MILITARY-ECONOMIC PROGRAMS OF THE USSR 1947-61

Created: 3/14/1957

OCR scan of the original document, errors are possible

I

CD

Authorized

Assistant Director

Office o' Current Intelligence

No. Pages opy No,

7

(INFO:

MILITARY-ECONOMIC PROGRAMS OF THE 1

(ORR)

Office of Research and Reports CENTRAL INTELLIGENCE AGENCY

This document contains classified Information affecting the national security of the United States within the meaning of the espionage laws. US Code.. The law prohibits its transmission or the revelation of its contents in any manner to an unauthorized person, as well as it* use in anv manner prejudical to the safety or Interest of the United States or for the benefit of any foreign Government to the detriment of the United States.

Foreword

Vole report Is the integrated version of the Military Coat Study. Itomposite ofnd IT, covering the historical and projection periods, respectively, which were iaforcally coordinated

An abstract of this study appeared as Appendix "B" to. Exceptions taken to tbe study arc reflected la the following footnotes,

which appeared ia the aforementioned appendix:

"The Assistant Chief of Staff, Intelligence, Department of the Array, does not consider the costs derived la the interagency study toalid appraisal of the over-all costs of the Soviot military effort and does not concur in the findings of the study.believes that its basic weaknessack of sufficient Information, pointing out that few current prices are available for jltens_ procured by the Soviet arced forces and argulnfi that tlie derivationlcuaooe further believes that the evidence as to whether the armed forces do or do not pay the turn-over tax is notLastly, he regards the information available on costs ofns as guided missiles. atomic energy, and research sad development as almost nil."

"The Director of Saval Intelligence believes that although the text states: (a) the results of this analysis ara tentative and subject to error, (b) important gaps remain In statistical data available, particularly in the military sector, and (c) the

an isgresglon, ir.orp favorsble than the methods And Information used can .luatlfv. Because of the tenuous nature of much of the evidence used and other Important deficiencies In Intelligence, he believes that conclusions drawn froa thia study may not be valid, and that comparisons between USSR and US defense expenditures should be used with caution."

This paper presents primarily the results of the study. With the exceptionmall amount of aethodological material in the third chapter, neither the specific details of the methodology nor any sources axe Included. Tbe methodology, however. Is Included la seme detail tn the series of appendixes previously published.

Finally, the ntajricol estimates In this paper have. In general, been rounded to two places. For purposes of calculation, however, an

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1laces verc carried, thereby accounting for apparent differences between components ond their respective aggregates no presented. Tbe two places carried should not he construed as significant digits; the degree of significance varies considerably for the sevens! eotlmateB.

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7ASIZ OF CONTENTS

Page

Forevord

Recapitulation

Introduction

of

Programs and Production

A. Military

Air Defense

Sea

3- Ground Forces

h, lang Range Air Delivery

Requireoents to Support Soviet

Defense Expenditures

. a.

b. Budgeted Expenditures for the Soviet Ground

e. Budgeted Expenditures for the Soviet Naval

Forces

Expenditures for the Soviet

Budgeted Defense

Defense Expenditures

and Operating Expenditures

of

in Total Defense

of Derived Budgeted Expenditures withSoviet Defense

vlth Gross Stations! Product

B. Coeparicon of US and Soviet Military Expenditures.

ill

tables

page

budgeted expenditures for the ground forces of the ussr. ib

budgeted expenditures for the havel forces of tbe ussr, 21

budgeted expenditures for the air forces of the ussr,

25

1*. other budgeted military expenditures of the ministry of

defense of the ussr, 28

5. ton-budgeted military expenditures of the- 33

/6. budgeted initial expenditures of the ministry of defense

of tbe ussr, 38

budgeted operating expenditures of the ministry of

defense of the ussr, Uh

8. budgeted operating expenditures for the ground forces

of tbe ussr, k6

9- budgeted operating expenditures for tbe naval forces

of the ussr, vf

10. budgeted operating expenditures for tbe air forces

of tbe ussr, lid

u. budgeted military expenditures of the ministry of

ussr by sector of origin, 51

12. defense expenditures of the ussr, 56

13- budgeted defense expenditures in tbe. 59

1*. soviet defense expenditures aad dross national product,

63

defense expenditures and gross national 63

of us and ussr military7 us and ussr defense5 69

illustrations

figure 1. administrative and economic relationships

of the ministry of defense of the

figure 2. military expenditures of the 13

figure 3. procurement of military aircraft in the ussr

by type,

figure h. percentage distribution of the procurerent of

military aircraft in tbe ussr by

figure 5. budgeted military expenditures of thedefense of the ussr by sector 50

figure 6. budgeted military expenditures in the ussr.

. . je

figure 7. soviet production of aircraft, in airframe

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A ourvey of thia study Indicates that the following useful goals hare been attained: overage of estimates of Soviet military expenditures hove been extended in depth and detail; ethodramework capable of assimilating virtually all pertinent considerations and data have been established; efinite advance has been made in the economic measurement of estimated Soviet military programs and in the interpretation of the defense expenditures announced in the Soviet State Budget; and oundation for the improvement of future estimates has been laid.

Among the advances which permit the improved measurement and interpretation of Soviet military expenditures, the developeent of Internal ruble prices and pay data is perhaps foremost. Information of this kind,ajor portion of ailitary expenditures as defined, has been established with reasonable accuracy. It has also been determined that tbe prices the military pays for uniquely ailitary equipment do not cover full cost, because much of the capital. overhead are probably sot considered in tbe determirjtion of price. In addition, it seems fairly certain that the announced Soviet defense budget Includes most normal military expenditures but excludes such Important expenditures as those for research, prototype devclojaent, new plant and equipment, and reserves for industrial mobilization as veil as those for the nuclear energy establishment.

Thereariety of substantive findings of interest. This studyonsiderable increase in the estimates of the dollar value of Soviet military efforts. In general, estimates of production of major equipment seem to have been relatively insensitive to shifts in the trend of events and to have been understated Operating expenditures, particularly average personnel costs, have been estimated to be higher than previously thought. This valuation of Soviet military

1.

programs gives an Indication of the site and nature of the economic requirements for direct support of these military programs in ternis of initial coats and demands upon the various sections of the economy of the USSR. In the aggregate, military manpover estimates seem to be Insensitive to, or at least to lag behind, actual developments in the USSR. This insensitivity suggests the necessityomprehensive and exhaustive reexamination of Soviet military personnel strength. If feasible, this reexamination should Include the civilian personnel of the military establishment as well. Tbe real extent of these excessive estimates tends to be Obscured by the gaps in intelligence information On support personnel, equipment, supplies, and services. Consequently, estimates of the physical quantities and expenditures involved had to be conservative. Moreover, tho adjusted investirent price Index probably has moved the derived series too close to the budget series in the early and late years.

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I. Introduction. A. General.

The genesis of this study lies In the IAC action5

hlch approYea the recommendation In the post-mortem of

. Soviet Capabilities and Probable Soviet Courses of Action

0 that:

"There be initiated as soon astudy of the over-all costs of the Soviet military effort and its implication for future trends in the Sovieta an effort tooordinated appraisal in time to be contributed to6 estimate on the USSR."

Accordingly,he IAC representatives approved

terms of reference vhlch detailed the problem as follows:

"To prepare on over-all systematic costing of estimated past and projected Soviet militaryiew to improving our estimates of: (a) Bloc military expenditures; (b) future Soviet military programs! (c) Soviet economic capabilities to meet these proepssan and (cj the Impact of such programs en Soviet economic growth."

Although this study is bloc-wide In scope, to attempt to handle the lntra-bloc transfer problem, the time allotted did not permit forces other than those of the USSR to be considered uniformly and extensively. Therefore, this publication is limited, except as may be noted, to those regularly active militarized forces which are under the immediate Jurisdiction of tho USSR, irrespective of location.

Insofar6ear of flux because of reconversion activities and demobilization ond because the last known change In the rate of pay and allowances occurred in that year, this year was eliminated from this study.

3

Broadly speaking, this study sets out to measure tie economic significance of the defense activities of the USSR. Soviet defense expenditures are considered in two groups: those that ere direct activities of the Ministry of Defense and are known to be or can with reasonable safety be assumed to be supported from the funds allocated to defense in tbe consolidated State Budget; and those that ore financed from resources originating in budget allocations for other

functions and/or in ministerial funds. By this approach it is hoped to accomplish two ends: (a) to measure the economic impact of the Soviet defense posture as here defined and (b) toelatively detailed sppreciotion of vhat portion of the defense effort of the USSR can be covered by its explicit defense expenditures.

figure I*ery generalized picture of the political, administrative and operational control relationships of tbe Ministry of Defense and its economic support, of the flov of goods fron producing to consuming organizations within that ministry, and of the compensating financial flow. Although the indicated organizational structure is more strictly applicable only to the situation since3 vhen the Ministry of Defense was created, no essential difference in aggregate responsibilities or flows of goods existed under the sometimes separate war and naval ministries prior to that time.

