Created: 10/27/1955

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Dissemination Authorized

Assistant Director

Office of Current Intelligence


SC No.5 No.9 Copy No. - -j^


Office of Research and Reports CENTRAL INTELLIGENCE AGENCY

t Congress.






This report ia basedhorough exploitation of all pertinent intelligence sources. lta purpose ia to develop an official series of Soviet outlays on military end itema as welleal series of total defense expenditures. Material presented inhe Soviet Potential for the Production of Munitions. . and in CL&7SC/RR4 Soviet Budget,OP SECRET

is reconsidered and brought up to date.

Defense expenditures, particularly for military equipment, are sensitive indicatorsation's power position among nations as well as indicators of the priority which defense has been given in relation to other economic activities. The USSR, in spite of its rapid industrial growth, can produce little more than one-third of theend items which the US can produce. Its annual outlays forand military equipment must, therefore, be expected toelatively large portion of total economic effort, and Its military inventories must be maintained at high levels to assure its positionajor power. This report should contribute to an understanding of these two aspects of Soviet economic effort for defense in recent years.

- in -




I. Introduction

* 4.

* ^ a jv * a

II. Categories of Defense Expenditures . . .'-

Air Force; and Navy


Maintenance and.

3. Construction .

and Development -

End Items

Security. Defense-Related Activities


Air Fleet


Trade in Military End Items

IV. Magnitude of Defense.


and Operations and Military

End Items

V. Comparative Measures of Soviet Defense







Zl8 28





and Soviet Armament 43

Defense Expenditures and National



Appendix A. Organisation ol the Soviet Ministry

of Defense . . , . . 51

Appendix B. Alternative Index for Military Personnel .

. 67

Appendix C. Soviet Defense Expendituresategory

of the State 73

Appendix D. Gaps in.Intelligence . .

Appendix E. Source References 91


t' i

for Soviet Hidden Defense Expenditures

(Planelected Years, . 8

Size of the Soviet Armed Forces,0 30

Average Rate of Pay of the Soviet Armed0

and 1 . . . 31

and Clothing Costs per Capita of the Soviot Armed

Forces.0 33




'j/fi ' "'.i

Coata of the


for Maintenance and Operations and for

Total Defense in the US, Fiscal Years, 36

Defense j

for Militarized Security 38

Components of Soviet Defense0

and 39

Soviet Price0 40

Soviet Armament Price0

. .. 2

Expenditurea for Military End0

. . c, -

* 'V'

and Dollar Prices for Selected Items of Soviet

Military Equipment 46

Value of Soviet Military0


and Soviet Expenditures for Military End Items,


in Constant Prices of Soviet Defense Expenditures,


of Estimates of Personnel Costs of the Soviet

Armed 67

- vii -



Costs of the Soviet Armed Forces in Selected

Areashare of Strategic . 70

Expenditures for Selected Areas of the Soviet

Far East. 71


for Soviet Hidden Defense Expenditures

(Planelected 76

State Budgets, Selected. 80


: .

Following Page

Figure 1. Organization of the Soviot Ministry

of Defense, 52

Figureunctional Classification of the Over-All Organization of the Soviet Ministry of

5 56

- viii -

top secret



Summary and Conclusions

Analysis of the Soviet stateJ

located the major classes of appropriations lor defense andactivities in thei USSR and has lefl only an outside.chanceother.sizable appropriations for such purposes still remain to.The large explicit appropriation for.defense in thethe logical source of funds for financing the militaryinference is supported by the range of expenditures by theclasses of

expenditures observed-include outlays for the pay and subsistence of personnel; the maintenance and operation of military installations,nd units; construction for exclusively or primarilyuse, as.of .barracks, military airfields, and port and harbor facilities; and-the procurementide variety of military end items, possibly including guided missiles. In addition, these expenditures include some small outlays on research and development related to new weapons (financed mainly through the budget allocation for Social-Cultural Measures}, This evidence on the expenditures of theestablishment further reduces, though it does not eliminate, the possibility that expenditures for such purposes are financed otherwise than through tbe explicit defense appropriation.

* The estimates and conclusions contained in this report represent the best judgment of ORR as

To determine the extent to which the expenditures of the military establishment and the explicit defenseover the cost of defense to the Soviet economy is an inherently difficult problem.


y -

particularly for military end items, even when it is limited to the prob-'lem of relative cost and price relationships between military end items and producer goods. The production of military end items has been especially elements of subsidy and high priorities forservices. The budgetary subsidies granted to all Soviet(Including the defense industries) during World War II were abolished9 Since then, however, subsidization seems to have continued during the developmental phase of new products, in partfrom funds for research and development, and during the initial operationsew production facility. This policy, which provides grants for initial development, favors the armament industries, where the rate of technological change is relatively rapid. These industries also benefit from apparent high priorities for new capital equipment and other productive services. Thus defense goods in the Sovietof coat and price relationships are favored relative to capital goods. Indeed, the valueuble spent for military equipment ia worth considerably more (measured in dollars) than the ruble spent for capital equipment. This high relative value is accounted for in US-Soviet comparisons by tho uso of appropriate ruble-dollar'ratios.

The sum of the explicit defense appropriation the appropriation to the Ministry of Defenselue one-third of the appropriation to nternal Securityhich accounts for the militarized units of the security troopsas ranged during the Fifth Five Year Planowillion rubles1ighillion rubleshese appropriations cover three broad classes ofaintenance and operations, and construction;ajor procurement. In recent years the first category isto have remained fairly stable, .representing slightly leBs than one-third of the total1 and slightly more than one-qaarter The second category is judged to have fluctuated with total defense expenditures at about one-quarter of the total defense outlays, including the estimate for militarized security troops. Thearying up to about one-half of the totals for military end item*.'

In constant prices, Soviet outlays on military end items areostwar highhough they are only slightly greater than This level of expenditure ia roughly four times the postwar


low reachedut only about one-half the high level reached in World War II.' In currentotal-defense outlays2 were more thanercent above, and0 percent above,8 level.

Soviet expenditures for military end items appear to havehigher than.those of the US (when compared in likefor the immediate postwar period to Sincethough they have increased, they have fallen well belowthe US. For the entire. US expenditures forequipment have exceeded those of the USSR byo 50

I. Introduction.

At least three distinct purposes are servedtudy of Soviet defense expenditures over time. First, such information, in con* junction with an index of price changes,asis for judging changes in the magnitude of the defense effort of the USSR. The current defense effort can be compared with the World Warffort and with that of the early postwar years. For this kind of estimate it is not necessary either to have complete coverage of allor to have prices reflect costs accurately. It is sufficient to have consistent under- or overreporting of total expendituresonsistent distortion between prices and costs.

* Although these comparisons are in like monetary units, they do not necessarily reflect the combat effectiveness of the military end items involved.

Second, Soviet military expenditures may be related toroduct to give the proportion of total economic resources devoted to military purposes. This sort of estimate requires comprehensive coverage of all expenditures for defense purposes, whether explicitly stated or hidden in other categories. Also, the prices of military goods and services must fully reflect all real costs.


Third, Soviet military expenditures may be compared with the efense efforts of other countries, either inelative size of defense effort as compared with total economic activity or in termsirect comparison of magnitudes.-omparison of the relative sizes of defense efforts in twohenformation needed for the secondirectf magnitudes requires not only the same, degree of precisionirm notion as to the militaryequivalenceuble's worth of Soviet resources as compared with, forollar's*orth of US resourcesnilitary usefulness exchange' rate. Of course, these ideal measures can only be approximated.

Before turning to the examination of Soviet defenserief statement may be made of the kinds of activities that Inought to be included as partation's current military effort. These activities include:ervices of personnel in the military forces, measured in principle by the annual wages that they would receive in alternative employments, but in practice by the military pay and allowancesirect outlays on goods used by the military establishments, both common-use items for personnel -needs and military end items such as weapons andain-tenance and operation of the physical military establishment, such as the consumption of electric'power and buildingional activities of military units, such as equipment maintenance and fuel consumption; (S) military constructionuch projects asarracks, airports, and supplyesearch and develop-*') ment costs for newervices of organizedilitarized internal security units, and civilin industries producing defenseonstruction with, joint civilian and military end use, such as highways and commercial) investment and operational costs for nuclear weapons not included elsewhere;) foreign military aid.

