G, and more recently the
MIG-31 Foxhound interceptors even though the actual number of aircraft
fell. The newer aircraft improved Soviet capabilities to detect and
engage not only high and medium altitude targets but also those at low
altitudes. The SA-10 began replacing older SAMs, offering better
low-altitude capabilities. New, more capable radars began to be deployed
(Big Back, Tinshield, etc.). During this time, a significant upgrade to
the Moscow ABM system commenced with construction of the Pushkino radar and
ABM launcher silos to replace the older, above ground launchers. The
Soviets also began building a network of large phased array radars for
ballistic Missile detecting and tracking.
11. The Ground Forces have undergone considerable expansion and
improvement since 1965. Not only have the number of tanks increased by a
fourth but the quality of those forces improved with the deployment of
modern T-64B, T-72, and T-80 tanks. Other improvements include the
addition of surface-to-air missile systems, such as the SA-6 and SA-8 and
surface-to-surface missiles like the SCUD-B missile which has a nuclear
warhead capability.
12. During this same period the Soviets continued the conversion of
their Navy from essentially a coastal defense force to one with substantial
capabilities to project Soviet power globally. They significantly
increased the number of major surface combatants with the construction of
larger surface combatants such as the Kiev CVHG, Kresta II guided missile
cruiser, and the Kirov nuclear guided missile cruiser. With the deployment
of nuclear powered attack submarines such as the V-class SSN and the
C-class SSGN and an increase in the number of ballistic missile carrying
submarines, such as the Typhoon SSBN, the Soviets more than doubled the
size of the nuclear submarine force. -
13. The Soviets have also invested heavily in their Air Force. Since
1965 the production and deployment of fighter aircraft with improved
payload and range such as the Flogger and Fitter fighter-bombers bolstered
significantly the Air Force's ability to support the ground forces. Other
Flogger aircraft were deployed as counter air fighters. The introduction
of Fencer light bombers improved the medium range interdiction and
night/adverse weather capabilities of frontal and strategic aviation. In
addition, the Soviets deployed the longer-range Backfire medium bomber for
the deep interdiction mission. This resulted in roughly a 50 percent
increase in the medium bomber force. The Bear H, a new variant of the old
turboprop TU-95 that carried the AS-15 long-range cruise missile, received
operational status during this period, giving the Air Force a stand-off
capability against North America.
14. One of the areas of greatest expansion has been in space assets.
Since 1965, the Soviets have orbited numerous new systems, such as the
Medium Resolution photoreconnaissance satellite, ocean reconnaissance
satellites (EORSAT and RORSAT), Launch Detection Satellites, and numerous
communications satellites. They have also made impressive strides in their
manned space program with the Salyut manned space station. To support
these growing programs the Soviets increased the number and size of
space-associated ground facilities and shipborne assets.
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The Cost of Soviet Defense Activities
Total Soviet Defense Expenditures
15. We estimate total Soviet defense expenditures in 1984 were more
than 78 billion constant 1970 rubles, about 40 billion rubles higher than
in 1965. During the 1965-75 period, the cost of defense grew at about 5
percent annually, reflecting the rapid expansion of Soviet general purpose
forces and military space programs, as well as the expansion and
modernization of Soviet intercontinental and theater nuclear forces. Since
1975, however, Soviet defense expenditures have increased about 3 percent a
year (see Figure 1). The slower growth in total defense expenditures since
the mid-1970s results from a slowing in the growth of military procurement,
slower growth in operating and maintenance costs, and little growth in
military construction.
16. Soviet military planners devoted about two-fifths of the defense
expenditures over the 1965-84 period to procurement and about one-fifth to
RDT&E. Operating and=maintenance costs ;accounted for slightly more than
one-eighth of total defense costs; personnel costs slightly less. The small
remainder went to construction.
The Impact of Defense on The Economy
17. When measured in constant 1970 prices, Soviet military
expenditures absorbed a relatively constant 13-14 percent of GNP annually
since 1965. The slowdown in the rate of growth in defense expenditures did
not lower the burden in either constant or current prices as it has broadly
coincided with a slowdown in the rate of growth of the economy. Indeed, in
current prices, the share of GNP is estimated to have risen to 14-16
percent by the early 1980s. The higher burden obtained when estimating in
the current prices reflects what is believed to be a larger cost increase
in the defense sector than in the economy generally. More recently,
relative prices for military and civilian goods were affected by the
widespread wholesale price reform in industry in 1982 and a revision of
construction prices in 1984. A preliminary assessment of these price
reforms suggests they did not significantly change defense's share of GNP.
Soviet Military Procurement
18. Procurement accounts for about 40 percent of Soviet defense
expenditures. As shown in Figure 2, Soviet military procurement, measured
in constant 1970 rubles, has increased by almost half since 1965. Most of
that growth took place before 1975; after 1975 there was little or no
growth in procurement until recently. The four major components of
procurement--naval ships, aircraft, missiles, and land arms all experienced
little or no growth during the late 1970s.
19. The most recent estimate of procurement shows some growth in the
past few years. The estimate for the end year of our e3timate--1984 in
this case--is always subject to greater uncertainty than the estimates for
the earlier years because of the inevitable delay in obtaining and
processing intelligence information and because of the difficulties in
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SOVIET DEFENSE EXPENDITURES
120
BILLIONS OF 1970 RUBLES
100-,
80
10
40
20 -1
1965 1970
1975
YEARS
1980 1985
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estimating the distribution through time of the costs of systems that are
built over several years. The phasing problem is of special concern for
recent years like 1984 because it involves judgments about new systems that
we think will be deployed in the future but for which the early costs Rust
be phased back to the present. Estimates of missiles and ships are
especially influenced by the lead costs of weapons that have not yet been
delivered.