Most simply, the consuming organizations of the Ministry of Defense are formed into ailitary districts (in theroups of forces (outside theaval fleets, and long range air armies. These organizations look to the military procurement and supply organizations for material support and to the military financial organization for funds to pay their personnol and to make whatever local purchases they are permitted. Tho various supply organizations, in turn, arrange for the production and delivery of those particular supply items which are under their cognizance, including whatever construction Is required.

* See next page.

To reimburse the producing ministries for tbe goods and services procured, as well as to supply the military districts and other consuming organizations with pay and other funds, tho ailitary financial office has recourse to the Ministry of Finance which supplies from general revenues whatever funds the budget has authorized the Ministry of Defense to expend. B- Definition of Categories. At the outset, it was hoped that this study could be couched strictly

FIGURE 1

ITTH AT IVK AND ECONOMIC RELATIONSHIPS OP THE MINISTRY OF DEFENSE OF TTIE USSR

PARTY CENTRAL COMMITTEE

PRESIDIUM OF COUNCIL OF MINISTERS

OF DEFENSE

MINISTERS GENERAL STAFF

nuni

OF

rmtrw

MINISTRIES

AKD

PROCUREMENT AND SUPPLY ORGANIZATIONS

Artillery Armored Shipbuilding Revel Armament Ship Repair Aviation Engineering Construction Resx Services

COflSOKDG ORCABIZATICtt

MILITARY DISTRICTS GROUPS OF FOtCES FLEETS

LONG RANGE AIR ARMIES

'ControlFlovFlov

in Soviet institutional terms. At thia time, however, it was not possible to do so to any great extent partly because the Soviet Institutional arrangement is not known with adequate precision and partly because the available information is not arranged and presented in theoe terms. For theseynthetic categorization had to be

followed in which the over-all defense establishment was broken downivefold classification system of expenditures: those of the ground forces, the naval forces, the air forces, those budgeted to the Ministry of Defense but not allocable to specific forces, and "other" expenditures not budgeted to the Ministry of Defense.

For purposes of computation the Saval Coastal Defense and Infantry forces were included along with the Soviet Army ground forces.

Tbe air forces are defined to include the Air Forces of the Soviet Army, the Fighter Aviation of the Air Defense, the Aviation of Airborne Troops, Hsvsl Aviation end long Range Aviation. Tbe Civil Air Fleet and Polar Aviation are explicitly excluded in so far as possible.

The naval forces ore deYlned to include surface and subsurface forces and their shore-based support. In addition to Naval Aviation, Coastal Defense, and Kaval Infantry, which have been defined as components of the air and ground forces, the merchantis, the River Fleet end the Maritime Fleet Including the Fleet of the Northern Sea Route--have been excluded specifically.

6

The balance of the budgeted funds of the Ministry of Defense covers expenditures which are unallocable to the various forces either due to the present state of knowledge or due to practical considerations arising from the methods by which the estimates of expenditures were obtained. ThiB^ateggry_coyers the guided miss lies programs, the Antlefr Defense (rrotlvo-vozdushnayaccimsana, control and radar programs, military disability and retirement pensions, and transportation, communications, construction, civilian pay, medical.

printing and publishing expenses.

The last category accounto for activities not financed through the defense budget. Including: reBearch and development; the nuclear energy prograa:.the sttlltaajzed ccenx)nents of the Minibtry of Internal AffeJrs_trer^kh Del--MVD].and the Jtasalttee oa State Security (ggaltet jo Goaudarstyennoybe Voluntaryjooperatlon with tbe Amy. Air Force, and Kavy fDobrovolnove ybphcheotvo.Sodeystviyand the Pay of military reserves.

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II. Military; Programs and Production. A. Military Programs

Aa of the end of World War II any realistic assessment of their military posture by tbe Soviet leadership would have led to tbe conclusions

that on the ground theyelatively large force, veil equipped in ouch essentials as armor and artillery}

that on the sea theyiscellaneous collection of relatively short range and/or antiquated vessels;

that In the air they had forces organized, trained, and equipped primarily for ground support and air defense, and 00 that they had no long range air capability or nuclear veapons.

If, then, this same Soviet leadership decidedolicy leading, on on accelerated long-term basis, to the military capability either (a) to overpower, match or seriously Interfere with the world's dominant military force, that of the US and its key allies or (b) what Is largely the same thing, to dominate the Eurasian continent or the world, the requisite military programs and their priority guides should have been readily apparent. The evolution of these military programs and their priorities con be discerned In the historical ccciposltion of Soviet forces as revealed In the order-of-battle (OB) data. These programs seem broadly to have included development of:

Air defense forces capable of detecting and countering large scale strategic attacks;

Submarine ond other naval forces to interfere with shipping and to defend the seaward margins;

More oobilo and modern ground forces with the adequacy and flexibility of support such forces Imply; and

(k) Long range air delivery systems.

Tbe salient features of each of these broad programs ore

reviewed below.

Defease Forces.

ew all-metal piston fighter aircraft entered the Soviet CS in quantity, and the first Jet-fighter aircraft was introduced into operating units. 9 the new piston fighter was in operational units in strength. Tne piston fighter faded frcn the

OB rather rapidly' however at that tiac, Jet-fighter

aircraft were present in strength and continued to account for an increasingly large proportion of tbe increasing fighter aircraft forcest which time the entire combat fighter strength of the USSR was represented by Jet aircraft. hin group began to develop an all-weather capability as well.

Paralleling theso aircraft developments were the Introduction of significant quantities of early warning and ground control interception (GCI) radar in0 and ofillimeter(MM) antiaircraft (AA) gun in This development was followedontinuous increase in the radar OB and, at the end of the period, by the Introduction ofM AA gun and the guided missile sites around Moscow. At the esse time the antialr capabilities of the standard ground combat divisions were increased by the introduction of1 modelM AA gun into the table of organization and equipmentK) of the Soviet line division. This trend continued with the introduction of theM AA gun and the raultiharrcUedM AA machine gun.

2. Sea Defenses

The increase in Soviet surface capabilities for sea defense begsn slowly after World War IT. Except for the prewar-designed OTLICHNYY cIsbb destroyer and to some extent the CHAPAYEV class cruiser, the modest Increases in strength0 were largely the result of tbe acquisition of vessels aa reparations and of the completion of hulls on which construction had been stopped during tne war.

9

The Soviet subsurface Tleet seems to have increased earlier. ubmarine strength had increased by almost, one-third over This increase, however, was gained primarily through the construction of prewar-designed and, therefore, obsolescent classes of vessels with their attendant limitations.

Tbe marked Increase in Soviet capabilities to protect its seaward margins and to Interfere with shipping would seem to have begunO with the Introductionuccession of postwar-designed vessels.05 the OB received In strength the SKORYY class destroyer, the SVERDLOV cruiser, theA classes of destroyer escorts, the "W" and "Z" classes of long range submarines, and the TALLINN and KOTLIK classes of large destroyers. 3- Ground Fcrcf Modernization

Indications ore that priorith the refurbishment of the line divisions, the modernisation of the ground forces resulted in increased fire power.

Beginningnd particularly sincestriking power was Increased in all the line divisions by substituting heavier caliber tanks and self-propelled guns and/or by Increasing the numbers of tanks and guns.

Particularly In tbe latter half of the, the firepower of these basic divisions was Increased in small arms, conventional artillery, rocket launchera, antitank artillery and weapons and, as mentioned above, in antiaircraft artillery and machine guns.

The mobility of these divisions has improved modestly but steadily9 as all-wheel drive trucks of native design were mad* available In sufficient quantity so as more than to replace tho carefully nurtured lend-lease equipment. Tbe mobility of these units received an additional fillip beginning3 by the addition or increase in the number of armored and amphibious vehicles and artillery tractors.

4. Lang Range Air Delivery Systems

The first semblanceodern Soviet long range air delivery system appeared inwith the advent of thea copy ofedium piston bomber. This aircraft constituted the only Soviet delivery vehicleong range capability until medium and heavy Jet homers vere put into operational unitsespectively. Production of these bombers had been begunB. Major Military Equipment Production

In general, in the USSR, the availability of major military equipment from production is quite adequate to support the xlnd and size of estimated military forces in existence during the period.

Perhaps_the_most striking feature of what must haveuite deliberate military-economic policy of the USSR_is the decision, which apparently vas Bade, to concentrateew models of aircraft and naval- imilar course of action seems to have been taken somewhat before this period in tbe case of ground force equipment.

orodels of fighter aircraft were in series production;0 this figure had been reduced tondo only 2. Similar reductions apply to other aircraft categories. ne model of specialized ground attack plane vas in production.here have been none. Three models of light bombers6 have given wayodel* tor all practical purposes, only one model of medium bomber has been in production at any one time.

A possible reversal of this trend towards standardization, however, seems to have set in. Models of fighters increasedircraft in the heavy bomber category seem to have shown up virtually simultaneously. ne model of helicopter was introduced. , another model of helicopter was added, and both continued In series production The concentration of production effortelatively few modelsrobably vas influencedtrong

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desire to obtainarge, relatively high-performance force while every effort waa made to developamily of truly modern aircraft.