Defense budgets in most countries do not cover all of thelisted above, and the Soviet budget is no exception. In order to present the principles underlying the defense budget classifications in thisreliminary examination of Soviet budgetary practices


is in order. * It appears that the explicit defense allocation in thecovers all of the catego'ries'(Hated'tfbove and-pos-some parts ofesearch "and development. Incategory,'there are'joint-cost allocation-problems'.' Research development activities are to some degree an investment inprogress rather than in military technology alone, and the line the two cannot be precisely drawn. "Similarly, underthe allocation to militarized security-troops (which is not includedexplicit Soviet defense appropriation) serves- both afunctionilitary function insofar?aa these 'units aretrained as reserve operational groups. Similarhe' US'defense 'budget, "at least insofar as research'activities are> <

sually'are not included in theudgets of any country: The joint military-civilian use problem is again presentince investment in munitions-plants ordinarilyincreases both munitions capacity and industrial capacity in general,nd highways and airports'obviously may serve both kinds of'oses concurrently or alternatively. t* is evident that awhichar'ger investment program'in defense industriesecond country whichmparable'defenso effort ili allther respects is In a'real sense making the larger defense effort. This difference' lnrihvestment policy ought to show upreater'future output in defense goods, and thus it ultimately is taken into account. For this reason,re excluded from defense expenditures as defined in this

* One of the purposes of this report is to make comparisonsthe US and the USSR for different years. In eitheris more important than.

t is obvious that increased capacity to produce particularcan be converted into increased capacity toide variety of products (and vice versa).

*** It should be noted that tbe problem of whether investmentfor either replacement of or additions to munitions plants should be consideredart of defense expenditures is completely separate from the problem of whether munitions prices are set high enough to reflect depreciation and obsolescence on the capital assets

No conceptual -problems are encountered in-the treatment of uclear weapons. Expenditures for this category axe clearly for defense .purposes, with the possible exception of. apital expenditures for facilities with industrial usage. The USSR does not reveal information on the magnitude of its nuclear energy expenditures. ,Hence nuclear energy expenditures arc not in-eluded in defense expenditures in this report. They are properly included in the broader category of outlays for national security, which include, foreign military aid, as well.

The .coverage of Soviet defense, for purposes of this report, thus includesnd an estimated portion of. Expenditures for these categories may be found in seyeral.'places. The.explicit defense budget apparently contains all of activitynd possibly some parts of. research and development. Parts ofand presumably all of)) are located in other parts of the budget. Research.and development probably are in the Soviet budget in Social-Cultural Measures under'the hea'ding Science. The budget.category Internal.Security includes funds for those militarized security troops that may be considered military personnel. Part of this category is added in this report to the explicit defense appropriation. There is no positive evidence that any other budget category includes defense expenditures as defined. Nuclear energy allocations are believed to have been in various residualin the past. The present location of these allocations IsrasIB matter of speculation. For example, until the end0 these

used in their production. The investment problem is concerned with whether resources used to replace or to add to the stock of capital in munitions industry should be counted as part of the current military or defense effort. The price problem is concerned with whether the current costs of producing munitions are adequately accounted for and whether the munitions industry has sufficient Internal funds toor to add to Its capital equipment. It clearly makes noto the investment problem whether the funds to finance the project come from the general budget or from the internal funds of enterprises.

allocations were in the undisclosed residual of theheyere transferrcdtQ. the residual

Financing the National Economy. uclear energymay have -tbeen: transfer red. into the -Heavy;under Financing theossibly under Ministry of Medium, Machinet is probable that the of research and development involving, nuclear weaponsborne by those budget categories, in which-nuclear,energyhave, been -

.c sr.tvtii l" *

The amount of, defenseiexpenditures which may be hidden in the Soviet statejhat .iftfjexpenditureB for- defense in additionhose noted above hasause of concern for many budget analysts. The estimates for them vary from-amounts which are negligible to amounts approaching one-third of explicit appropriations. There ishe".sources of any such hidden categories are the undisclosed residuals in the budget.* These residuals-are usually expenditures that actually are made but are made for" ah unspecifiedn occasion, "particularly during theears, one of. these expenditure categories has been artif^ially"inflated by the "inclusion of fictitious items, apparently ,witK:the intention of making the services-of the government to the population appear to be larger than they really are.

xamination of past.Soviet state budgets shows the magnitude of residuals for the entire budget and for the category Financing the National Economy. In addition, it establishes the principles of Soviet budget planning. hows the residual categories for selected

An undisclosed residual is simply the differenceiven total for the category and the sum of the announced components. There are undisclosed residuals for every category andor which totals arcexample, one for the budgetwhole and one for the category Financing the National Economy. Anresidual may indicate either an attempt to conceal orisinclination toarge number of individually unimportant


ollows on p. 8.

- 7

year*1 Fictitious entries have been excluded: The designated as undisclosed are the amounts which remain un'- rr. after some initially unannounced categories have beenaccount, It ia clear that the undiaclosed portion of the

budget residual is not surprisingly large; in view of the*necessity for - -ategory to account for miscellaneous outlays. The oneyearhen nuclear energy outlays may-have become.-- The planned residual within Financing theis almost accounted for1 by outlays for stateMinistry of Automobile Transport, (the Chief Directorate of Metals in the Ministry of Finance, and otherTcnbwn -r . .

Table 1 ' %

Categories for.Soviet Hidden Defense Expenditures a/

(Plan Figures) . - '- Billion Current'Rubles

residual b/





3 c/






within Financing the

National Economy .../

are fromppendix C.

expenditures minus Financing the National Economy, Defense, and

fictitious entriesillion rubles.

fictitious entriesillion rubles.

indicate estimates rather than official figures.

8 it has not shown consistency in magnitude, but thein the. when it included nuclear energy*. The presumption is strong tbatiew,if,uch.1are included in the residual for Financing the National. :

Economy. This probability is based on budgetary practices for-- selected yearss reviewed in Appendix C. In the event that some expenditures for defense are hidden inrhis'Category, they";- apparently have not varied significantly in the postwar period and therefore would not influence estimates of annual changes in defense outlays which were made withoutthem.'

"V" V-

The last of the basic problem's in the area of .coverage aridies in the meaning of the pricing system used for Soviet military pur-poses. It is reasonably clear' that subsidies have been used from timeo time in order to hold down the prices of military procurementarticularly in the early stages of manufacture, when-development costs are substantial and unit production costs high. 'For some pur' poses, the existence or nonexistence of subsidies makes no difference. For example, if one ia interested inime series of expenditures in real terms, the use of subsidies would-not provide any bias, provided that the subsidies had been accounted-for In the '. price index used to compare ruble expenditures for-different years:1

In general, the existence" of subsidies means simply that products are sold at prices somewhat lower than their real resource costs of production. The share of resources used by the defense establishment thus would be understatederiod of subsidy, if thef defense output (in subsidized prices) to total outputombination of subsidized and nonsubsidized prices) is usedriterion. The same considerations apply to'prices that are abnormally high because of monopoly profits (rents) or turnover taxes, since the resource usage would be overstated by the amount of rent earned by thehe solution to either kind of distortion is simply to add the amount of subsidy to the official expenditures or to subtract the amount of rent from expenditures. Unfortunately, this cannot be done with precision.

The existence of subsidies mightias in comparisons of defense expenditures between countries, although in principle the

problem hancUedby the exchange ratio. That ia, if ruble prices for defense goods are lower than real ruble coats*the ruble-dollar ratio ought to reflect the relatively low ruble prices. It is the latter procedure which is used in this report.

II. Categories of Defense

Budget appropriations to the Ministry of Defense are distributed to the various branches of the Soviet armed force shy theirectorate of the Rear. In this section of this report, an investigation is made to identify as many categories*of defense<spending as possible and to relate them,to the .Finance Directorate or its representative unit. In many cases, the flow of spending cannot be traced beyond theorganization. If. this organization'is identifiedilitary organization subordinate to the Ministry.ofts funds and credit are assumed to have been received from the Finance Directorate. In short, the expenditures of the Ministry of Defense-are assumed to be identical with the expenditures of its subordinate organizations. This assumption seems realistic, in view of the many complications which, would be introduced in its absence. Furthermore, in some cases of defense spending which are not included in the defense budget for example, nuclear energyhe spending does not seem to be carried out by any organization of the Ministry: of.Dcfense.*

**. . . ,

Thereecond assumption often made throughout this section. It islass of military expenditures is properly indicatedew examples. Classes of spending cannot, however, always bein this fashion. In the following investigation, when the limits cannot be established from the evidence, it is noted.