20. The Ground Forces claimed the largest share of Soviet military
procurement--about one-quarter--during the 1965-84 period. The Navy and Air
Force each received about a fifth; followed by National Air Defense Forces
at about one-eighth and the SRF with about one-twentieth. The balance of
procurement--about one-eighth--went to national command and support (see
Figure 3).
21. The Ground Forces and Navy shares were relatively constant over
the 1965-84 period. After an increase in the early 1970s, the Air Forces
share remained fairly stable. In sharp contrast, the National Air Defense
Forces share rapidly dropped during the 1970-75 period and has continued
since 1975 to decrease slightly. Because of the Soviet reorganization that
occurred in the early 1980s, however, it is difficult to follow the
long-term trends of this service. The SRF share has risen and fallen with
the deployment cycles of new missile systems.
22. Even during the 1975-84 period, when procurement grew slowly, the
sheer size of the USSR's spending permitted the Soviets to introduce an
impressive array of highly capable weapons in large quantities. For
example, the SRF procured nearly 1,300 new ICBMs. The National Air Defense
Forces introduced 1,500 new fighter aircraft including about 80 Foxhound,
1,100 Flogger and 250 Foxbat type -fighters/interceptors, and more than 500
-SA-10 launchers. The Ground Forces bought 20,000 tanks, 16,000 pieces of
field artillery and more than 35,000 light armored vehicles; the Navy
procured about 40 major surface combatants (3,000 tons or greater), about
50 nuclear attack submarines, some 30 diesel attack submarines, 24 SSBNs,
and 130 Backfire bombers; and the Air Force procured about 4,000 new
fighter aircraft including 1,500 Fitters and 2,000 Floggers.
Causes of the Slowing of Procurement Growth
23. Last year's report on Soviet military expenditures advanced
several possible factors as explanations for the slowdown in the growth of
procurement since 1975. We now believe the pattern in procurement growth
has lasted too long a time for it to be solely the result of unanticipated
economic or technological problems. In a period so long, the leadership of
the Soviet Union could have used its control of industrial priorities to
ensure a higher rate of growth of military procurement. Older-generation
weapons could have been kept in production while problems with new systems
were ironed out; or once the problems were overcome, the new systems could
have been produced at more rapid rates. We believe they chose to pursue
neither alternative. Further, a wide array of military hardware for both
strategic and conventional forces in all five services were affected,
suggesting the period of slower growth cannot be easily explained by any
one unanticipated problem.
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SOVIET MILITARY PROCUREMENT
BY SERVICE SHARES
70-
so-
50 -i
40-
30
20 H
10-1
71 E
1965 1970 1975 1980 1984
Legend
m COMMAND
13 NATIONAL Dpi
m URr
ca MOUND Tom=
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[CM AM POW=
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24. We think it likely Soviet leaders, perhaps in anticipation of
future economic and technological problems, took definitive actions that
resulted in the slower growth of procurement. In making any such decision,
Soviet leaders would have cogsidered Soviet economic performance,
particularly that for industrial sectors; current and future Soviet
technological capabilities to counter Western advances in new weapon
systems; and the military threat facing the Soviet Union.
25. One of the pressing problems facing the Soviet leadership was the
general state of the Soviet economy. The leadership, in conducting its
military-economic planning, was certainly aware of the progressive downturn
of the economy as the growth of industrial output slowed and future
prospects for improvement looked poor. Indeed, a year or so before
implementation of the 1976-80 FYP, the Soviet leaders decided on a strategy
for economic growth which stressed increases in efficiency and improvements
in product quality. This strategy net with little success. Soviet efforts
to improve the economy were thwarted, in part by shortages of key materials
and transportation problems. Clearly these problems have affected defense
since the mid-1970s despite the traditional priority accorded it.
26. The Soviet leaders were undoubtedly also concerned about their
ability to counter the technological sophistication of the latest
generation of Western weapons. We believe they decided to attenuate plans
to procure current-generation weapons so as to allocate additional research
capacity and time to develop new generations of advanced weapons and to
modernize their manufacturing facilities by introducing new equipment and
management techniques to improve their production processes. The Soviets
did produce some high technology weapon systems, but difficulties remained:
-- Technical Difficulties. Modern Soviet weapons embody ever higher
levels of technology, but there is evidence that the Soviets have
experienced considerable difficulty, particularly in the R & D
phase, in solving technological problems encountered in producing
new weapons. Although problems in design or on the test ranges are
nothing new, some of the delays encountered during this period were
prolonged.
-- Manufacturing Constraints. Even after production of new weapons
was begun, the Soviets were slow in achieving a high level of
serial production of some high technology weapons systems in recent
years. This deliberate pace probably reflected the underlying
difficulties of incorporating advanced production standards and
techniques.
27. While the Soviet military leadership undoubtedly was not
complacent about the military "threats" they faced, they may have believed
in the mid-1970s that their military posture was at least adequate. They
had accomplished much over the previous decade. By most measures, the
Soviets had achieved strategic parity with the West. They probably saw that
their production and deployment of numerous modern conventional weapons had
placed the Warsaw Pact forces on a par with NATO. Thus, the Soviet leaders
may have been in more of a mood to accept slower growth for the military
while other pressing problems were addressed, including preparing industry
for the longer term.