A Blmilar trend is perceptible in the ease of naval construction, primarily in the category of submarines and minor vessels. Whereaslasses of submarines with various operational ranges were in production, until the recent Introductionew medium range submarine,lasses, both long range, have been in production

Thc relationship between estimated military programs and equipment EE2duc_tion indicntes no clear trends In the reduction of production lead time. In the alteration of reserve policy, or In changes_in attrition or wastage experience.

C. Status of Base.

Tbe base-factllty aspects of the military programs of tbe ussrarticularly elusive Intelligence problem. An airfield expansion program of considerable magnitude has been detected, as has been the provision of numerous possible guided missile launching sites in the vicinity of Moscow. There Is some reason to believe that personnel facilities generally have not required significant expansion.

III. Economic Requirements to Support Soviet Military Programs

This valuation of Soviet Military programseneral indication of the site and nature of tbe economic requirements for direct support of these military programs in terms of overall expenditures, budgeted expenditures. Initial and operating expenditures, and demands upon the various sectors of the economy of the USSR.

.

The estimated expenditures for each of the five major categories defined st the end of Chapter I, as well es total expenditures for the Soviet defense establishment, sre shown graphically in Total ,* See next page.

12

expenditures to provide for the estimated force levels and their requirements riseow ofillion rubles"'fillion rubleslth the) value estimatedillion rubles. Expenditures for the air forces exhibit the most marked absolute growth, rising fromillion rubles7illion rubles5 andillion rubles Kaval expenditures show the sharpest rate of growthncreasingillion rubles toillion rubles. In the projectiont Is estimated that naval expenditures will remain relatively stable, fluctuating betweenndillion rubles. Ground forces expenditures are quite constant overyear period startingow ofUlon rubles andevel of W* billion rublesigure which is maintained throughout the remaining years of tbe estimate. Other budgeted expenditures increaseillion rubles7 to slightly more than twice this value5 and toillion rublesther defense expenditures rise someercent7eachingillion rubles Further growth during the projection period brings the value of these expenditures toillion rublesalue exceeded only by the outlays for the Soviet air forces.

The expenditure calculations in tits section are basedetailed [flilOt^ examination of the many Soviet military procurement programs. Outlays for major items of military hardware, for personnel, and for other operating expenses associated with the various weapons systems were estimated In order to provide as comprehensive andicture as possible of USSR military expenditures. In many cases, internal Soviet data were available for the direct pricing of comaodlties, for computing expenditures for personnel, or for the establishment of ruble-dollar ratios specifically applicable to analogous information.

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All monetary valuea in this section (III) arc expressed1 rubies.

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J

was necessary, vhen direct prices were unavailable, to ascertain

ruble-collar ratios appropriate to groups of Items or specific products

In order to reflect differential costs. Ruble-dollar ratios were

Identified by sectors of origin. Those ratios variednd.

ubl.es to the1 monetary values).

Ho precise measure of the nargtns of error resulting froa the

prices utilized Is possible. In order to provide some perspective.

however, prices may be considered under four major groups for purposes

of evaluation. Each groupifferent margin of error and

reflects progressively less reliable data, requiring leos direct

analyticalte flrat group utilized direct ruble prices

for ascertaining the value estimate, which accounted forercent of

total costpercentercent This

group included the following categories: j subsistence

and clothing; automotive equipment and tractors; petroleum, oil, and

lubricantsransportation; construction, miscellaneous services

and supplies; civilian wages; pensions; reserves; KVD-XOS personnel costs;

-A

and some research and development. 'The second .groupmall sample of direct ruble prices to obtain ruble-dollar ratios which facilitated the conversion of analogous price data into rubles. This group, including aircraft, shipbuilding, and armored force vehicles. accounted forercent of total expenditurespercentndercent^ The third group, accountingercent of total outlaysercentercentl, includes the following categories: weapons (principally towed artillery. bibaU arms andmanr.ttlon, electronics, and coemuinicutionB. The valuation procedure for this groupixed situation. The maaber of direct prices available varied considerably. Ruble price information for electronic equipment is extensive tut is primarily for civilian equipment or electronic components. Prices forery few weapons and ammunition were available. The best estimated ruble-

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dollar ratios vere used with analogous price data to cake the value

accounting forercent of total expenditures

7 percentndercentncludes guided missiles, atonic energy, some research and devclopoeat, some equipment spares, and other miscellaneous Items. Values vere estimated by the use of partial Soviet data and modified US values as factors which were converted to rubles by estimated ruble-dollar ratios. Tfcere are either no direct prices or no physical estimates available for estimating the value of this group.

Productivity changes over time were also taken into account to provent distortion. In the relevant casest consideration was given to the cost reduction effect of series production. This relationship expresses the declining cost of production as the number or units producediven model Increases.

The economic requirements in this study are based on intelligence estimates of Soviet military programs. In view of tbe complexity of the military system and the variety of individual elements therein, it was necessary to prepare the estimate of expenditures in relatively great detail. Rates of utilization of equipment, types of support units, and associated logistic and maintenance requirements were applied at this level of detail.. Wherever intelligence data were available on Soviet operating experience and performance and equipment characteristics, these data were used as determinants of expenditure.

In order to reflect changes in weapons systems and in the composition and levels of forces, data on expenditures were organized and accumulated for operating units selected to provide practical, convenient, and representative categories. Not all outlays, however, could be accumulated In this manner, and, as necessary, estimated production for military programs was used to schedule expenditures. In effect, therefore, this study used operating units (order of battle) or production estimates, aa appropriate, tofor the various military programs.

16

Where Intelligence did not provide detail for many items associated with the major equipment of the Soviet military forces, lt was necessary to relate the_ schedule of these Items to tbe primary programs. Although every attempt vas mode to provide as inclusive an estimate as possible of Soviet expenditures on military programs, possible overstatements were avoided by the selection of conservative estimating parameters for many of the categories. In this way the resulting estimates tend to be minima In such instances as construction, communication, transportation, personnel pay and allovsnces. and subsistence.

1. Budgeted Defense Expenditures

Throughout the, budgeted defense expenditures remain slightly less thanercent of tbe total of all military expenditures. The estimated budgeted expenditures areov ofillion rublesjtillion rublesnd areillion rublesl. The biggest share of budgeted expenditures in the early years vas for personnel, vith wages, food, clothing, and miscellaneous coBts accounting for Borneillion toillion rubles annually. While this account remained relatively stable, expenditures fPJL*be_jffqducts..heavyindustry were Increasing rapidly until.5 and thereafter, these expenditures accounted for more than halfudgeted expenditures. The Inpetus for this changing pattern was supplied primarily, by the large growth of the Soviet aircraft and the Soviet shipbuilding

PIxEer.ditures fnr the Soviet Groundidentifiable and allocable expenditures for the ground forces

ore summarized in 7 level ofillion rubles reflects primarily the end of the personnel and industrial demobilization which mm occurring The years that followed are characterizedradual but steady upward trend In expenditureshen

* ollows on page IS.

17

r

1 Rublos

X

Budgeted Expenditurea for tbe Ground Forces of tho

3 9 0 1 2 3 * 5 6 7 o 9 0 T

* Major equipment procurement

Armored force Tehlelee

eapons

Weapons-initial spores

M

410

-

990

360

0

730

0

260

420

0

770

0

12,

260

U,6oo

0

0

0

Petroleum, oil, and lubricants.

J

expend!tuxes leveled off at'about U* billion rubles.

On the basis of the assumptions mode, many of the individual expenditure series are at constant levels over time, particularly vith regard to the projection. Ha.lor equimr/gnt expenditures increased7 valueillion rubles to someillionhereafter remaining fairly stable. The stability of the procurement of major ground force equipment, specialized vehicles and veapons,illion rubles each yearather steady program of modernization, maintenance, and replacementonstant force level. Toe temporary rise in tank procurement90 largely results from the changeover to the production ofI4 tank and the concomitant requirement to fill the pipeline vith spare ports. 8ev medium and heavy tanks are Introduced and their procurement rates ere low temporarily. The expenditure series does notorresponding drop, however, because the nev types of equipmentigh unit price associated vith early production of nev models.

Acrnin?.tloa is one of the more variable ground-forces procurement Items. Actually, for all the types of forces, ail ammunition except bombs and naval mines and torpedoes ere included In this expenditure estimate. Because it vms not possible toractical estimate of outlays for maintaining the smmunltion stockpile, there is some understatement of expenditures for the ammunition program on the whole. However, the overstatement of ground force ammunition procurement, by reason of the inclusion of ammunition produced for other types of forces, would tend to offset this possible understatement in the expenditures for the ground forces. The expenditure seriesteady increaseillion rublest7evel ofillion rubles2 and then remains relatively stable.

The slight Increase in operating expenditures over the period of the projection is primarily the result of vehicle operatic expend!tares

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au the vehicles of the Soviet Ground Forces are modernized over timo. It should be noted that the vehicle figures obovn here do not include vehicles for shore-based naval use (coastal defense and naval infantry) as these items are included in tho expenditures for the naval forces.