A. Army, Air Force, and Navy.

The budgetary allocationstanding army, air force, and navy normally cover the following categories of expenditures: costs, including pay, subsistence, clothing, andaintenance and operationa costs, covering such items as purchases of petroleum products, labor services for repair and overhaul ofequipment and facilities, operating costs of storage and supply

* For the organization of the Ministry of Defense, see Appendix A.

- 10

systems, training coats, administration costs, costs ofequipment (such'Vs'iaundrie^ab'd kitchens)'and organization' and WUiUe a1ilitary'public works,barracks ahd'living quarters; hospitals and medicalfacilities; military airfields; ports; harbors,esearch and development test facilities;planning and other Constructionxpenditures for reservesome costs for mobilization planning and for the purchaseequipment and'apareexpenditureVftir^majbr'prdcurement^are' of great intelligencebecause they would ordinarily1 tacludV the outlays fornaval'vessels,'ccomb'at and'supjiortrtillery;ammunition, guided'miSSiles, and electronics l/

- rS3H to fc- n1 * . Sources of information about Soviet budgetary, and financial practice strongly suggest the presence of most of these sevenof'expenditures in the expllcit'Soviet defense budget. The exceptions include some expenditures for reserve components, most of industrial mobilization costs, and research and development.

. ,'.

1.' Personnel. *

The evidence for the inclusion of personnel costs in the defense budget is clear. These expenditures arc made on the military district level by the 'military units, with approval by all the financial authorities of the military hierarchy. There isinformation o make reasonable estimates of the military pay bill'for "certain types of units. *

A major component of military personnel costs is pay. Estimates of the annual pay bill can be made for some* It may be noted that in addition to military


See footnote'to Tableelow. See also Appendix B. "* For serially numbered source references, see Appendix E.

personnel, Ihe, armed forces pay,the wages and salaries ofbyhe navy, ior example, pays personnelkeep records at naval depots, such aa accountants,administrators and. alio personnel.employed for particular assign-such as lumberjacks. 2/ Of theMtotal pay bill, wages,of the civilian.component .are .estimated to make up

In addition to pay, personnel expenditures include,or food, clothing, and ipedical services, ^pbserved medicalitures by the navy are-not only for medicines but also for sanatorium, health resorts and the operation of children's institutions. 3/ Purchases of food and,clothing.for^the army are made by the Directorate of Food Supply and the Directorate of Clothing and Equipment Supply,"of the Chief Quartermaster Directorate. 4/ Food also isfrom the Ministries of the Light and Food Industry and of Agriculture and Procurement, f

57 The type of product varies with the season

ana tne geographic, location.

There are several ways by which the Soviet armed forces fully utilize their ruble allocations for the purchase of food. For one thing, they supplement purchases through normal trade channels with food raised on their own agricultural plots, although these agricultural pursuits probably do not contribute significantly to thefood consumption. Seven such establishments of the army have been identified in areaB of troop concentrations. * It appears that these farms are run largely by military personnel and furnish most of their product to the military. ortion of their product may be sold to outside organizations for normal retail prices. 7/

* They are in or near Aniva, Kirovskiy Poselok, Koryaki, Lazo, Uglegorsk, Olovyannaya, and Chita. 6/


The Soviet Navy is granted hay harvest rights Bf and files reports on the numbers of horses,ogs, and poultry on hand.he hay harvest rights, granted in accordance8 decree of the Council of Ministers, presumably are for the horses held by the

navy for agricultural and other purposes. Troops are used tohay.cost "blithe food produced on'such agricultural

such as potatoes, vegetables,nd meatshould, therefore,the armed forces would pay another ministry. The proportionfood products relative to total military food consumption,probably Is not

' econd way of economising on food expendituresthrough the operation of the Chief Directorate of Militaryoft the Ministry of Trade. This organisationtwoo provide retail outlets where military purchase many items of consumption; including confectionsfoods; and to act in some cases as purchasing agent for theIVf To the extent to which these outlets^are intended toof the normal food requirements to military personnel fortheyaving to the military. This possibility is *of little.

* The continuation ofolicy might explain the turnover tax exemption granted to the MVD in the Far North1* One source reports turnover tax exemption Plotnikov attributes the loss of state revenue during the war "to the significant rise in requirement of the Soviethe loss inwas also the result of shifts in productive resources and thoof income from socialist enterprises and organizations.


The final and obvious way of economizing on expenditures for food and food products is by negotiating for price discounts through turnover'tax exemptions or other price concessions. The evidence from Soviet financial literature suggests that the military generally pay the turnover tax but do not pay retailhe price seems to be the* wholesale price including the turnover tax. There probablyew exceptions to this generalization, 9 it wn stated fficially that the military and some other consumers in the Far North were exempt from the turnover tax on vegetables, potatoes, and In theears, this exemption may have been extended to all customers. In the prewar years and perhaps some of the war years, -the military may have been exempted from paying the turnover tax on some commodities, but it is hardly likely thatnjoyed completeor example, official doctrine

indicated that the military paidrue.* crifi

' vWiiS bifJiN tema of military clothing are.purchased byof Clothing and Equipment Supply of the Ministry ofoften dispatches them directly to unit warehouses. by this directorate have been, made from.tho Cottonimeni Stalin in Tashkent and from the Telma Sewing.Plant.prices paid (like theaid for. food products).are;equivalent of the wholesale price-plus the turnovert--supply authorities keep-close-account of thepparently keeping the recorda in rublevalues. Fordischarge of some of its personnel,ilitary unit returns to.Directorate of the Ministry ofredit sum equalamortized value of the returnedxpendituresin the navy, likewise, are closely supervised. Inventoriesclothing are reported carefully, including clothing returned The higher authorities show concern overof used garments when salvage is Military at which clothing repair takes place are maintained atof the various units.

A rather small category, of personnel expenditures is forstransportation of militaryhen military personnel are on detached duty, their travel and other expenses are often handled by the Management Directorate of the Defense Financeii/Tha normal travel expenses presumably are paid by the unit finance group.

* The Military Trading Organization is notedistributor of military consumption goods andayer of the turnover tax,

Another expenditure of the armed forces for personnel is for housing and recreational6 and again8 there were changes in the administrative units responsible for -the construction of military barracks, but the costs probably have always been met by the military. In addition to the initial construction costs of military housing, there are annual repair and operating costs, which are paid for by the responsible military Among the

operating costs are purchases of coal at prices known to include some ttdirii'jlMii


barracks; is $adV by the Various

Maintenance and Operations.

It is difficult to identify all components of theof expenditures for maintenance and operations. It isto identify:the> moreepairmnitaxy'equipment constitute anHmportantthis general current account.'7 There are,!categ6riesIbf repairof Soviet'equipment, aneT the place of repairthorough overhaul of army and airas well as of naVal'equipment'prbbably-'is contractedhereas less complete1 repair is carried onmilitary units or at central ordnance repair facilities, Tbefor" the; repair of tanks appears 'to lie with IheRepair and Supply, an office: subordinate'to the Chief Armoredwhich purchases Items used in Majornaval ve sseis probablyarried out on contract for'theby the Miniatry^bf Ship

33/ For artillery ana otner grouncrweaponsesponsjouiryproDably is assumed by the Directorate of Engineering and Supply of-the Groundn conjunction with classes of repair, the Armored Tank Direc-torate, probablyase such ast Voroshilbv, undertook the medium repairarge number ofinor repairs probably are carried on at the division or unit level.