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28. When Soviet leaders reviewed their defense plans for the 11th FYP
(1981-85), Western defense spending had begun to accelerate. But at that
time the Soviet economy's performance was especially poor. Economic growth
fell sharply after 1978 especially during the 1979-81 period when the
Soviet Union experienced unusually hard winters. Industrial
performance--where the impact of defense would be heaviest--experienced
slower growth during 1979-82, though the machinery-producing sector (the
source of most military hardware as well as producer and consumer durables)
remained one of the fastest growing sectors. However, the technological gap
between Western and Soviet weapon systems remained. New Western aircraft
such as the F-16 and Harrier aircraft were not being matched by the Soviets
and the West appeared even further ahead in the development of computers
and data processing equipment.
29. Thus, as the 11th FYP approached, we believe Soviet leaders
faced a dilemma. On the one hand, the capabilities from the US and NATO
were growing with expanded defense budgets and the development of advanced
weapon systems. This growth in Western capabilities threatened the
achievement of some Soviet military missions. On the other hand, Soviet
leaders faced a slowing economy with little immediate prospects for
significant improvement. Adding to this was the steadily growing need to
face the causes behind the slowing economy: poor agriculture, falling
efficiency of capital, slow (if any) growth in labor productivity, and
smaller increments to the labor pool. Effectively, the failure of the more
productive use of resources strategy for economic growth and the difficulty
of the defense industries in producing advanced technology weapons argued
against the resumption of historical rates of defense growth without
sacrificing efforts to modernize the defense industries and restore the
economy. The Soviet leaders apparently decided spending for defense
procurement would continue at its high levels, but with only modest growth.
Soviet Defense Efforts During the 12th FYP, 1986-90
30. For the short run Soviet options to change military procurement
significantly are limited. Because of the lengthy development time of
major weapon systems it is unlikely the Soviets could deploy by 1990 a
major weapon system not already in or about to enter testing. On the other
hand, the RDT&E and investment expenditures already expended for systems
already in testing or early production argue against major cancellations.
Therefore, we believe the Soviets would consider only marginal changes in
production rates for systems to be procured over the next five years. We
are confident, therefore, that Soviet procurement will continue at about
its same high level. Even without additional growth in procurement the
military can introduce a large assortment of new weapon systems into the
forces. Before presenting our forecast of future Soviet defense spending we
will consider the military forces we anticipate they will produce and
deploy, the current state of the Soviet economy, and the technological
capabilities of Soviet industry.
Future Soviet Forces
The Strategic Rocket Forces
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31. The SRF will continue to develop counterforce capabilities to
attack the missile silos and military bases of the West and strive for
flexible capabilities against other military and industrial targets in the
absence of a new arms control agreement. We expect the SRF to deploy three
new ICBMs: the SS-X-24, SS-X-25, a follow-on to the SS-18 ICBM, and a
follow-on to the SS-20 IRBM. These programs are aimed at maintaining or
increasing the Soviet lead over the West in most measures of nuclear attack
capability and at upgrading their nuclear war-fighting capabilities.
However, the Soviets will also have to seriously consider the impact on
RDT&E for defense and procurement caused by the United States SDI program.
If they are to maintain their warfighting doctrine, whole new technologies
and systems must be developed and deployed -- a very expensive endeavor.
National Air Defense Forces
32. Charged with defending the Soviet Union from strategic enemy
attack, the National Air Defense Forces will continue the deployment of new
interceptor aircraft, and surface-to-air missile systems for air defense,
and an anti-ballistic missile system to defend against incoming ICBM and
SLBM reentry vehicles. New interceptor aircraft such as the MIG-31
Foxhound, the MIG-29 Fulcrum and the SU-27 Flanker are sophisticated,
high-performance platforms with radars that enable them to detect and
engage low-flying targets from any altitude.
33. The Soviets will replace older fixed SAM systems with the new
SA-10 system, primarily in its mobile version, which has a better
capability than earlier SAMs against such targets as cruise missiles. The
Soviets should also continue their antiballistic missile (ABM) programs
with the SH-08 and modified Galosh anti-ballistic missiles.
Ground Forces
34. The Soviets will maintain their quantitative advantage over the
West in standing forces by continuing to produce modern tanks such as the
T-64B, T-72, and T-80 tanks. Many of these tanks, with improved armor,
require fewer crew members than earlier tanks and have larger caliber main
guns with longer ranges and automatic loaders to increase firing rates.
Additional firepower will be acquired with the production of new
surface-to-surface missiles such as the SS-23 and follow-on systems. The
Soviets will upgrade division air defenses with the production of the
SA-11, SA-12, and SA-15 SAM Systems.
Air Forces
35. The Soviets will continue to improve their air capabilities with
the production of modern high performance aircraft such as the MIG-29
Fulcrum and the SU-27 Flanker. In addition, the first Soviet long-range
strategic bomber since the 1950s, the Blackjack, will enter force-wide
service during this period.