Direct personnel expenditures cover four items: pay end allowances, subsistence, clothing and supplies for miscellaneous services such as food service, utilities, laundry and bath services and other administrative expenses, Including fuel. She estimates of expenditures are relatively constant at someillion rubles over the entire period since these outlaysunction of the number of troops, which remain quite stable. These outlays account foroercent of the estimated total expenditures of tbe Soviet ground forces.

c. Budgeted Expenditures for tbe Soviet Naval Forces

Inhere ore summarized all identifiable and allocable expenditures for the Soviet Naval Forces. The Indicated expenditures reveal the effort which tbe USSR has put forth to develop Its naval strength. Annual expenditures almost quadrupledisingillion rubles7 toillion rubles Total expenditures for the naval forces continue67 the rising trend noted in thoearB,eak ofillion rubles xpenditures drop toillion rubles as the production of naval vessels is estimated to be cut back. The increase during the last three years of the series is due to increasing operating expenditures Inasmuch as equipment procurement remains virtually constant in this period.

In tbe coulpment procurement series, the construction of new naval vessels is the major Influencing factor. The figures for construction of new naval vessels represent expenditure for fully outfitted naval vessels Including equipment and inltiul spare parts. Two trends are noted. Expenditures for naval construction rose fromilllor. rubles7 to moreillion rubleshich was apparently

* ollows on

20

Table 2

Budgeted Ixpendlturei for the Navalof the

ubles

8 9 0 1 2 3 * 5 6 7

0 1

equipment

Naval vessels,

Naval vessels, overhaul and

Mines and

Vehiclea(including initial

Operating

Personnel

Pay and

spares,material,supplies

snd

POL

Motor vehicle operating

0

oo

LOO

Wo

990

00

,

o

K H

oil, and lubricants.

r.:

the Peak year for the cruiser and destroyer production effort. The second sharp upward trend In the construction expenditures for naval vessels, noted in Table 2,aused mainly by an expansion of the intensive submarine building program This program continues at an accelerated pace7 vhen vessel construction outlays mount toillion rubles. 6 the submarine and destroyer construction programs are estimated to be cut back sharply and continuedonstant rate along with the other programs through the subsequent years of the estimate. The estimated level of procurement accounts forillion rubles8l. This estimate does not make provision for the production of nuclear-powered naval vessels or other naval developments'which might influence the trend of the estimate in the later years.

The second items of procurement, overhaul and refit of naval vessels, although notrocurement item, is Included hero because of the institutional arrangements between the Ministry of Defense and the Ministry of the Shipbuilding Industry, which performs most of the major repair work for the Soviet Navy, and because It is felt that the overhaul program In the USSR has been coupled with an extensive program of refitting and modernization. This series reflects tbe growing size of the naval forces and rises steadily to reachillion rubles5 andillion rubles The estimatestraight projection of the historical series. So attempt has been made to modify the factors to account for the increasing complexity of equipment in either the overhaul or .improveaent_aspects of.

The procurement program for mines and torpedoes rises steadily in the early postwar years,eak Thereafter, this program-declines rather sharply (approximatelyercent)evel of WO million rubles 6 level Is maintained throughout the projectioninesorpedoes). Because

08

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consumption of tbesc items io not significant, virtually all these items add to the growing stockpile of underwater munitions.

The operating expenditures ere, as would be expected, closely associated with tee growing numbers of vessels In the Soviet Navy. Expenditures for personnel, covering pay and allowanccti, subsistence, clothing, and miscellaneous services, sre based on estimated personnel strength figures. Although these expenditures do not reflect all the variations in the order of battle, they are in general responsive to the needs of the growing fleet in the later part of the historical period and reachillion rubles In the projection, expenditures for personnel constitute roughly two-thirds of the operating expenditures, somewhat less than In the preceding period, and Increaseeakillion rublesl.

The estimates for operating spare parts, materials, supplies, and equipage reflect the changing OB and ore Intended to cover naval vessel requirements for maintenance, operations, and the ordinary repairs performed by the naval establishment. Estimates during theore than triple, rising toillion rubles5 and to almost twice twice this figure. Although thiss again based on vessels in the OB, it reflects the increasing impact of the submarine in the operating programigher expenditure factor per standard displacement ton applies to submarines. Although these figures may not appear extremely large, they should be considered in conjunction with the overhaul figures which are included in tbe procurement category. The combined figures amountillion rubles5 and to moreillion rubles

Expenditures for POL were estimated independently for all services. The estimates include requirements for both forces afloat and forces ashore. One exception to the general pattern which should be noted here is that the estimated requirements for the otherwise excluded coastal defense forces are Included in the expenditures for POL because of the

23

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i

of the basic estimate. The estimate more than quadruples during the period,illion rubles

d. Budgeted Expenditures for the Soviet Air Forces.

The estimated expenditures for the Soviet Air Forces for there detailed by major category in The over-all total, which is influenced most heavily by aircraft procurement,lateau in thes when tbe estimated expendituresalue ofillion rubles and then rises again, reachingillion rublesecline9 resulting from cuts in aircraft procurement associated with model changes in the production program is followedeturn to an increasing pattern of expenditure. eak level ofillion rubles is achieved1esult of series production of new aircraft.

The aircraft procurement subcategory, which is detailed by major types of aircraft. Includes only the basic airframe, engine, electronics, armament, accessories, snd propellors. These estimates, which are influenced significantly by the introduction of new models of aircraft, rise steadily and sharplyillion rubles7 toillion rubles In the succeeding three years, these estimates drop slightly, again rise sharply to almostillion rublesrop toillionnd rise toillion

It should be noted in reference tohat tbe numbers of aircraft procured increase only slightly during the period,he outlay per aircraft, however, rises^sharply as complex newmodels of tHrarilft- are Introduced and causes the large incresse in the_prpcurepent expenditures for aircraft.

are parts are divided Into two categories: initial spares and operating spares. Initial spares are those spare parts manufactured in conjunction with the aircraft and provide the basic stock or. hand with the aircraft, in depots, and in the pipeline. Operating apures are

* ollows on

2*

those parts consumed by normal operations of the aircraft. Both categories Include the spare parts for the components of the aircraft listed above. Procurement of initial spares naturally follows the same pattern as aircraft procurement and reaches someillion rublesl. Procurement of operating sparesontinuous rise during the period from lessillion rubles in lgVfillion rubles This increase is the combined effectrowing OB and on increasing complexity of aircraft In the OB.

The personnel category has four components: pay and allowances, subsistence, clothing, and miscellaneous' services. Estimates of expenditures for personnel reflect the changing requirements to maintain and operate the aircraft in the OB. They varyillion rublesoillion rublesI. The increase in the projection period allows for the manning of the equivalent of an additionalir regiments estimated to be introduced during the period.

The POL category includeo fuel and lubricants for all aircraft and motor vehicles operated by tho air forces. The estimates represent consumption and make no prevision for build-up of stocks. They depend mainly on, and are heavily influenced by, the numbers and types of aircraft operating in tho Soviet OB. In the projection period this increase is influenced core by the increasing weight and power of the new models of aircraft than by increasing numbers of aircraft. old increase is noted over the, and the estimateillion rubles

The category for expenditures on bombs represents procurement of aerial bombs and does not imply consumption. Whatever is not consumed in training presumably enters the Soviet stockpile. Ho estimate is made of training consumption or the magnitude of the stockpile. All other air-force ammunition and rockets cannot be readily differentiated from total ammunition expenditures and therefore are contained in the ground forces section. Procurement of conventional aerial bombs has been scaled

26

down during theroa the high level of procurement in the period during and immediately following the Korean War. Thin procurement is then heldillion rubles perigure thought to bo adequate to provide for peacetime consumption of conventional air weapons. This level is maintained throughout the remainder of the projection. It should be noted that atomic weapons are not included In the calculation of expenditures for the forces.

The organizational-equipment category provides for ail other expenditures for the air forces. Again the estimates reflect the growing size and complexity of the Soviet Air Forces. luring the historicaleequipoent schedule was instituted to coincide with the introduction of Jet-aircraft operating units into thehe increase In tho projection period allows for the initial equipping of the equivalent ofir regiments estimated to be Introduced during this period and for providing specialized handling and training equipment for the new models of aircraft to be introduced.

e. Other Budgeted Defense Expend!turcs*

The estimated expenditures for thef direct functions and expenditures of tho Ministry of Defense that cannot be conveniently allocatedpecific military service are listed In Table tH by major category of expenditure. These expenditures stayelatively constant level of aboutillion rubles during the late lOAO's but start to rise gradually0 because of the expansion of the PVO cossaocd control and radar system. An increase In the expenditures for communicationsharp Jumpnd this increase Is accelerated thereafter by the introduction of guided missile expenditures. Total expenditures for this group of items amount toillion rubles5 andillion rublesecline of approximatelybillion rubles from0 level.

That is, budgeted to the Ministry of Defense of the USSR. ** ollows on

r 1

s

TOP

Table k

Other Budgeted Military Expenditures of the Ministry of Defense of tbe

1 Rubles

-Guided

PVQ^ocnand control and radar system

personnel pay expenses (military personnel) and printing expenses pensions for military reserves

910

350

0

690

0

BOO

-

0

9 0 1 2 3 * 5 6 7 8 9 0 1

0

Antlair defense (Protivo-voadusanaya oborona).