"^fthat'the naval rcpre-


vessels because of the lack of payment



The largest element of repair, coat la for the labqr ser-vicesany civilians are employed by the military, probably for some of their repair activities. In other cases, the munitions industry performs these services under

Another Important expenditure for current operation ia for petroleum and petroleum products. The air forces arc important consumers of such products. Deliveries by the'Oil Sales Directorates for the mililary.arc shipped either directly to the military consumers or, more often, to military depots, where petroleum is stored under the atato reserves,hen the products are shipped from the atato reaervea, the military presumably became .paying cuatomera. These delivery procedurea are related to the nature of petroleum fuela, many of which cannot be atored for moreonthsear. The inventoriea of state reaervea are thua revolving stocks.

hia unit or itsBpi-sBsuiaiifj prcsuiuauiy approveshe prices paid apparently are the regular wholesale prices, including turnover tax, which are quoted to alln prewar years, however.

The kinda of fuel purchaaed by the military establishment, in addition to the bunker.fuel for the navy, include aviationet; diesel fuels; motor gasoline; kcrosine; and lubricants.0 wholesale prices (in the sixth zone) for these products varyubles per metric ton of diesel fuel toubles per metric ton of aviation

the military may have been exempt from the turnover tax on ' .

In Bum, the remaining maintenance and operationsimportant, even though any one component, with the possibleof the "supply and storage system, is relatively small. armed forces pay for postal and telegraphic service, operation of laundry and baths, furniture for quarters, repairssome administrative services, and tailoringr '- * .

Storage expenses must be considerable for theforces',"with their high level of inventories. There areas upase's and depots inhere isthe armed forces pay for their storage facilities, as forthe case ofetroleum and petroleumstorage space. Military end items probablymoat of the other goods'stored.

It is worth noting', in this connection, that the military chacge Other organizations for the use of military' storage facilities. For' instance, the civil flight training center at Shchelkovo In Moscow Oblast was required topaV the military for storage space whileircraft were undergoing

3. Con3truct;on.

The Ammunition Supply Directorate of the Chief Artillery Directorate showed interest in the repair of ammunition storage facilities

This charge would indicate civil flight training is not carried out by the

Soviet military construction at present isarge category of expenditure. It does, however, include activities of many typeB, andits history is interesting. 8 the armed services carried on many construction-activities, including such

projects as military bases, barracks, and etoragVand/aviationies. 1 these functions were transferred to the Directorate of Military Construction, which was,formed.and attached to the Council of Ministers for the express purpose of .preventingmUitary district commanders from exercising control over6 this directorate was combined with_certam constructionof the-NKVD and the. Ministry of Construction to form the Ministry of the Construction of Military and Navalhe activities of the new ministry included the construction ofroduction facilities.

hief Directorates of Militaryaval Construction again,we re formed in.the^Ministry of the Armed orces. 9 the Ministry of the Construction of Military and Naval Enterprises was combined with the Chief Directorate .of the Construction of Machine Building Enterprises to form the Ministry of the.Construction of Machine Building These reorganizations probably resultedediyision of responsibilities, leaving thef defense production facilities to the Ministry of the Construction of Machine Building Enterprises and the con itruction of military bases, barracks, and so on to the Ministry of Defense. For example, in9n organization for industrial military electric power or assembly was transferred to the new constructionhe MVD also at this time may have resumed some of its former con-tructlon activities.

^ j'ift ^

The Directorate of Military Construction probably had

been responsible for the construction of munitionshe construction of armament factories is now carried on either by the appropriate producing ministry or by the Ministry of Construction or by both. The Ministry of Defense may employ its own directorates or other directorates for the construction of the few producingunder its control, as well as for building military bases,and so on.

* Insu pian wis organization was treated in context with the Ministry of the Construction of Heavy Industry Enterprises and the Ministry of the Construction of Fuel

Inhief Directorate of Specialwas formod in the Ministry of Defense from the DirectorateConstruction of the Soviet Army, also of the Ministry53/

The mistaken identity is understandable, for onb'foi tho 1of the latter special construction group has been theDirectorate of the Ministry ofitibaathe Finance Directorate of the Ministry off Itbeen involvedonstruction project believed to be ah ne of its main cuslomcro was in the nameho Chukotka Air Group of the Directorate of Polarthe Chief Directorate of the 'Northern Sea Routeiillion rubles' worthof'cbnstructfon'services,1airfield4 and;5 thisinvolved in projects which'probably we're financed byDefense. * fc. wi'V

vr fC'

In addition to the Chief Directorate of Construction and the Chief Directorate of Special Construction there are the Central Directorate of Capital Airfield Construction and the Quartering Directorate in the Ministry ofhese organizations perforin tasks which their titles indicate. There tu direct evidence thatavy pays the.bill for the construction of lighthouses, radio'beacons, arms and ammunition storage facilities, and certain Expenditure'sorts, harbors, and basesydrographic charts, buoys, and expeditions also maybe under the Chief Directorate of Naval Construction. The existence of the latter category may be comparable to expenditures by the military for surveying and planning, such as the work conducted for them by Planning Institutef the Ministry of

* The construction and capital repair plan of the 7th Air Army8illion rubles. reakdown ofillion rubles of planned construction for the Far East Military District for barracks, baths, laundries, workshops, and repair bases, see.


The organizations' of the Ministry of Defense probably! are respoaaibW for the construction and maintenance.of facilities for militaryuch ai aircraft-facilities, main rear -facilities at the district level and -storage facilUTes iotnd barracks and dwellings.

Research and development, activities .ire carried on jointly by the Soviet armed service* ana^the defense productionerprises. wjth the .exception of basic rese^^ch^carriedchools of higher .learning and special programs .such as the nuclear, energy program. The development of new weapons, begins with thehief Military. Technical Committee of the military forces andlts. ubcommittees, on, artillery, air< Tali. tanks^engineering, and so n. * When the appropriate technical subcommitteeew idea which has been worked out by one of the developmental research facilities of the military services, it js passed to the militarybureau or to the construction.bureau enterprise for prototype fabrication. The military construction bureauprob-ably develops prototypes of new weapons,.and (he enterprisesmodifications of existing weapons. Once tne prototype isand has the approval of the appropriate subcommittee and tho full military technical committee, it.ts passed (in the case of tho army) to the Chief of the Armyhere the units to receive the new item arend it is recommended to the Council of Ministers, who, with the economicuantity and time schedule ofho division of research and developmenttexpenditures between the military and the. producing enterprises seems to be between expenditures leading-through the developmentrototypeew weapon and all other expenditures, including the costs of adapting the new weapon to production. This interpretation isby the fact that the Ministry of the Defense Industry has subordinate to it such organizations as artillery design bureaus and scientific research institutes which presumably are concerned with matters of production and materials. The Ministry of the


Aircraft Industrycientific Research Institute ofhe research centers; 'wbich'are less^ohcerned with applied'research' than with basic Research' of 'ultimate"defense importance, axe-notto the military'ministry.'*

The'precise division of'expenditures between munitions plants and the military ministry becomes important only when the prices paid the munitions plants by the military do not include all development costs' There are two reasons to believe thatcosts are'notVeflected'fuUy in prices paid by the military. First, there ia the general'Soviet practice of setting prices forlong periods. ractice would preclude the possibility of writing off development coats with the first few units of output. Some of the Costs,ould be'spread out over the expected period during wnicb^the'how items weretb be produced. It is unlikely, however, that.alt development costs would be amortized in this manner. Second, Soviet practice 'seems to provide for the financing of part of these costs' through budgetary allocations and intraministerialof There have been examples of increased allocations from the ministry to one of its plants when the plant has begun toa new

5. Military End Items.


Major procurement of military end items, including spare

parts, is of special intelligence significance.

* ' . . *

There are several organizations In the Ministry of Defense concerned'with the procurement, allocation, and storage of military end items. |atwhajfranl iiniahnd nroriucta. occasionally

-wrnrrery Directorate (including an Ammunition Directorate),Armored TankService and Air EngineeringheSupply and Equipment for hath [he Engineering TroopsTroops,-': .and the Automotive Directorate. Theseapparently are responsible for purchasing,distributing to military units the kinds of itemsimpliedby .their/title, ' "

i ch* The Arti'll

; indirect evidence cates that the navy also, purchases ammunition* The Artillery Directorate of the Naval Forces, with -which Depot No.7 is associated, probably assembles. Also one of the enterprises under the Artillery Directorate ofThe Naval Forces.has purchased ammunition

In addition to this evidence, there is the suggestion that the navy purchases naval mines and torpedoes. The Directorate of Mines and Torpedoes submits periodic reports to navalin Moscow concerning, presumably, inventories of the

types of -equipment suggested by itsThis directorate

also may do some assembly work.