Naval Forces
36. The Soviets will increase their capabilities at sea with the
production of their first full sized nuclear powered aircraft carrier,
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SECRET 10
another Kirov nuclear powered cruiser, and a new class nuclear powered
cruiser. The production of newer submarines such as the Oscar SSGN with
cruise missiles will provide substantially greater capability than their
predecessors. In addition, the Navy will continue to receive Backfire
medium bombers intended for strikes against surface ships and begin
deployment of a new sea-based fighter/bomber to replace older aircraft.
Military Space
37. The Soviets will continue their ambitious space program. We have
identified 14 Soviet space systems that are in development and are likely
to undergo testing in the next 10 years. Included are spaced-based laser
ASAT weapons, a real-time photo reconnaissance system, and a new launch
detection satellite covering the world-wide foreign Missile threat. We also
see steady growth in construction at the design bureaus, production
facilities, launch complexes, control sites, space support ships, cosmonaut
training facilities, and other elements of the space support
infrastructure.
The State of The Economy
38. In sharp contrast to the successful military establishment, the
Soviet leadership will begin the 12th FYP with a technologically backward
economy buffeted by a decade of slowing growth punctuated by harvest
shortfalls, industrial bottlenecks, labor and energy shortages, low
productivity, and declining efficiency of investment. Although Soviet
economic performance has improved in 1983 and 1984 from the low levels of
1979-82, the current forecasts suggest that GNP growth will average 1.5-2.5
percent per year for the remainder of the 1980s. Consequently, the Soviet
economy may face difficulties in simultaneously meeting the increasing
demands of the major economic claimants: defense, civilian investment, and
consumption. Gorbachev has stressed the necessity of modernizing
inefficient industrial facilities. But such modernization requires
increased investment which can only come at the expense of some other
claimant. Thus, we expect the 1986-90 period to prove particularly
difficult for Soviet planners as they choose between competing claimants
for relatively scarce industrial resources and technology.
39. Demographic factors are certain to keep the growth of the labor
force at very low levels. The growth rate of the labor force will fall from
less than 2 percent in the 1970s to almost no growth in the 1980s. Further,
what little increase in the labor force does occur will be concentrated in
the relatively less productive non-Slav worker of the labor force.
Consequently, this demographic change will lower GNP growth unless offset
by gains in labor productivity which we judge unlikely.
40. The partial depletion of the raw material base in the developed
European regions of the USSR will increasingly force expensive new
investments in remote areas of Siberia. This problem is particularly acute
for the energy sectors of the Soviet economy where oil production is slowly
declining in the face of continued growth in domestic demand. We expect
gas production to continue to increase rapidly, offsetting the drop in oil
output, but it is unclear how efficiently Soviet industry can convert to
its use.
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SECRET
41. The Soviets cannot count on foreign trade to provide a way out of
their difficulties. The oil and gas markets are likely to be soft for most
of the decade, arms sales will face increased competition from other
suppliers, production problems and growing domestic demand will hold back
increases in exports of most nonfuel minerals, and low quality and poor
marketing techniques will continue to retard increases in exports of
machinery and other manufacturing goods. Consequently, we expect the
decline of productivity and the higher costs for resources and energy to
generate a greater demand for civilian investment to keep the economy
growing. Civilian investment, however, will have to compete with defense
and defense absorbs a large share of many of the most critical resources.
42. The average share of all resources going to defense is measured
by the ratio of defense spending to GNP. However, the impact of defense
spending varies considerably from one sector of the economy to another. For
example, the total military requirement for products from machine building
and metalworking (MBMW) is much higher than the average defense share of
GNP. Soviet leaders (including Chernenko and Gorbachev) have repeatedly
singled out MBMW as crucial to future economic development because it is
the source of most of the machinery for capital investment and consumer
durable goods for the population as well as most military hardware. In
particular, the MBMW sector manufactures the advanced technology products
(computers, electronics and the like) that are crucial for Gorbachev's
goals for modernization of the economy as well as to producing
technologically more sophisticated weapons systems. Other sectors that are
key in their support of military procurement activities include chemicals,
electric power,-fuels, transportation and communication, and forest
products. These sectors are also critical to economic growth and there is
a great deal of interdependence among them.
43. In addition to the direct but heavy requirements of the military
on the economy the demand for military goods impinges indirectly on a wide
range of industrial sectors. For example, military hardware is procured
directly from MBMW, which draws heavily from metallurgy, which, in turn,
demands large inputs from the coal industry. Thus, large indirect military
demands may be created in some industries even though direct military
purchases from them are small.
Technological Difficulties
44. The level of Soviet technological development--both for the
technologies embodied in the weapon systems themselves and the technologies
necessary for the industrial production of the weapon systems--lags behind
Western levels. Even though the defense sector has systematically siphoned
off high quality resources, the military has encountered technological
production problems in its quest to produce sophisticated new weapon
systems. As a result, the Soviets have pursued an active program of
technological transfer and theft. Aside from providing them with advanced
technology not otherwise available, it saves the Soviets RDT&E money and
enables them to incorporate countermeasures into their own weapon systems.
These activities help explain how the Soviets have managed to deploy some
of the sophisticated weapons systems currently in their force.
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SECRET 12
45. It will be a major challenge for the Soviets to develop the
technologies that must be embodied in the next generation of weapons. They
face substantial technological hurdles in all the defense industries. They
are using solid propellant rocket motors for their newest ICBMs (the
SS-X-24 and SS-X-25) but it will be some time before they convert the
entire force to this more reliable technology. Their inadequate computer
processing technologies will severely constrain their capabilities to match
the US and its NATO allies in SDI research. The gap in composite fiber
technology is widening with the West and could hold them back from matching
the West in the development of new aircraft.