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mlnnllc expenditures Included here ere based on the previous

estimates contained in* and- It was necessary to

modify both previous estimates because of refinements in available price

information and the necessity to eliminate double counting. Estimates of

expenditures for the surface-to-air missile were taken from

and oil other missile expenditures were taken from NIE The total missile expenditure Includes outlays for missiles and for associated support equipment. Expenditures for construction of missile sites, pcrsonnol pay and allowances, and training expenses were eliminated

f

because they are included elsewhere. (New estimates, however, are currently being developed for6 and preliminary indications suggest that upward revisions may occur.) The decline In expendituresl from0 peak is based on assumptions concerning the introductionew model surfsee-to-eir missile (SAM)emporary decrease in the air-to-air missile requirementsesult of an aircraft model changeover.

Expenditure for the PVO command control and radar system covers all headquarters elements in the air defense system including the communications facilities and ground radar (EarlyGCI, fire control--FC, identification friend or foe--LTF) associated with the system. The estimate essentially reflects expenditures for the various Items of equipment because all other outlays are Included in other categories. This serieseakillion rublesfter which tbe rate of growth in the program diminishes and is reflectedecline in the annual expenditures for the program which level offillion rubles in theears of the projection.

All transportation expenditures that could be estimated for all organizations of the Ministry of Defense ere included except for POL, which are Included in the estimate of POL expenditures by reesoa of the fact that the available prices Include transportation charges. For the. transportation expenditures ore projected at5

29

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levels.

The total expenditure on communications consists ofrimary elements: (l) investment in facilities ondaintenance endtilities; (k) leased service. It should be noted that only expenditures on fixed communications facilities, defined to Include all communications facilities down, to army, airbase and naval base levels, arc included. Mobile communications facilities are included generally as part of major or organisational equipment. During thehe Investment portion of the estimate Is reduced in steps. The investment levels allow for replacement of some of tbe earlier equipment with high-speed data-handling equipment and for some extension of the communications system. The operating portion of the estimate is related to total Investment in the communication system and, hence, rises during tbe period sufficiently to cause the series to remain virtually constant.

The estimate of construction expenditures is largely restricted to replacement or maintenance of existing facilities except In the case of POL storage facilities, new major airfields, and the possible guided missile sites around Moscow. Naval technical base facilities had to be omitted entirely by reason of lack of Information. Similarly, the cost of installed equipment, an expenditure related to construction, had to be Ignored except where it could be picked up as organizational equipment. In the projection period the construction series shows little change from5 level01 when increases sre introduced to allow for the construction of sites and facilitiesow model SAM and for the intercontinental ballisticoth of which are introduced into tbe estimate at this point.

Civilian personnel pay was estimatedinimum basis and was Included to provide some gross order of magnitude to cove- the probably sizable civilian labor force associated with various activities subordinate to the Ministry of Defense. Medical expenses for military personnel were estimatedinistry-wide basis. It was necessary to use US analogues la order to estimate the approximate size of these expenses.

The two categories, civilian pay and medical expenses for military personnel, in there based on the projection of military personnel requirements during that period and employ the factoro developed

for the historical period. Both categories of expenditure increase only

from5 levelsillionillion rubles respectively.

estimates of expenditures forhine and printing, US analogues were also used. It is obvious that publishing and printing outlays would vary from year to year. However, It was not possible at this time toefined estimate. Therefore the total expense of this category represents an approximation of the order of magnitude only.

Retirement pensions for military personnel were included because Virtually incontrovertible evidence asserts that this type of expenditure is in the Soviet Defense Budget. ood basis for estimating the magnitude, however, does not exist. By the combining of US experience in numbers on the retired rolls with Soviet rate ofrude, but probably minimum, estimate of the retirement bill was made. The period8apid post-demobilization buildup in the rolls and is followedlower buildup9

Subsistence for renervists and their salaries while on active duty (half-pay from the organization where normally employed) are tbe elements of expenditures for reserve duty. Reservist strength la eotlmatod to range fromillion toillion men over the. It Is not thought that this number of reservists serves for the length of time indicated In the Soviet law. Were such lengthy service the case, the manpower loss tbe Soviet economy would incur would be of

significant proportions. Hence, one-third of the expense that the full legal requirement would incur has been taken toore realistic magnitude. Expenditures for subsistence, however, are the only element of budgeted expenditure. Salaries of reservists are not covered by the budget of the Ministry of Defense, and arc Included, therefore, in the following section.

2. NonPudgcted Defense Expenditures* To this point, only Items of direct military expenditure have been included. It is now possible to cover some of the other items of expenditure bearing on the total defense effort. These items are: (l) the militarized components of the the Military Reserves; DOSAAF; (h) the capital and operating expenditures of the atomic energy establishment; research and development, including "product Although the information currently available precludes making refined estimates of these categories, rough approximationsonservative basis can provide reasonable orders of magnitude. Those phases of the Soviet effort for which It is still not possible to estimate expenditures are the bulk of construction expenditures for military public works and those phases of pricing policy which permit the military to acquire goods and services for less than fullexauple. the possible exclusion of seme overhead and^capital costs and the possibility of differential costs of materials.

* That is, not budgeted to the Ministry of Defense.

** Tbe term product development is defined to include design and production engineering, experimental production, testing, prototype production,ariety of associated activities. Research and development Is defined to include basic and SFplied research and Its spplication to new uses up to tbe point of design and productionollows on

As Indicated in* tbe total of these additional expenditures Is estimated to range from someoillion rubles over the. The major element of these expenditures is research and development, including product development, which accounted forillion rubles7 and Is estimated at roughlyillion rublesI. Annual outlays for the capital smd the operating expenditures of the atomic energy establishment are estimated to rangeillion toillion rubles; for the militarized MVD-KOB,illion rubles; for the pay ofillion rabies; and. forillion rubles.

Hon-Budgeted Military Expenditures of thea/

1 q 9 0 1 2 3 * 5 6 7 3 9 0 1

10

//

*

l

It will be noted that, in general, the estimates of these additional items of military expenditure represent minima not only for the reasons given in the discussion which follows but also, in the cases of the militarized components of the MVD-KGB and the reserves, because there are undoubtedly other operating expenditures besides the personnel expenditures accounted for. It is thought, however, that these other operating expenditures arc rather small and therefore not likely to affect the reasonableness of the estimates.

Research and development expenditures, exclusive of product development, for the entire Soviet economy can be approximated roughlyrom announcements of actual or planned expenditures for financing research' institutions. These same expenditures can be projected1 on the basis of expenditures per scientist and the projected number of scientists. Because research and development expenditures of the US Department of Defense are aboutercent of the national total of expenditures and those of the Atomic Energy Commission (AEC)ercent of the national total and because the relative emphasis on military effort in the USSR Is so great. It Is thought that about two-thirds of the total Soviet efforteasonable estimate of the research and development expenditures of the Soviet military establishment.

Expenditures for product development of the US Department of Defense are at least equal to research and development expenditures. A_ similar relationship between expenditures for product development and those for ysjesyjA_ana.jdevelopment was assumed, for the USSR, possibly Reading to an understatement of Soviet expenditures. Thus the total Soviet military research and development program, including product development. Is thought to be twice the estimate of military research and development expenditures, excluding product development.

Expenditures for the MVD are based on personnel strength and include pay, subsistence, clothing, and miscellaneous minor personnel services.

Tne estimate of militarized porsonnel strength,en, vaa held constant for the period of the estimates. For the troop, units, vhlch account for the hulk of militarized MVD manpower, the average pay scale estimated for the ground forces was used. For headquarters personnel snd personnel of the Chief Directorate of Local Air Defense (Clavnoye Upravleniyc Mestney Protlvovozdushnoyodified average officer pay scsle was used. Expenditures for subsistence, clothing, and miscellaneous personnel services forMVD personnel were obtained by applying the average previously obtained for the combined ground, air, and naval forces although it is probable that the MVD fares somewhat better In this respect.

An estimate of expenditures for the militarized KGB is somewhat more difficult. easonable amount of pay data Is available, but militarized personnel strengths are not known. However, on the basis of the information on known KGB assignments to regular military units and from crude analogy with organizations In tbe US, it is estimatedanpower fig-ore. orercent of the estimated strength, is relevant to this study. As with the MVD, the subsistence, clothing, and miscellaneous personnel expenditures applicable for the Soviet military forces were utilized for the KGB.

rief explanation of Soviet expenditures on their reserve program seebove. Tbe salaries of reservists represent the only element of this program whichon-budgeted expenditure and as such are Included in this section.

On the basis of the principle that tbe Inclusion of rough approximations of expend!tares for certain programsore realistic estimate of total expendltureo than an estimate vhlch omitsspect entirely, the military aspects of the Soviet atomic energy program were estimated on the assumption that its progress pattern is similar to that of the US but displaced in time.