* For example.

It is probable that the artillery directorate and mine and torpedo directorate, respectively, arc responsible for theof naval artillery ammunition and mines and torpedoes. The financial arrange me nts_probably are carried on through the Finance Directorate of the Ministry of Defense with producing plantsfor standard types of .ammunition) with army depots.

that 30

ere prepared for*


top Secret

the naval mb^tr*.or naval, forcaa

military. It is. highly, probable that the Directorate .of Shipbuilding ofMinistry of Defense^the adrninistratiye unit which aperQyesvits representative at the shipyard, the ship which is topon acceptance, this directorate authorises and

Payments for naval vessels are spread over stages.foraval vessels.

ow. rur,inaunce, in me case or one Bupmanne null,tor production stagereceded payment fornother case, payment for stagereceded payment for. In all cases, however, payment for;recedcdtages Henceit is believed that when.stages paidhe hull is presented for state trials, and payment. indicate acceptance following successful completion of

The administrative procedures involved in

new naval vessel to the Soviet naval forces are similar to those of the US Navy: The decision toaval vessel is made by the Main Soviet Nayal,Staff. The Directorate of Naval Construction .then, draws up tentative blueprints, which are submitted by the navalo tho Council of Ministers. When this body grants approval, the Ministry of Shipbuilding becomes involved. It draws, up finalrints and begins construction. Duringepresentative of the navy is stationed at the shipyard or shipbuilding enterprise to supervise construction and to notify the Ministry of Shipbuilding of final acceptance by the


* Forofficial

in the Directorate os Shipbuilding ol the Ministry of Defense authorized acceptance and payment for the final stageself ?propelled barges with unit prices atillion


Evidence cited and reviewed elsewhere leaves little doubt that the navy is the organization which orders and pays for vessels produced for it by the Ministry, of Shipbuilding.

. The coatother military end items ia somewhatof related Soviet industrial producta. The reasons aretroducers of military end items probably have highermaterials, services equipment, and technicalof subsidizing initialris .in industry favorsindustry, in which technological change proceeds at ahigh^-

i* mi*

- .

Militarized Security


troops evidentlyupply system of their own as well aa air component and armored formations. The various units of troops havo been organized over the past several yearshief Directorate of Internalhief Directorate.of Border Troops,irectorate of Signal Troops.

* The armament enterprises, however, do not seem to receive favorable prices on purchases of production equipment. Incases, they pay the same price paid by other industries for machine


The Directorate of Signal Troops .at first was subordinate to the Ministry of State Securitynd more recently to itsucceeeor, the Committee of State Securityuring most of their history, the remaining two directorates were organized under the Ministry of Internal Affairs (MVD) or ita predecessorsuccessors. In the period from7 toowever, the Chief Directorate of Border Troops was subordinate to the MGB.

From9 or Borderhe indicated pcrioe

were subordinate to the MVD or itsin the period after the3 reorganization followingand untilhe'two security';brg'ani'zdtionS werean internal

The KGB presently is -a1 smallovert and* secret'police elemeritB'.^'The^MVD'serves-'many pollt&di"*'functions,' protecting and maih'tammg mt'ernal andecurity and guarding and managing economic enterprisesorced labor, and activities such as mining and construction opera*tions. Most of the militarized units of thethe MVD.

It is estimated that the'militarized units (border,-signal troops) of the Soviet security troopsotal

: : '

An informed source reports that the border-troops do hot-their own logistic system, but rely for support oh the ter-vmilitary district where border units are stationed. JJ8/include food and forage, clothing and equipment, -andammunition. _i"

.'i.i'- (ttk^Vvr

Reportedly the only items not procured from the -district arc automotive'equipment,"POL, perishable's, and hay and straw. The procurement of automotive equipment ia said to be anaged directly by an MVD organization (the Motor Transporthile the POL, and perishables are purchased locally by the border units.

seemingly contradicts the above description oi tne system ot supply. One reporthief Directorate of Military SupplyVD, which includes sub-ordinate supply directorates for foodlothing, The period covered by the report, which


may explain, at least in part, the* apparentt*was at* he beginning of this periodhat the<roops were ransferred to theollowedby'a9 oi-ftheJbbrdeT,i >iti exact relationship is not relevant to expenditures inas the military are paid for any logistic aid provideda.'f

III. Defense-Related.


-fc ivO

Expenditures for. the reserve components of Sovietare of little importance-insofar-as the defense-budget is con- Certain medical facilities;by,the.militaryreserve personnel, but the training and briefing expenses prob- are met by theSociety for Cooperation with theForce, and Navy (Dobrovol'noye.Obshcheatvo.SodeyStviyaiOSAAFvoluntary!'finances its running and equipment costsith supplementaryromip In recent.yaars tha annual duesJiaveoniinalia3 rubles perut membership is.orup about one-fourth of the population in the Baku area. * .the Khabarovskhe organizationalance of'7 million rublesOSAAF. wasto useercent instead ofercent of itsto procure equipment and other,

Air Fleet. _

* The annual collection in Bakuubles

- 27


At the beginning of World War II the armed services assumed control of the Civil Air Fleet and made it part of the military Later, perhapst was transferred out of the ministry

and attached to the. Council of Ministers,"where it hashis organ izationvperates passenger service and occa> sionally airfreight-service;. It constructs and equips airier- It purchases gasoline, .which sometimes is shipped by military transport, and certain replacement items, such as storage batteries fort-buys its own aircraft. When defense allocations are relatedto aircraft production, it should be recognized that the Civil Air Fleet isonsumermall number of aircraft each year.


Expenditures for the purchase of productive equipment and material needed'for conversion to war production are almost entirely outside thehese items for mobilization reserves are-under tbe supervision, and-perhaps the ownership, of the cl-.irl Directorate of State Material Reserves, which receives funds frorn the budget category Financing the Nationaluch of the planning forowever, is done by theauthorities as well as by the various.economic

The'foreign tr'ade account for military end items (as well as for other military supplies) is handled by the Ministry of Foreign Trade, and thus there mayisparity between defensefor major procurement andproduction of armaments. ngineering Directorate of the Ministryof Foreign Trade is the administrative unit which procures and exportshis unit exports items such as aircraft equipment, marine equipment, ground armaments, and communications equipment, which aredirectly from producing enterprises./ In addition to new or reconditioned equipment purchased directly from the factory, the Engineering Directorate undoubtedly negotiates with the Soviet armed forces for used equipment to send abroad.

The procedure for obtaining used equipment from thefor export is not clear. In the European Satellites, procedures


Trade in Military End Items.

suggest that ttevEngineering Directorate pays the.rice for. military equipment which takes into account its Sge and physicalIn situations where military equipment is sent abroad butin Soviet custody,,such.inEast Gerrnany, .the.Ministry of Foreign Trade is not involved. Aside from these two situations, there probably is some lending of Soviet military equipment to.other countries of the Sino-Soviet Bloc, such as to Communist China,ivenvri ev fi

(Ma iff! . *

The possibility that the military establishment obtains funds

from the sale of used equipment introduces the possibility of other sources of income or unusual economy-measures. Thereew examples, besides those mentioned in connection with personnel pay, food, and clothing, of small economic enterprises.being operated by the military. On occasion, military basen Syzran' has produced pickax and carpenter axommercial production by militaryn^Vorosfailov may have been valued in the millions of rubles/ Other sources of income include money received for labor performed for other organizations by militaryand sales of used oil./art ofillion rubles was obtained from military economic;enterprises. *

IV. Magnitude of Defense Expenditures..

The basis for estimating aggregate Soviet defensethe Soviet state budget, ,as explained earlier (under I) and, inin Appendix C. The aggregate annual, expenditures areamong the main types of defense

in the light of available information and USTnaTOgy.