The Threat
46. Balancing the economy's requirements for additional resources
are Soviet perceptions of outside threats stemming mostly from the West but
also from the East particularly China. The Soviets are very well aware of
the greater willingness on the part of the United States and its allies to
support a reinvigorated defense effort--one which threatens to undercut the
gains the Soviets had made since the early 1970s. Improvements in US
strategic weaponry, particularly the deployment of the D-5 SLBM and the
projected deployment of the MX ICBM and the B-1 bomber, pose a considerable
threat to the capability of the Soviet military to achieve their
objectives. Recent NATO deployments of Pershing II and cruise missiles in
Europe and the modernization of European forces with the deployment of new
weapons such as the Tornado aircraft and the Leopard II and Challenger
tanks also present problems for the Soviet military. Finally, the US's
proposed SDI research program worries the leadership. Judging by past
-Soviet reponses to Western military improvements, the Soviets see their
ability to wage and win a nuclear war diminished by these new weapons.
Future Military Procurement
47. The exact level of future Soviet military procurement is
unknown. However, based upon Soviet military doctrine, past trends in
military procurement, and evidence of weapon systems under development or
testing, we can estimate a range for Soviet military procurement in the
12th FYP. This range represents the uncertainty associated with the
procurement of future weapon systems. The top of the range implies growth
of 3 percent per year (below the 1965-75 rate) and spending as high as 37
billion rubles (constant 1970 prices) by 1990. With this effort,
procurement for the 12th FYP would exceed that of the 11th FYP by more than
21 billion rubles. At the lower end of the range, military procurement
would exhibit little or no growth and reach about 32 billion rubles by 1990
(see Figure 4).
48. We estimate the impact of military procurement on specific
industries by projecting the share of the expected economic growth--the
so-called growth dividend--that would be consumed directly or indirectly by
military procurement. Figure 5 compares the additional output of the
branches of the economy that would be consumed by military procurement if
procurement grew at 3 percent a year. If the economy grew slowly then
nearly half of the additional output of metallurgy, two-thirds of fuels,
and one-fifth of machine-building would be earmarked to support defense.
Other industries would also be affected, but to a lesser degree, If the
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FUTURE SOVIET MILITARY PROCUREMENT
1986-1990
L
50 -1
40-
30 -
20-1
10
BILLIONS OF 1970 RUBLES
0
1965 1970 1975 1980 1985 1990
YEARS
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??
D
O
0
* ? o 0 1-4
1~ 5.
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SECRET 13
economy grew at a faster rate then only about 15 percent of the expected
growth in metallurgy, fuels, and machinery branches of the economy would be
consumed by procurement. The other branches would also experience
significant reductions. If procurement grew slowly, then the share of
output growth devoted to procurement would be insignificant.
Conclusion
49. Since the early 1960s the Soviets have undertaken a vigorous and
relentless effort to build, deploy, and maintain powerful military forces
second to none. Though the range of uncertainties is large concerning
Soviet defense options for the 12th FYP, we know the Soviets will continue
to improve their forces throughout the 1980s with new weapon systems.
Because of the already high levels of military procurement, the Soviets
will deploy numerous modern weapon systems, many in large numbers, no
matter what they are deciding about actual growth rates in defense.
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97th Con`se.s
2d Bandon
STAT
Office of Soviet
Analysis, DDI
USSR: MEASURES OF ECONOMIC GROWTH AND
DEVELOPMENT, 1950-80
STUDIES
PREPARED FOR TIIE USE OF TUE
JOINT ECONOMIC COMMITTEE
JOINT COM[ITPEE PRINT
CONGRESS OF THE UNITED STATES
Attached is a forward to a major study prepared by,the'CIA
on the above topic. It explains why we cannot'.accept
official Soviet data.and why it is necessary for us to
calculate our own measures.
U.S. GOVERNMENT PRINTING OFFICE
93-M 0 WASHINGTON : 1982
For sale by the Superintendent of Dncaments. C.S. Government Printing Office
Washington. D.C. 20402
STAT
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By Chairman Henry S. Reuss
The Soviet Union does not publish measures of economic growth and devel-
opment comparable with those of Western countries. ]Ether, it publishes
measures of growth that are geared to its own definitions of economic phenom-
ena and its own political requirements. In addition, it follows a policy of
secrecy with regard to much of its economic activities and has been inconsistent
in the comparability and coverage of the economic statistics that are published.
The result is a large gap in the information available in the West concerning
the performance of the Soviet economy. To help fill this gap, the Central Intel-
ligence Agency (CIA) has been called upon to provide quantified estimates of
the value of Soviet gross national product (GNP), its rate of growth, its size
relative to U.S. GNP, and its allocation among the various end uses-consump-
tion, investment, and government expenditures, including defense.
The studies contained in this volume are the culmination of a large re-
search effort over many years carried out by CIA's Directorate for Intelligence.
The estimates of GNP and its components, which are included, are virtually the
only independent Western estimates of these important measures of economic
performance in the Soviet Union. Earlier results of this work have appeared in
various Joint Economic Committee studies of the Soviet economy and CIA's
annual Handbook of Economic Stati8tio8. This publication is the first time that
the concepts,- methodologies, and data have been fully explained and docu-
mented in a comprehensive and up-to-date form.