Procedurally, the first step was toeriesattern of expenditures of the military aspects of an atomic energy program from its inception. The expenditures for tbe entire US program from its beginnings in the Manhattan District project were obtained. To arriveollar estimate of Soviet capital and operating expenditures, research and development and product development were eliminated froa this US series. The series was then converted into constant dollars and smoothed byinear trend line. Because underlying datajwerc almost exclualvely_fpr .military purposes, the projection of this trend was considered.con^rva^ve^ approximation of the future pattern of expenditures for the military aspects of an atomic energy program.

To convert the US dataepresentation of the Soviet program these further steps were necessary. The Soviet program was assumed to have begunn assumptionour year lag relation to the equivalent phase of the US program. To reflect the gains the USSR undoubtedly achieved through knowledge of the fact of, as" well as specifics about, the USradual reduction of this lsg to two years1 vas further assumed. Finally, this adjusted series was converted to rublesuble-dollar ratio approximating the

36

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ratio.

heck on thia rough procedure, the results were compared with the residual obtainedunctional breakdown of the Soviet budgetary category "Financing the National Economy" where, according to available evidence, Soviet atomic energy expenditures are included. The funds available from thiB category are in all cases more than adequate to provide for these expenditures for atomic energy.

C. Initial and Operating Expenditures

Toeaningful and consistent estimate of the Soviet military system, lt vas necessary to distinguish between initial expenditures and operating expenditures. Initial expenditures are those which occur only once during the establishmentrogram and include such items ao base facilities, original major and organlzotionai equipment and spares for stocks and pipeline. Operating expenditures pertain to those expenditures which recur regularly, representing the consumption of fuels, maintenance spores, and materials and supplies, the pay and other support of peracnnel, the maintenance of facilities, and the use of such services as transportation and communications.

Tbe following discussion of initial and operating expenditures Is limited, however, only to those expenditures budgeted to tbe Ministry of Defense because sufficient detail was not available to permit such analysis for all the expenditures not budgeted to the Ministry of Defense.

Expenditures

The estimated initial expenditures of the Soviet military program75 ere detailed In Tabley major category of expenditure and compared in total with operating expenditures. Comparison shows that initial expenditures ore less than operating expendlturesfor each year, though5 both these categories approach equality. Initial expendituresteady Increase through the period from aboutillion rublesrercent of total budgeted expenditures, to * ollows on

Table 6

Budgeted Initial Expenditures of the Ministry of Defense of the

ubles

8 9 0 1 2 3 * 5 6 7 8 9 0 1

force vehicles Weapons Ammunition Mines and torpedoes Bombsnavel vessels fijfi SupportonmunluidedVO command control and radar systemsTotal

Initial expendituresercentage of total budgeted expenditures.

Antiair defense (Protlvo-voidusbnoya

illion rublesr about U8 percent of total budgeted

expenditures.

Initial expenditures for armored force vehicles and weapons are

relatively constant during the period of the estimate. The model changes that are known to have occurred in small arms, artillery, tanks, and personnel carriers do not appreciably change the price relationships. The USSR, intelligence estimates indicate, hasolicy of modernizing the ground forces and increasing their firepower and mobilityizable increase in expenditures during the period by meansustained procurement effort. In contrast, the ammunition program, as estimated,harp rise in expenditures for this category particularlyxhibiting sharp growth prior to and immediately after this date. This effort seems to be related to ammunition provided during the Korean War and to the production of ammunition for new artillery veapons and small arms. Expenditures for ammunition duringsubstantial portion of the initial expenditures for ground forces rising to about one-third percent of the total in thes andeak ofercent

See next page.

The expanding aircraft program estimated by Intelligencearge increase in initial expenditures for aircraft during the period. Fromillion rublesxpenditures rose toillion rubles5 and toillion rubles These expenditures reflect,he large Jet re-equipment programs which led to the replacement of essentially all piston combat aircraft except the Bull medium bomber. For the, these expenditures largely Indicate the expansion of the medium and heavy Jet bomber forces. As indicated ineriod of stable effort7ighter procurecent roseillion rubles9illion rubles5 and is projected atillion rubles.1his scrieslight upward trend with the

TOP

troughs2J*. 5 the trend in expenditures for fighter aircraft becomes sharply positive although these expenditures are estimated to he relatively stable for the three year7 Bomber efforttrong upward trend and has exceeded the value of fighter production in each year69 vith the exception The exception3 seemingly vas causedifficult model change in the medium bomber program. Tills switch in emphasis in the aircraft procurement program is due primarily to the initiation of the medium end heavy bomber programs which had no counterpart prior This feature of the aircraft procurement program is illustrated in Pigurehich shows that despite the absolute increase in the fighter program its relative weight in the total has tended to decline over the period. Conversely the relative weight of the bomber programs rose sharply to better thanercent9 exceededercentU At the end of theO-6I, however, another reversal is estimated with the advent of large-scale productionew fighter.

* See next page.

The naval vessel programs, according to intelligence estimates, showed the largest single Increase of any major progron during the historical period. 75 estimated expenditures for naval vessels rose* billion rubles toillion rubles. Thereafter, there was some snail growth for two more years, followed by relative stabilityevel slightly below that The rapid rise in the'seak0 because of the construction of cruisers and destroyers. During theears thereodest decline, but*5 naval construction sharply rose primarily because of the initiationarge submarine building program. Some idea of the magnitude of the estimated Soviet effort in naval ship construction can be gained from the fact that the cumulative expenditure ofillion rubles forearepresents the

percent

Percentage Distribution of the Procurement of Military Aircraft in the USSR by

60

50

i-C

30

10

V

/ V

Legend

i

Fighter and ground attack

bombers

/

j

procurement of moreillion standard displacement tons of nev naval construction and that like amounts of expenditures and tonnage are estimated for the.

Procurement of guided missiles is estimated to have begun with the surface-to-air program The series includes only missiles, missile spares, guidance equipment, and associated items. The estimated guided missile programs include curface-to-surface, surface-to-Air, and air-to-surface types. These programsery sharp rise in initial expenditures,illion rubles5 and thereafter increasing steadily, with the exceptioneak ofillion rubles Expenditures for tbe construction of the facilities of the Moscow guided missile sites and for the ICBM arc included in the construction category. It should be noted that these expenditures were derived from..the estimates .of requirements contained Innd-

The PVO command control and radar category Includes expenditures for radar, communications, and miscellaneous equipment for all the organisational elements of the control and warning system down to end including filter centers and radar sites. Expenditures for this categoryteady increase6 conforming to the development of this system into an extensive air defense network, and gradually decline during the remainder of the period.

3- Operating Expenditure 11

Estimated operating expenditures of the Soviet military establishment for thel ere detailed in The largest single category relates to personnel, including pay, subsistence, clothing andservices. At the beginning of the period these expenditures

were more thanercent of the total operating expenses "for each year but steadily decline until they account for only someercent. POL

ollows on

expendituresarked increase, particularly in the latter half of

Table 7

Budgeted Operating Expendituren of the Ministry of Dcfenoo of the0 9 0 1 2 3 * 5 6 7 0 9 0 1

force vehicle maintenance Weapons maintenance Ravel vessel maintenance Aircraft maintenance Guidrd missile maintenance Vehicle maintenance

HP

PVO command control and radar terns mnintcnanceh/ 'onnel pay eonnel subsistence ol clothing Personnel services Transportation Communications

CivilianSfti

IfensipnB

420

the estimate. Thisaused primarily by substantial increases tn POL consumption for the naval forces and nir forces. Expenditures for aircraft and naval vessel spare ports also increase with tbe former becoming quite substantial at the end of the period.

Some interesting facets of operating expenditures end their relationships over time can be seen by relating tbe data to appropriate co=on denominators. Tablehows the average operating expenditures of tho ground forces per line division. The Increasing complexity of the equipment Is Indicated to some extent In the slight upward trend.

Similar computations.for the naval forces, presented in Tableecrease in expenditure per displacement ton of operating naval vessels0 rubles70 rubles5rojected cost0 rubies The various components of total operating expenditures do not follow the some trend. Expenditures for POL decrease slightly and level off during the latter years of the estimate. Expenditures for operating spares decline somewhat in the middle years and then climb slowly. The largest single factor, however, personnel costs, appear to decline steadily fromO rubles per ton of vessel7 to0 rubles50 rublesl. There is no readily identifiable explanation for this decline.

The comparable air forces relationships shown in* reveal

ollows onollows onTableollows on

a rise In total expenditures fromillion rubles7 to almostillion rubles5urther increase toillion rubles Despite this growth of moreercent inears, the expenditures per operating air regiment rose gradually froaillion rubles0 toillion rubles For tbehere Is no discernible trend, operating cost per regiment la each case being higher than it oubaequently was omewhut higher expenditure per regiment could be expectedecause of the greater number

Table

Budgeted Operatingor the Ground Forceof the

uble i

8 9 0 1 2 3 * 5 6 7 8 9 0 1

Arnored force vehicles eapons TJupport.

Total

Operating expenditure! Line Dlvlalon

MO WO

900

wo

WO

BO

*6o

Wo

980

O

&0

0

wo

550

lBOlOOl80lSOl80lBOl80lS01fiOieo

Table 9

Budgeted Operating Expenditurea for tbe Haval Force* of the

ubles

8 9 0 1 2 3 * 5 6 7 8 9 0 I

Operating

Motor

expenditures per SET zJ

(In

POL

Operating

oil, and lubricants.

displacement ton.