* "Military units of the Red Army, by their own efforts and means, carried out4 various work of repair and technical manufacture, spare parts and articles of supply in the amount ofillion rubles, obtained agricultural products from their subsidiary farms valuedillion rubles, mobilized and paid in revenue to the extent ofillion rubles from the funds of their economic enterprises and from their incomes. In all, therefore, moreillion rubles was economized in this/


Inevitably, estimates of the magnitude of the component of defense

The estimated size of the Soviet active militarythe militarized units of the MVD and MGB)s shown'in Table 2.

Table 2

Size of'the Sdviet0















from the better'of 2and

for year and/

e. /


average annual rate of pay, including allowances, for the same years is shown in As noted in the explanatory



*v1 ".


vj.-: <dO: aajori





Current Rubles , v.


Pay (



T -



c/ ,





c/.d/ ..


( -V





No change is assumed05 figures are neareractualv, . ^

year, .assuming that7 rate took place at the end.ofalong with other wage increases.


wereillionillion rubles,Ifercent is deducted from there* infantry division' pay bills' to allow forfor civilian employees and perhaps local procure' ment,ay figures are reduced toillion andillion rubles, respectively. The Table ofof an infantry division is0 men. It is assumed that these Far East divisions are at full strength in view of their border location. The average pay per man is thus betweenndubles per year. This range indicates that the estimates of the table are conservative.


annual pay billsrfor eachnfantryncluding some few civilian

notes to Tableay bill estimates for afeVtypes of militarybeen madeThe estimates

for two infantry divisions indicate an annual per'capita pay bill range extending upward from the estimates' of'the tabled 'For this reason, and because the relative pay scales for ground troops are likely to be below those for..naval, anilroops, .the. pay set forth are judged conservative

concerning'the Table-.oXr

Organization and the percent of strength greatly affect theper capita pay; "One such calculation is shown in

e .1 an

Annual per capita expenditures for food and'clothing are estimated

as shown in

' V '.

Per capita and total personnel costs for the Soviet armed forces are shown in* Because the figures ofre regulation pay and upkeep/an arbitrary adjustment is made45 to account for the'lower quality diets andloans of the military. An index of personnel coftsTcf"""


B. Maintenance and Operations and Military Construction.

rrr- -

The broad categories of expenditures for maintenance(discussed above) cannot be estimated directly. Theyestimated in the aggregate, therefore,ercentage'ofoutlays on the basis of US practice.-

Soviet accounting for maintenance and operations seems to differ from US procedure in two main respects. First, Sovietfor maintaining industrial facilities and equipment which***


Table 5

Personnel Costa of the Soviet Airmed0

w. w




(Billion Current Rubles)









respectively, above.

b. Adjusted downward fromubles (the sum of personnel costs inyercent4 and byercento allow forscarcities.

are held as mobilization reserves are not included in defense Second, Soviet reserves and training expendituresin this context does not include regular field maneuvers) are small and in any case probably are handled by such organisations aa DOSAAF. Besides adjustments made for these classificationUS allocations should be adjusted to allow for extreme variations in expenditures on organizational equipment and supplies



euch as furniture, fixtures, office machines, andwhich were associated with the rapid post-Korean Wa r Finally, expenditures for'maintenance spares and spareproperly may be considered as major procurementshould be deducted from LIS .maintenance and operationswhen used for purposes of analogy with Soviet

US maintenance and operations expenditures for the fiscalre shown in Tableefore and after adjustment. They are compared with total US defense expenditures for the same years. The total, likewise, must beadjusted to correspond to Soviet practice. In addition to"the two deductions above,for the procurement of mobilization facilities and equipment and for reserve components must be excluded. As-noted above in Sectionnd C, these classes of expenditures are not made from the Soviet defense appropriation. **

The proportion of maintenance and operations expenditures in total US defense expenditures declines from aboutercent1 to nearlyercent. The high percentages2 may be explained by the reopening of military basesuildup of inventories, which resulted in expenditures in excess of annual consumption. Fromt is clear there was no similar increase in the size of the armed forces of the USSR. Hence,ears may be discarded for purposes of comparison. he estimate for Soviet expenditures for maintenance andthus is aboutercent of the total defense allocation.

*ollows on* Expenditures for maintenance spares and spare parts, on the other hand, are made from Soviet defense appropriations and have not been subtracted from the US bove.


Construction expenditures by the US Department of Defense have been as followsn fiscal years;

Expenditure* for Maintenance and Operations and for Total Defense in the US 4/

Fiscal Years.

Million Current US $


Fiscal Year Maintenance and Operations and Operations b/ Total Defense Total Defense f/

and Operationsf Total


H O.






m n


^ b. Total Maintenance and Operations less, recruiting and training, industrial mobilization, and maintenance

spares and spare parts. Organisational equipment and supplies are subtracted and rcintroduced'at'an14 level of5 million.

c. Total Defense expenditurea less production equipment'and facilitlea/ recruiting'and training,'and industrial mobilization. Organizational equipment andjs.uppliescare' . ^


% 3





r a

- if






ercentage of adjusted total US defense expenditures, these amounts varyow ofercent1ercentith the remainder,of the values slightly in excessercent. ough estimate for Soviet military constructionercent of totalexpenditures.

These estimates of Soviet expenditures on the maintenance and operation of military forces and on military construction are used in the following section in deriving an estimate of expenditures on military end items.

C. Military End Items.

In this section, Soviet expenditures on military end items are estimated by subtracting from total defense expenditures thealready estimated, for personnel, maintenance and operations, and construction. The resultant estimates are converted-in turnerlea In constant rublea for expenditurea on military end itemB, by meansrice index for military end items, based on anprice index.

In Tableandoviet defense expenditures are totaled and distributed by major components, outlays for military end items being determined as residuals.

*ollows on* ollows on p,



Table 7

Soviet Defense Expenditures, Including Expenditures for Militarised Security Troops 0

Current Rubles




Explicit Year Appropriation */


may be found in annual budget reports of the USSR.

figures are about one-third the estimatedboth the MVD and MGB. This proportion is about theof militarised personnel to total security personnel.

indicate interpolation or extrapolation. .


Table 8

Major Components of Soviet Defense0

Billion Current Rubles





Operations and Construction SJ



from Tablebove.

from Tablebove..

atercent of total expenditures, on the basis ofas explained in tbe text,bove. Estimatesand operations45 have been reducedpercent toercent of the total, in order lo allow for

expenditures minus other expenditures.

There are far too few known unit prices of Soviet military end items to permit the constructionrice index covering the past few years. roblem inherent in price indexes of any kind involvesfor quality changes. This problem would be exaggerated in an index constructed from prices of military end itemseriod. Presumably this consideration is one argument, aside from the lack of data, in favor ofrice index for comparable goods. In addition to the quality or technological aspects, prices of military end items are especially dependent on scale of output because they are seldom produced at full capacity levels and models are so often changed. Thisroblem in comparing World War II and postwar defense efforts, as noted below.

Three indexes of price movements are shown inhich might be used inrice index for Soviet military end items.

Table 9

Selected Soviet Price0












of two values for January and July.


The industrial capital investment index covers the price of construction as well as of the equipment Installed. It is clear that construction prices increased more from the end of tho war9 and declinnd less0 than capital equipment prices. Indeed,0 construction price index (for total Investment) relative5 stood, and stoodor total industrial capital investment.* Because military end items are closer in characteristics to capital equipment than to total industrial investment, tho index for industrial capital investment would overstate the level of postwar prices relative5 for military end items. The price index for trucks, an important military end item, gives lower values relative5 than the capital investment index Its high value9 probably represents the small number of trucks in the sample. Prices for truck models continuously produced from the end of the war increased more9 than prices for trucks introduced7 Hence9 value may well overstate price increases for all trucks.

In addition to the upward bias in the industrial investment price indexeasure of armament price index, thereoro important difficulty in its use for the early postwar years. During World War U, prices for war goods declined considerably, according to Vosnesenskiy, whereas tbe price for all industrial commodities remained relatively constant./ Presumably these decreases were the results of scale of output. With the decrease in military output in the early postwar years, scale economies may have been largely lost.esult, armament prices probably increased at higher rates than investment goods at least

In* it is assumed that the gap between armament prices and investment prices had been closed There may

* It is interesting to note the close correspondence between the prices of military construction and total construction. 5ase, the price index for military construction0/ableollows on


Table 10

Estimated Soviet Armament Price0










From the index for capital investment in Table 9, ith the exception of adjustments. The base year was changed51 because the value5 is interpolated.

figure is estimated fromwho noted that thewar goods2 wasercentlevels and that cost reductionsbuilding accumulated topercent0 costs by the/

indicate interpolation.



stilllight upward bias in the estimated armament price index because of its inclusion of capital construction.