The studies include separate sections devoted to agriculture and industry-
the major components of the originating sectors in the GNP, and to consump-
tion-the principal end-use sector. Part I discusses the overall estimates of
Soviet GNP by sector of origin and end use. Each of the remaining three studies
analyzes in detail a major component of GNP. Part II contains an index of in-
dustrial production. Part III is an index of agricultural production. And the
final part is an index of consumption. Indices for all other sectors are included
in Part I.
Each study includes detailed compilations of the data used, their sources,
and the methodologies used to combine the data into the aggregate measures.
The goals of this publication are to achieve a wider understanding of how the
synthetic measures of Soviet economic performance are derived, to encourage
their broader use in analyses of Soviet economic performance, and to stimulate
discussion of ways to improve these measures and our general understanding of
the Soviet economy.
NECESSITY To CALCULATE INDEPENDENT MEASURES
There are several reasons for the calculation of independent measures of
Soviet economic performance. The deficiencies of official Soviet measures of
economic activity are well documented. Official Soviet measures are often con-
ceptually different from the measures used in the ?'est, are not published in
sufficient detail, are sometimes published in noncomparable series, and tend to
inflate real growth rates.
The official Soviet measure of economic growth, referred to as net material
product, includes only the value added in the production of goods, and a few
services. The value added in the rest of the service sector and all depreciation
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income is excluded. Thus, Soviet net material product omits about one-fourth
of the resources used to produce goods and services in the USSR. In addition,
there is an upward bias in official measures of activity. The result is that Soviet
statistics on net material product provide an incomplete and distorted view of
the size and growth of the Soviet economy.
The need for independent measures of economic performance is heightened
by the sparseness of official data and their inconsistencies. The official data
tend to be published in insufficient detail. the price base of some series are
periodically changed, and the product coverage may be altered without notice.
For example, because the official measure of consumption referred to as
"real incomes of the population," is not described adequately, its validity or
usefulness cannot be fully assessed. The official series shows a higher growth
rate than does the synthetically constructed index of consumption, in part
because of the failure of the official series to take inflation into account.
The Soviet indices of industrial and agricultural production are based
on gross output rather than value added. As a consequence, double counting
of materials used in production is incorporated in the indices. There is con-
siderable evidence that the official index for industrial production has serious
short-comings due to the treatment of price and quality changes. There is much
evidence that prices assigned to new industrial products are too high relative
to prices for older products in view of the changes in technology and quality
taking place.
In the consumer sector, there is considerable evidence that new, high-priced
but only slightly altered products are deliberately substituted for equivalent,
low-priced products to syphon-off consumer purchasing power. The official data
treat such changes as if there were no real price increases, thus incorporating
hidden inflation.
THE GENERAL APPROACH
The value of GNP can be calculated in two ways. One way is to derive
GNP as the sum of the various end uses of the goods and services--consumption,
investment, and government (both military - and .civilian) . GNP can also be
computed as the sum of value added in the several production sectors-industry,
agriculture, and the like.
The intent of these studies is to replicate as far as possible, on both the
sector of on n and end use sides of the accounts. the methodologies developed
by_ the U.S. Department of Commerce and the OECD for the construction of
Western economic accounts. Precise conformity is-not possible, primarily be-
cause the organization of the Soviet economy and the limited amount of data
published by the Soviet Union require modifications and simplifications of the
Western accounting framework. Defense expenditures are the most conspicuous
example. Total defense is not identified separately in the Soviet GNP accounts
contained in this volume because other GNP components, primarily investment
and research and development expenditures, are thought to include substantial
amounts of defense expenditures. As a separate exercise, the CIA estimates
total defense expenditures directly from a detailed description of their defense
programs and activities. The defense estimates have been explained and dis-
cussed in the Joint Economic Committee's annual hearings on the "Allocation
of Resources in the Soviet Union and China."
Despite the limitations, it is believed that the measures developed-both the
configuration of trends and absolute size-are reasonably accurate representa-
tions of Soviet economic performance, can be compared with confidence with
similar measures for Western economies, and are far more acceptable indicators
of economic performance than the corresponding measures published by the
USSR.
Gross national product is defined as the market value of the final goods and
services produced by it given country. As applied to the Soviet economy, this
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definition raises theoretical problems. The most important is that the Soviet
Union does not have market determined prices. Instead, it uses, for the most
part, centrally fixed prices which may be quite far removed from the values
that would obtain in a market-oriented economy. Market prices reflecting real
resource costs of each product are needed to derive theoretically correct infer-
ences about the real growth and distribution of GNP. An important segment
of Part I is devoted to computing a set of alternative, factor-cost prices used
to replace Soviet prices. The latter are seriously distorted by taxes and sub-
sidies and by their failure to incorporate accurately the costs of land and re-
producible fixed assets. The factor-cost prices are intended to represent more
accurately the actual cost of resources used to produce each category of goods
and services.
The indices of the growth of GNP and its three major components are
computed as weighted averages of subcomponent indices. The weights are 1970
expenditures or value added as derived in the 1970 GNP accounts (Part I,
Appendix D). The subcomponent indices are developed from physical produc-
tion or consumption data. The index of industrial production is computed
f rom production data on over 300 products. These are grouped first into 10
branches of industry and then into an aggregate index. The index of agricul-
tural production, computed by combining production data for 42 types of crops
or livestock products. represents the value of all output less that used by
agriculture itself-primarily feed and seed. The index of consumption is
divided into three major categories of goods and eight categories of services.