*7

Table 10

Budgeted Operating Expenditures for the Air Forces of the

18 9 0 1 2 3 * 5 6 7 8 9 0 1

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personnel training In preparation for the increases in air OB in later years and becausearger number of aircraft per regiment.0 tbe Increasingly higher fuel consumption of the graving number of .let aircraft vim undoubtedly the factor at vork ingh rate of Increase In POL expenditures per regiment. The large percentage Increase in the expenditures for operating spares per regiment shovs most Clearly the Influence of the increasing complexity of the never

D. Sectors of Origin

To provide trends in the relation of military requirements to tbe vhole economy, Soviet expenditures for veapons and weapon systems were classified inanner as to reflect the various sectors of origin of the expenditures. hows the estimated budgeted military expenditures recast in terms of select economic categories.

ver the period, procurement from heavy industry shows tbe steepest upward tread. his sector accounted forillion rubles orercent of the total. he expenditures of this sector had increasedercent toillion rubles, orercent of the total. hese expenditures had increased anotherercentillion rubles orercent of the total. Other procurement and MM during the fuUl) increased onlyercent. The pattern of this changing relationship which follows the trend towards the intensification of equipment in the Soviet military establishment is presented graphically in

The trends in industrial origin within the heavy industry sector vary considerably as can be seen in* The rates of increase ore greatest in directly procured electronic equipment (principally grounduided missiles, shipbuilding, and aircraft.

Wage payments and other types of procurementodest overall

ollows onableollows on

Table 11

Budgeted Kllltary Expenditures of the Ministry of Defense of tho USSR by Sector of

ubles

8 9 0 1 2 3 * 5 6 7 3 9 0 1

Heavy industry sectorforceWeapons

1

Electronic equijosnt Oulded missiles Automotive equipment Petroleum

Equipment, not elsewhere olasslfled Other sectors

Food

Clothing

Miscellaneous materials and

in le at

Total

21

1

28

*-5

25

[

3

O

s

ET [

lucreace for the period. his group accounted fortubles whereas5 it had increased onlyercentbillion rubles andi only an additionalercent torubles. Within these sectors the more noteworthy ratesarc to be found in the construction andand in pension -

52

IT. Military Assistance

Before tne estimated Soviet military expenditures derived in IH, above, may be compared with various historical aggregated the problem of trado In major military equipment oust be faced. omplete detailed study of the trade problem vas infeasible within the time available. Accordingly the problem was approached only in sufficient detail to gain as firm an approximation as possible of the effect this factor might have on tbe comparability of the series derived In III, above, with tbe announced budget series and estimates of gross national product (GIIT).

So for as can be ascertained, in the normal sense of the term, the USSR imported no major military equipment durirg thehere is, however, the question of unilateral transfers in the form of occupation costs. The announced costs of Soviet occupation to East Germany, where the bulk of the occupation forces ore stationed, has been as follows:

billionbillion rubles

The ruble values indicated were obtained by converting at the official

rate of exchange. In terms of purchasing power, however, the payments

may represent an appreciably greater ruble value. Therefore, it Is possible

that the East German economy has regularly borne the equivalent of

ne-holf and all the "real" operating costs of tbe Soviet occupation

fSXfttt-

* East German marks, converted at the official exchargc roteubles per DXE-

In the absence of evidence to the contrary, the presumption is that occupation costs, like reparations, are treated as receipts in the Soviet budget and national accounts. It is clear that, at minimum, the Soviet

defense budget and national accounts include that part of these costs which cover payments for the sizable purchases of material procured Inside the USSR for these occupation forces.

Soviet exports of ma.lor equipmentomewhat more Important matter. Generally the transfers from tbe USSR to other countries consisted of either war booty or oldern the first Instance the cost was probably negligible to the USSR. ^In tbe second instance the equipment represented legitimate defense expenditures of the USSR when produced and was included in the announced defense expenditures; there probably was no later recovery to the defense budget.

Several Important exceptions, however, must be considered. All of these exceptions relate to possible direct shipments of major equipment out of current production. The derived series shown In III, above, includes all Soviet major equipment productionart of tbe estimated defense expenditures. For comparisons with the announced defense expenditures the problem, then, is whether or not Soviet budgetary practice follows the simple logical procedure of paying for all current major equipment production through the defense budget and of ereditlng

foreign transfers to the general revenues. For

comparisons vlfrh Soviet OCT estimates, the problem is whether or not the amount of thi* trade Is sufficient to affect, to anv^slgnlficant extent, the proportion of CKP devoted to defense.

Although the question of Soviet budgetary practice in regard to military equipment which moves in trade cannot be answered a6 yet, opinion tends toward the notion that all major equipment Is paid for In

to other countries. In effect the Minister of Defense is thought

to be the sole purchaser of special military eoulpaent. Because there may have been other purchasers, however, on attempt was made to estimate the value of shipments'from current output. "First, it was assumed that transfers of the Fagotnd the Beagleould be the best

indication of the value which shipments from current output might have attained. Bbv many of these aircraft were new when transferred is not known. arge part of the value of all transfers, however, would bo represented by these two models, and these aircraft are more likely to have coao from current production than any of the other major equipmentecondly, it was assumed that all transfers to Communist China and North Korea were supported directly by the Soviet Defense Budget prior*

OB information was available to provide an indication of the quantity and timing of the transfers. It vould appear that the European Satellites received from the USSR some 3CO Fagotsnd some ICO Beagles2 Similarly, indications are that the Chinese Communists and the North Koreans receivedagotseagles3 Taken together, the annual transfer by the USSR of new equipment which might not have been covered by the Soviet Defense Budget would have the following values:

million rubles

250

650 "

The foregoing calculations would seem to indicate that it mightto Ignore the value of trade for the period of thisvalue of trade Is lessercent of the over-all level ofBudget In recentigure well within the margin ofthis estlmate--hence; omission of the value of trade will do noto the comparisons ups noted in this report. problem of the value of trade will have to be watched carefully Init was not possible as of the date of the writing of thia reportmeaningful estimates of the value af trade to cover the period

* Known purchases through the Soviet Engineering Directorate on barter account amountedillion rublesillion rublesiilton rublesillion rublesillion rubles In addition the Chinese are thought to haveilitary loan ic excess of -billion rubles for their First Five fear Plan. onsiderable part of this loon is thought to reflect the transfer of Soviet military equipment and facilities at Port Arthur and Dalren.

---

Soviet Defence Budget, it was necessary to adjust the derived constant ruble series for price changes over tine. It vas not necessary to adjust the estimates for pay and allowances, because tho rates for pay and allowances were constant for the period. Reasonably good price indexes were available for subsistence items. The other costs refer largely to hard goods and were converted to current rubles by means of an adjusted price Index for capital equipment and construction. Although the precise applicability of this index is subject to some question, fragmentary evidence suggests that prices of military end items did not rise as much as other industrial prices1 and did not fall as much Thus the investment price Index errs most probably in moving the derived series too close to the announced budget series in the early end late years.

In Figurehe derived budgeted defense series (in current rubles) is compared graphically with the explicit defense expenditures as announced in the Soviet State Budget. The graph shows that estimated military expenditures increased aboutercentow ofillion rubles7lateau atillion rubles93 and then Increased byercentillion rubles* billion rubles3 By contrast the explicit budget indicates an expenditure plateau at slightly more thanillion rubles7 Thenise ofercentillion rublesollowed byercent declineillion rubles5 the planned budget increased again byercent to billion rubles, then declinedercentillion rublesn all except the last three years the announced budget series refers to actual expenditures. Because planned expenditures frequently vary from actual expenditures by several billion rubles, some misstatement of actual expenditures is possible

See following page.

57

l

100

9c

0

0 40

0 L

10 .

-Derived Budgetary Series nuiced Budgetary Serie

W 5* 4^ %

6 were plan

58

As con be seen inhe derived budgeted series overstates the announced expenditures in the aggregate. The overstatement also applies to every year The cumulative expenditures76illion rubles as announcedillion as derivedurrent baala, an over-explanation ofercent on the average. Actually tbe variance vould be greater if it vere possible to offset the understatement implied in the necessarily conservative estimates made In such significant categories as personnel pay and allowances, food, construction, and transportation. In thehlch is the base year and consequently free of the problem of price

Table 13

Budgeted Defense Expenditures in tbeBillion Current Rubles)

Series

Series^

3

6

7 J

102

106 l5

101

124 J

671

cfcv

.

o5_y

212

390

31*

b are plan figures?

the explicit budgetary expenditure for the Soviet military wasillion rubies and the derivedillionifference ofercent.

Of the three periods distinguished inhe, accounts forercent of the total variance. 3 the overstatement is at Its greatest,illion rubles. The relationship between the estimated military outlays and the announced outlays, along with other evidence suggests that the postwar cutback was deeper and extendedonger period than previously estimated.