A check on the importance of the bias in the pricearticularly for the9hen price changes were greatay be made byough capital equipment index based on the values of Tablend filled in for unavailable years by assuming parallel movements with the capital investment index and by6 The resulting index, with the Voznesenskiy figures as follows0 The figure for aggregate productionbtained by using this indexercent less than that obtained by using the index in If the warre added, the difference becomesercent. Thia result emphasizes the different relation between given prewar and postwar price levels by the two indexes.

Tableshows expenditures, in constant rubles, on military end items to beostwar peakercent higher than expenditures2 and about one-half the highestlevels. The index figures for real outlays on military end items of Tablehould be considered with different degrees of certainty because of the wartime and peacetime divergence of indexes for military end items and other goods. The values for the years85 are thus moM reliable than the values04 The values05 are the most reliable in this sense.*

V. Comparative Measures of Soviet Defense Expenditures.

A. US and Soviet Armament Expenditures.

* P.bove. ** Tableollows on


International comparisons of expenditures for military equipment presuppose currency exchange ratios for the monetary units as spent for armament.

Table 11

Soviet Expenditures for Military End0





p.espectively, above.

The prices given are

compared with estimates of the dollar cost of the items on the assumption of production by US manufacturers. The resulting ratio isubles per dollar and seems to be appropriate By means of those ratios, Soviet outlays are converted to constant dollars and presented below. The results are checked against independently estimated aggregate dollar costs of expected production of Soviet military equipment.

The accuracy of the expression of the Soviet military program in dollars depends in large measure on the dollar cost estimates of


Soviet equipment. To the extent that these estimates do not reflect all resource costs, the resulting dollar value of the Soviet program is understated. This bias is related to the pricing procedures in the US military program. These prices sometimes may not reflect all US costs, because the Department of Defense provides equipment which is unique to the productionarticular piece of armament without charge to the manufacturer. Yet, in the final analysis, the Department attempts to include these expenditures in the complete price of the item in question. These prices, which serve as the basis for the dollar cost estimates of the Soviet equipment, are probably complete in most cases and tend only slightly to understate the Soviet armament program.

The few available examples of ruble prices for Sovietequipment or itemsimilar nature are shown inhese prices, when compared with their estimated dollar costs, show ruble-dollar ratios ranging from lesso moreo 1. The largest items fallange ofo 1. These ratios are somewhat below ratios for other Sovietmetal products, which range fromoo/ These results suggest that the Soviet armament ruble is worthoercent more, as measured in dollars, than the ruble spent for fabricated metal products.

In* the values for-fioviet military end items in constant rubles (given in Table II) are converted to dollars

by means of the ruble-dollar ratioso 1.

ruble-dollar ratios are assumed to applynd resulting

dollar amounts are thus1 dollars. The dollar estimates

may be compared3 with dollar estimates

independently derived. The independent estimates, also given inre based on previous estimates of Soviet armament in physical units, multiplied by estimated dollar costs. The independent estimates23 are roughlyillion, whereas the residual estimates derived in the present***

Tableollows on* Tableollows on Continued on


Table 12

Ruble and Dollar Prices for Selected Items of Soviet Military Equipment



Soviet Price of Comparable Items



p tug (perc/




; 1









price for sporting equipment/

and army items

price given in inventory


range3 for CMC and Dodge trucks of similar types.

3armon-Herrington truck of similar type.

3imilar type of jeep.

price in

jdollar cost of similar airframe0 prices,


dollar costtypa aircraft7 prices,


dollar costtype aircraft0 prices.


Table 13

Dollar Value of Soviet Military End0

1 US.$


Year LowerLimit W Estimates





of'^abbveV converted at aratio.

ofbove,iconverted at aratio.

5 dollars by the Bureau ofprice index for machinery/


report vary from USillion toillion2 and from USillion toillion Given the range of error in both types of estimate, this close correspondence must be more the result of counterbalancing errors than of accuracy of estimates of military production or procedures used in the budget analysis. The correspondence4 is not so close, for the independent estimate falls below the range set by the budget analysis. This overstatement of the budget data, however, may be related to the assumptiononstant ruble-dollar ratio, aside from price changes, for the postwar period. Soviet postwar advances inefficiency may well have exceeded those of the US,uble-dollar ratio appropriate1 and later years, therefore, may be too low

In summary, the correspondence between the two sets of estimates should be interpreted as slight confirmation of themagnitude of Soviet spending on military end items but not as proof that present output estimates or budget analyses are correct.*

InUS and Soviet expenditures for military end items are compared for the postwar period. 1 prices, Soviet expenditures65 total fromillion toillion, whereas US expenditures have exceededillion. The distribution over the period shows Soviet outlays exceeding US outlays on the average up tor* From that year on, US spending has greatly exceeded that of the USSR, so that, for the whole period, US outlays have beenoercent greater than those of tha USSR.

B. Soviet Defense Expenditures and National Product.

* By the same token, it is not confirmation of the estimates of dollar cost per unit, which are judged to be conservative. ** Tableollows on

omponent of national product, defense expenditures must be expressed inay that they represent the proportion

Table 14

US and Soviet Expenditures for Military End Items

the US, the fiscal year; for the USSR,year.

1 prices by the BureauStatistics price in date for/ The US data are notto those of These datafor military equipment,data of the other report are dollar valuesof military equipment, whichhave led expenditures in this period.





1 US $


















of total economic resources used for military purposes. The services of military personnel in this respect should reflect what thesewould receive in alternative employments, which may notto military pay and allowances. Hence for this purpose it isto consider defense expenditures in two components: ll others, including personnel. The predominant portion of the latter class of expenditures is for personnel, both military and civilian. Because of this predominance, an annual incrementerceni is allowed in the second category to account for productivityhat is, in alternative employments.' The results of these calculations are shown in Tables indexes.

Table 15

Indexes in Constant Prices of Soviet Defense Expenditures

All Other


given in another report,/ togetheriscussion of other possible The only difference between the two calculations is for armament in the last year. The value in this table is frombove, based on planned budget allocations. The figure in the other report is based on estimates of output.


appendix a


1. General Organization. *

Early6 the People's Commissariat of Defense and the People's Commissariat of the Naval Fleet were consolidated into the Ministry of the Armed Forces. This ministry was split onnd the Military Ministry and the Naval Ministry were formed. Under the3 reorganization, thesewere recombined into the present Union Ministry of Defense. Despite these changes, the Soviet military establishment has, with few exceptions, remained basically the same. **

During and between the reorganizations the bulk of thechanges consisted of splits, mergers, or transfers ofwithin the military establishment. For example, the Chief Inspectorate of the Armed Forces, whichtaff attached to the Ministry of the Armedo, was splithief Inspectorate'of the Soviet Armyhiefof the Naval Forces in0 that is, at the time of the formation of the Military aad Naval Ministries. With the3 reorganization and the re-creation of the unified ministry, the Chief Inspectorate once again came under central ministerial control.