Each category is further divided into individual products or services. The
index of GNP by sector of origin is formed by combining the indices of indus-
trial and agricultural production with similar indices for the remaining pro-
duction sectors-transportation, communications. domestic trade, and services.
Similarly. GNP by end use is computed by adding indices of investment and
other government expenditures, including most of defense outlays.
The construction of the independent measures encountered numerous prob-
lems. Some are universal to all aggregate measures of economic performance
and some are peculiar to the Soviet case. The treatment of quality change, for
example, is a universal problem. Most elements of the industrial index are
expressed in physical units such as tons or number of items. This procedure
may understate quality improvements over time. especially in machinery
products. On the other hand, official data, expressed in rubles or as index
numbers, are used where physical production data are not available. As indi-
cated above. these data clearly overstate growth. Because the biases in official
and physical data are offsetting, however, their use in combination should pro-
vide a truer measure of real growth. Similarly, the index of housing services
in the consumption index is based on the number of square meters of housing
without a quality adjustment. In this case, all evidence points to remarkably
little improvement in the quality of Soviet housing and there is likely not a
serious bias in the housing index.
Compiling consistent data for the period 1950-80 presented a challenge.
'Many of the official data series are incomplete or published in differing formats,
requiring many interpolations and strong assumptions about relative prices.
Other data are not. published at all or not on a regular basis. Instead, they
have to be culled from the specialized monograph and journal literature. For
example, data on the amount of waste included in the gross output data of
agricultural products are not published regularly or in a consistent framework.
Just as aggregate measures of Western economic performance are used
in many different applications, so the results of these studies can he employed
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in many ways. Foremost is their use in making assessments of the Soviet econ-
omy by analyzing the interplay of the disposition of resources for consump-
tion, defense, and future growth. Insights into the regime's policies and pri of
ties can be obtained by assessing the "burden" of defense and the patte
allocating the "growth dividend." In addition to being a measure of the size
and growth of the economy, GNP also provides a standard against which other
economic variables can be measured, such as the amount of energy used per
unit of GNP.
The GNP data base forms the foundation for forecasting, either by using
large econometric models or other means. Such forecasts not only concern the
future growth rate of total GNP, but also can be employed to assess other im-
portant variables, such as the domestic demand for oil.
The GNP estimates can be used to compare the size of the Soviet economy
with the United States or other countries, and the relative priorities each
country assigns to the uses of its national product. Such international com-
parisons depend, of course, on the domestic value of GNP or one of its com-
ponents. For example, an earlier publication in this series estimated the value
of Soviet consumption relative to other countries.'
Despite the limitations of the estimates, the work expended on the CIA
independent. measures represents it valuable contribution to economic analysis
of the USSR. The results shown in this volume present a picture of Soviet
economic growth different from that given by the official measures. Each of
the four studies presents comparative results in detail. Bv way oFf summary,
rats for the four
the following tabulation compares average annual growtfi
aggregate indices and their closest Soviet official counterparts for 1951-80:
Average omnval rate of growth in the yearn 1,951-80
CIA Soviet
measure measure
------------------ 4.7 7.4
GNP 1 ----------------------------------
Industrial production--------------------------------------- 6.8 8.7
Agriculture production 2------------------------------------ 2.8 3.1
Per capita consumption------------------------------------- 3.5 5.0
'The CIA measure for the same coverage as the Soviet measure (see text) is 5.3
percent per year
' The measure shown represents ,net output," or gross output less products used
by agricultu% (seed and feed). This is the concept of output closest in coverage to the
official Soviet measure of farm output. As a contributing sector to GNP the appropriate
material purchases from
measure for agriculture output is value added 2(net output tl year.
other sectors) which over this period grew
it is clear that, except for agriculture, the growth rate differences are large
and, over a 30-year period, indicate a significantly different picture of economic
growth than that provided by official Soviet statistics.
"Consumption in the USSR : An International Comparison." U.S. Cons. Joint Economic
Committee, August 1981.
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From Soviet Gross National Product in Current Prices, 1960-80, March 1983
Appendix
Soviet GNP Data:
Methodology and Reliability
For the purpose of GNP accounting, we divide the
Soviet economy into two sectors-household and pub-
lic-and compile detailed accounts of incomes and
outlays for each. These accounts are shown in tables
11 through 14.
In the household sector, incomes should equal outlays,
but outlays that we have been able to identify consist-
ently exceed incomes in all years. In order to balance
the accounts, therefore, we have added an income
item in table 11 for unidentified money income and a
statistical discrepancy.
In the public sector, we do not estimate defense
expenditures separately, and, therefore, incomes al-
ways exceed outlays. The difference, shown in table
14 as outlays n.e.c., is taken to be defense expendi-
tures and others (for example, changes in strategic
reserves) not included with any of the identified
expenditures. As discussed on page 3, the outlays
n.e.c. category does not include all defense expendi-
tures. Other elements of defense expenditures are
believed to be included in investment and R&D-and
possibly in administration, health, and education.
Some estimates of these other elements for 1970
indicate that the independently derived estimate of
total defense expenditures is consistent with the GNP
data presented here.
We compute GNP in two ways: as the sum of those
incomes in the household and public sectors that are
earned as a result of the current production of goods
and services (see table 15) and as the sum of outlays
by both sectors for goods and services (see table 16).