In the second, the pattern of variation is quite erratic although there iaercent total difference between tbe

59

L

1

series over these years. Tola comparison suggests that the eatlmates ofnd procurement underlying the derived series are too flat. That is, the derived expenditures closely reflect the Soviet military expenditures covered by the explicit budgetary appropriation for the, but the phasing of the estimates is not very sensitive to changes in Soviet procurement and/or mobHiration. (Because the base) centers in this period and because price movements, in general, were moderate, beginning0 the price indexinimum of distortion during this period.)

The discrepancies noted above warrant tbe closest scrutiny because2 the derived series understates the explicit budget. The series cross and recross as is indicated graphically in In thishereharp Increase in Soviet explicit military sppropriations as opposed to the modest decline in the estimate of budgeted military expenditures. There are numerous possible explanations for this difference, tyrhe most cogent seems to rest on the fact that these expenditures occurred during the Korean War period. Because the USSR presumably has lta military programsong range basis, it seems reasonable that such plans would be upset by thedemands of the Korean tfar. This increased demand probably necessitated, from the Soviet point ofpurt in military production and procurement at least to replace zertuln types of transferred equipment and to replenish reserve stocks. Certain facts suggest thatpurt in military production and procurement might have taken place. oviet production of certain categories of heavy fabricated matai goodsharp decline, which continued in some instanceshile the production of boelc metals continued to increase. Recovery was only slight priort which0 production levels were generally regained. Tractor, truck, passenger car, steam locomotive, and freight car production are Items indicated to haveecline

* See

in production.

^ There lo also the possibilityartial mobilisation at the time of the Korean War. The evidence is far from conclusive, but so-called "strategic" expenditures, vhich Insofar as they pertain to the military establishment are mainly for the payment of vages, increased in the Far Eastndicating tbat Soviet military strength in this area may have been reinforced. This increase in strategic expenditures was followedeneral pattern of decline3 for these same expenditures. Prior tothe end of the Korean War) there was some decline, but the decline seems to have been sharper end more general in the latter part of the year.

makes the

foregoing evidenceartial mobilisation inconclusiveimilar pattern could have resultededlaposition of troops, first to, then from, the Soviet Far East.

hird possibility which has been offeredogical explanatlon of the sharp rise in military expenditures2 is that this rise may have been caused by particularly intensive research andctivity, possibly associated with the guided missiles, the medium Jet bomber, and/or the heavy bombers which appeared in the period3 Seemingly positive evidence, however, would indicate that neither research nor development expenditures are supported by the military budget directly or In the price of equipment. It is pretty well established that the bulk of pure research facilities are supported out of funds allocated directly to the Soviet Academy of Sciences. Development expenditures in turn ore carefully dlotlnguiehed from subsidies. iscussion ofuasi-official publication states that, in contraal to state subsidies to heavy industries which must be eliminated under the "nevhef centralized reimbursement of the added expenses of enterprises connected with the assimilation of new forms of production retains its moaning into the)n the, the amount of overstatement increases

61

again. As Indicated In, tbe derived series* billion rubles) exceeds the announced budget4 billion rubles) byercent as compared toercent overstatement ineriod. The data, as indicated graphically la* display an irregular, but divergeot, movement*

D. Comparison with Gross Rational Product In order to make total defense expenditures comparable with gross

national product, three adjustments are necessary. Olae scries in

Table 12 first must be converted3 rubles, 'then converted to

factor prices, and finally sd.lusted for the change in relative prices over

.the period. The last adjustment is derived from US experience. It was

necessary to express the derived series in terms of constant factor prices

in order to determine what part of tha Soviet total product was being

devoted to military programs. ** present this

adjusted series3 rubles5 dollars respectively, and give

the relationship betweenilitary expendituresP. In

ruble terms, military expenditures averagecect cf GNP annually

9

Of note Is the fact that for the lu year period extending from

1 Soviet military expenditures have fluctuated rather

narrowly around an annual figure of Ik percent of ONP. These

percentages are based on the price series depicted in Tablend

express the ailitary allocation in Soviet terms. The relative stability

in the ruble-based series implies that the growth In Soviet military

expenditures Is at the some rapid pace as that of the, economy as a

whole and suggests that thereIn this relationship.

It would seem foreriodhole that the military

* bove. ** bove.

62

Tables Ik andollow ocxcludes some construction, and possibly some overhead costsubsidies.

TOP SECRET

Table Ik

Soviet Defense Expenditures and Gross Nationaln Constant Factor Prices3 Rubles)

Year

ercentage

"

a

GNP

Table 15

Percentage of GNP

Soriet Defense Expenditures and Oross Kationaln Constant Market Prices5 Dollars)

fear

aa a

24

GNP

63

i

projected here arc, in the aggregate, vlthln Soviet economic capabilities. The proportion ia not larger than it was when GNP was considerably smaller and, in fact, could be increased at the expense of other sectors of the economy if the regime chose to do so without precluding some increase in the standard of living.

hows that the general relationship obtained for the historical series maintains itself during the projection period alsowhen expressed in dollar terns. Total military expenditures, as defined, account for fromercent of total goods and services8 toercent The decline in percentages based on the dollar comparison reflects, in part at least, the increasing proportion of higher ruble-dollar ratio equipment in the Soviet military establishment.

That the USSR, by expending someercent of GXP, in rubles can( obtain defense goods and services spproxlmately equal in dollar value to those of the US, which Is expending about the same percentKPimes as large. Is explainedmportant economic conditions. ^Flrst the level of real pay end subsistence provided to Soviet soldiers. * bove.

6-';

The ruble measurements reflect the fundamental orientation of Soviet economic goals in the direction of strong military and investment programs. The result is that ailitary goods are relatively cheap within the Soviet economy, and consumer goods ore relatively dear by reason of price decisions and other economic policies (especially the high turnover taxes on consumption items). In the US economy, on the other hand, consumer sovereignty results in precisely the inverse relationship. Thus,ercentage of Soviet GNP, the military sector expressed in rubles is relatively small, whereas in dollars It Is considerably larger. Illustrative of these relative costs are the ruble-dollar ratios for the two sectors. For military goods and services3ollar ratio3 weights isohereas for the consumption sectorhole it iso 1.

the general standards of living,ery much lover than in the US. ^Secondly the Soviet armament Indue tryne of that country'b cost efficient. The dollar and ruble comparisons above do not mean that the Soviet armament Industry is more efficient than the US armament industry. On the contrary, it is likely that productivity (production per man) In the Soviet armament industry is lover than productivity in the US industry. The Soviet armament industry, however, is very much more efficient than Soviet agriculture and other consumer goods industries. Although productivity in the Soviet armament industry approaches that of the US, productivity in Soviet agriculture la only one-seventh of that in the US. uble vill buy less than ten cents worth of goods and services when spent for consumption goods and services but will purchase aboutents worth when spent for defense purposes. The. reason an approximately equivalent defense establishment la nourden on the much smaller Soviet economy than on the larger US economy lies moro in the inefficiency of Soviet agriculture than in the efficiency of its armament industry. Thus, for example, if each Industryorker from agriculture to the defense industry, the Soviet worker will produce nearly as many armaments as the American worker, but the loss of his production in agriculture is far less than tho corresponding loss in the US. These effects of the relative Inefficiency of Soviet agriculture and other consumption sectors are amplified by the turnover tax which makes the goods and services of these sectors even more expensive.

The major share of budgeted Soviet military, a* indicated in Table U* represents goods producod In tho heavy industry sector. Consequently, it Is in this sector that economic bottlenecks, tr they do occur, are likely to develop. tl, projected heavy industrial military procurement from heavy Industry rises by more thanercent of itB value Industry, In general, increases S3 percent ir. this * bove.

65

period; and heavy industry,ercent. Of nore relevance are tbe projected rates of Increase of specific subsectors directly supporting tbe Soviet military effort. The rates of growth of output in thosp subaectors of critical significance are usually greater than in the heavy industry sectorfaole. ronAna industry is to increaseercenthe metalformlng industry, byercent; automotive equipment,ercent; POL,ercent, and basic nonferrousmetals,ndercent, respectively. Tbe Sixth Five Year Plan Indicates that in various critical categories economic measures are to be taken to assure the capabilities to meet the anticipated industrial requirements. These categories Include (l) instruments for automation, to beimes;ontrol and automatic regulatingimes;pticalimes; (k) capacity for producing heat resistingadio measuringimes;omputers andimes.

It is interesting to note that the growth of the demands on heavy industry by the military occurstepslateaut is possible that in the latter years the initiation of sizable outlays for high-speed nuclear submarines or similar advanced Items may raise expendituresevel somewhat higher than indicated here.

* Following on page

8 the value of heavy industry procurementercent of its valueherebyrowth rate of the same order as that indicated for the heavy industry sectorhole. Three-quarters of the growths accounted for by the aircraft industry-someillion of theillion rubles. In terms of airframe weight there was an increase ofercent overear period and an increaseercent in the period* (See FigureSuch short run Intensification may occasion some shifting within the economy.

Figure 7

Soviet Production of Aircraft, in Airframe

Pounds

co000 20

Conbat Aircraft

-Soviet Total Military Aircraft

60 61

57

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