The equality of incomes and outlays in the separate
sector accounts ensures that total GNP is the same
regardless of which method is used.
This two-sector structure of the Soviet economy is
highly simplified and leaves much to be desired. For
example, in the household sector (see tables 11 and 12)
the production and consumption activities are com-
bined in one account. In the public sector, the activi-
ties of the government, state production enterprises,
and collective farms are all combined. The failure of
the Soviet Union to publish more detailed data means
that an effort to develop the information required for
a more detailed accounting structure would enor-
mously increase the difficulty of the project without
greatly enhancing the value of the results.
The various types of income listed in table 16 are
disaggregated in table 17 to show GNP by sector of
origin. For example, total wages are divided into those
wages earned in industry, construction, agriculture,
and other sectors. The Soviet definitions of the various
sectors are often different from those definitions we
use for GNP calculations-requiring us to make
many additional estimates.
In order to obtain the growth of GNP, we compute
constant-price activity indexes for each sector of
origin (see table 18). For the most part, these indexes
show production in physical units (such as types of
machinery, kilowatt-hours of electricity, and tons of
oil) to which prices can be assigned.
Constant-price indexes of as many end uses of GNP
as possible are also compiled, again mostly in physical
units (see table 19). Constant-price indexes of net
exports and inventory change have not been compiled,
and these end uses of GNP are therefore combined
with outlays n.e.c. to form the "other expenditures"
category.
Fror:t the current-price GNP data in table 15 and the
constant-price indexes in table 19, implicit rates of
price changes of GNP can be computed for each end
use (see table 20).
The primary source for most of the raw data used in
this paper is the annual Soviet statistical handbook,
Narodnoye khozyaystvo SSSR v 19- godu. Some
data were acquired from other Soviet statistical publi-
cations, such as the handbooks for the 15 republics
that make up the USSR and the budget handbook
(published every five years).
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These standard statistical sources left many gaps,
however. Filling these gaps required a broad search of
Soviet economic books and journals. The type and
range of sources used is indicated by the detailed
source notes to our earlier publication on GNP in
1970 prices, USSR: Gross National Product Ac-
counts, 1970, Central Intelligence Agency, A(ER)75-
76, November 1975. Further notes are available in
USSR: Measures of Economic Growth and Develop-
ment, 1950-80, US Congress, Joint Economic Com-
mittee, December 1982.
Reconciliation of Defense Expenditures With GNP
As explained on page 3, we estimate Soviet defense
expenditures independently of the GNP accounts.
This has to be done because the Soviets publish no
useful data on their defense expenditures. The direct-
cost methodology used to estimate total defense ex-
penditures involves the identification and enumeration
of physical elements of the defense effort over time
and the application of cost factors (expressed in 1970
rubles) to each element.
An additional useful step is an attempt to determine
whether the independent. estimate of defense expendi-
tures is consistent with our GNP data. If we have
correctly constructed Soviet GNP by end use, then all
purchases of goods and services for defense must be
included in it somewhere-under either consumption,
investment, or other government expenditures.
One part of other government expenditures is the
residual element-outlays n.e.c. By its method of
construction, this element should be made up almost
completely of defense expenditures. In the GNP data
discussed in this paper, the value of outlays n.e.c. for
1970 is 27.5 billion rubles-far short of our direct-
cost estimate of total defense expenditures for 1970.
We have, therefore, reexamined the identified end
uses of GNP-consumption, investment, government
administrative services, and R&D-in light of the
hypothesis that they might contain some defense
expenditures. The Soviets have published some ac-
counting rules they use in compiling their economic
data, but these rules are skimpy in any regard and
nonexistent regarding defense expenditures. There-
fore, our judgments of where the Soviets may be
counting their defense expenditures in the end use
categories can only be hypotheses.
In examining the identified end uses of GNP, we
considered only those reflecting public-sector outlays
(see table 14). The following categories seem likely to
include defense expenditures:
Communal services probably include defense ex-
penditures for education, health, and physical
culture.
Government administrative services probably in-
clude defense expenditures for administration.
Investment probably includes defense expenditures
for (a) common-use durables (machinery and equip-
ment that are similar in design and use to items
that would be considered investment in a civilian
sector), (b) construction of new facilities, and (c)
capital repair of equipment and facilities.
Research and development probably includes de-
fense expenditures for research and development.
Each of the physical elements of the defense effort (as
listed in our direct-cost methodology) was then exam-
ined for types of expenditures that would fall into
these categories.
Our estimates of the direct-cost defense expenditures
that could be included in each end use of GNP is
necessarily imprecise. Each step in its preparation
(our listing of the physical elements of the Soviet
defense effort, the estimate of the activity level of
each, and the estimated 1970 unit price of each piece
of equipment) is subject to substantial margins of
error. We therefore use ranges for our estimates.
When these estimates are added to outlays n.e.c. in
our GNP data, the resulting range for total Soviet
defense expenditures does not coincide exactly with
our direct-cost estimate, but the two are broadly
consistent. This general consistency gives us consider-
able confidence in our estimates of both defense
expenditures and GNP.
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 Declassified in Part - Sanitized Copy Approved for Release 2011/11/15: CIA-RDP87M00539R001301650005-8
Declassified in Part - Sanitized Copy Approved for Release 2011/11/15: CIA-RDP87M00539R001301650005-8