Information on general organization is in large part from a

o avoid repetition, footnotes are used only

to denote material from other Figureollowing


Changes affecting more than the intraministerial organization of the military establishment took place in two fields, construction and civil aviation. The most important instance of the transfer of

an organization from the military establishment is that of the Chief Directorate of the Civil Air Fleet, which was shifted to the Council of Ministers, probably in The armed forces had takenover the Civil Air Fleet at the beginning of World War n, and such control had increased gradually to the point that8 the Chief Directorate of the Civil Air Fleet was made, by formalart of tho Ministry of the Armed Forces* Although it is fairly wellthat the Civil Air Fleet is presently subordinate to the Council of Ministers, the exact time of such transfer is not known. It was probably at the time of the reorganization in


The Soviet military establishment over the pastears apparently has become responsible for some construction work previously done by outside organizations. This conclusion is drawnomparison of the organization of the present ministry with that of the Ministry of the Armed Forces At that time the Ministry of the Armed Forces did not have any directorates for military or naval construction. Early in the same year the People's Commissariat of the Construction of Military and Naval Enterprises was formed out of "the Chief Directorate of Military-Industrial Construction attached to the Council of People's Commissariats, construction organizations of the People'sof Construction and NKVD./

ChieT Directorates of Military Con-

struction and of Naval Construction were established within theof the Armed Forties7espectively./ ecree of the Presidium of the Supreme Sovietthe Ministry of the Construction of Military and Navalthe Chief directorate of the Construction of Machine(attached to the Council of Ministers)inistry ofof Machine Building/ urveyministry93 reflects

do evidence of military construction or of any organizations with names suggesting that such construction is carried on. This negative evidence appears to support the contention that the militarytook over much of the construction work formerly done by the


organization of the soviet ministry of4




D-nchrata Ot Personnel


Oii-OoiiW of




anding Troops


o! tte CouiKt

IMBones npresea?ents of Hie Ministry ol Aimedet* UimJttred oirt o(stablishment or stilled to other components ot the anBUry establishment.

Abofetied in0 <Aen the Gowral Stilts ol tu Sowl Army end ol the Hwil Forces were created

Ctese liaison onlj. Reel Subordinate is to outs* orpnlnbcns

0 to become the Sonet Army.

Transferred out, proatMy in

Becvn sepink ministry inut relumed in March

Possibly subordinate lo thes.


Redesignated end transferred oat ot the Sonet Army in

TF-Gugtjt to be astoxmous directorates. The Quartering Directorate was Mown to be subordinate to trie Reir of the Ministry of Areaed Forces.

Chef Ar-cred


C"-e(itlryiO nit

OJel Directorate of Naval ConstruKonf,

C" of Jir'c^rrr ol Special Construction I


ftreaorate ol Personnel lor Construction

sod Quartering;

Ministry of the Construction of Military and Naval Enterprises. some personalities connected with this ministry later became associated with the newly created chief construction directorates within the military establishment.

The most important changes within the military establishment over the pastears have been the following: nc establishmenteparate naval ministry and itsearshe creation of the Soviet Army,he elevation in status of certain organizations connected with construction.

Cm0 the naval forces were taken out of theof the Armed Forces and constitutedeparate naval ministry. Although the structure of the naval forces remained basically theeneral Staff of the Naval Forces came into being, and the activities of the Rear of the Naval Forces expanded to include more than its previous responsibility for specialized naval supply. This division into two ministries also resulted in the division of other organs (inspectorates, military tribunals, military procuratorate, personnel directorate,and political directorate) as well as the General Staff. Each of these was divided into two separate organsne for the Soviet Army, the other for the naval forces. All were reconstituted as central organizations in

Another consequence of the0 reorganization was the official birth of the Soviet Army. It was the result of theof the Ground Troops of the Armed Forces, the Artillery of the Armed Forces, the Armored and Mechanized Troops of the Armed Forces, and the Air Forces of the Armed Forces into one entity.

From an organizational point of view, the responsibility ofestablishments for construction has grown sinceII.

but it is now believed toigher status In Aprilne mrectorate of Defense Construction of the Soviet Army was redesignated the Chief Directorate of Special Construction and made directly subordinate to the Military Ministry. Since3 it

- 53

has been subordinate to the Ministry of Defense. It is also probableuartering Directorateirectorate of Personnel for Construction and Quartering Organizations are now under theof Defense rather than at an intermediate echolon. Most of the construction and quartering activities of the militaryat least sinceave been put undereputy Minister of Defense for Construction. The Chief Directorate of Naval Construction, however, may be subordinate to the Deputy Commander in Chief, Naval Forces, forut it also is possible that it may be under theinister of Defense for Construction.

2. Command Organization.

Command of the military establishment resides in the Minister of Defense. He is assistedumber of deputy ministers, some of whom also direct particular components of the ministry./ The over-all planning and coordination within the ministry is carried oat by the General Staff of the Soviet Army and/ In addition, each major componenttaff. These latter staffs aressumed to be primarily administrative in support of General Staff policies, inasmuch as most of these major components do notoperational control over field units.

Field command within the USSR is vested in theilitary districts. Outside the USSR, for example, in Eastern Europe,command is exercised generally through entities designated as groupa of force*. The commander-in-chief of each military district or group of forcesull staff and is inof all military units operating within his area, with the exception of some units, such as Long-Range Aviation. In general, these specific components at the ministry in Moscow only coordinate, advise, and assist in technical matters and do not perform command functions. The fact that the Ministry of Defense i*nion-republic ministry in no way interferes with the direct command by the ministry in Moscow through the military districts and groups of forces. The task of the republic miniatriea (off such ministries do exist, would


Military command of the waters and naval installations of the USSR is conductedystem of geographic districts called fleets or flotillas, depending on their size. These function in the same manner aa the military districts, the jurisdictions being mutually/

Military districts are in turn divided into military commissariats, whose functions include maintaining plans for the local mobilization of personnel and transportation facilities, keeping records on persons subject to military service, calling up new recruits and reserves, conducting medical examinations, paying pensions, training some pre -inductees, and coordinating mobilization activities with the local civilian authorities./ Even though the military commissariat is not afunction, it has sufficient duties to0 officers (according to an unpublishedilitary commissariats seem to be present at all levels of theterritorial structure of the USSR.

The components of the Ministry/of Defense may be divided into five general categories, based on the following primaryombat, logistics, construction, personnel, and control. This categorization facilitates the explanation of the miniatry'a activities. These general classifications should not suggest rigidity. In some cases, acomponent performs, in one degree or another, all of the functions enumerated above. This report does not deal systematically with all these components. It emphasizesdealing with logistics and construction, although the predominance of the combat components cannot be overstatedll other organizations exist for their use.

3. Combat Organizations.

* See Figureollowing


The combat organizations of the Soviet Ministry of Defensetrikingly similar pattern in staff and headquarters organs. Eachear servicesolitical directorate, anraining directorate,VO (Antiaircraft Defense) component. In addition, each has many subordinate components with duties peculiar to the particular combat organization.

a. Soviet Army.

The Soviet Army, aside from the staff and headquartersmentioned above, consists of the Infantry (Ground)and Mechanized Troops, Communication Troops,Chemical Troops.r, and possibly the nothe subordination of the

other combat organizations (Air Defense of the Country, Long-Range Aviation, and tho Air-Landing Troops) to the Soviettheir autonomous status is assumed, although the Air-Landing Troops may wellart of the Soviet Army.

Each of these operational components of the Soviet Army has its own staff and numerous service directorates, and in some instances there are specialized supply organizations (for instance, the Directorate of Engineering Equipment and Supply of the Engineer/ The Communications Troopsirectorate of Equipment and Supply that is responsible for the procurement and distribution of communications equipment for Soviet ground forces and, in certain cases, for the air/ Although this function is carried out through representatives at the plants producing communications equipment, the payment is probably handled by the .directorate in Moscow./ The directorate also has control over; the distribution of communications equipment lo the military districts, where stocks of such equipment are kept on hand in the military depots./ Where the situation warrants, each Soviet Army component"probablyimilar special supply organization which cooperates with the Rear of the Ministry of Dcfeneey-although it isart of that/

A hierarchy of rear service organizations exists within each component of the Soviet Army. Most reports assume that theyart of the Rear of the Ministry, but thisimited and functional, rather than complete and exclusive, subordination.

The Air Forces of the Soviet Armyactical air arm containing aboutercent of all Soviet military aircraft./ The air arms outside the Soviet Army are Long-Range Aviation, Fighter



r* ol Defense

Soviet Army


Nival Forcei

Sarge Aviator)

Chief Artillery Directorate


Central Directorateol Capital Airfield Co-struction

CM Directorate

Ccnilructic -

ectorjle of Naval Cccitructrtr.

Personnel Directorate

Di-'ectorjle cf Personnel for ConstructQuartering

' re Cc.rtr,


Arr Leading Troopt


Aviation of the Air Defense of the Country. Aviation of the AirTroops, and Aviation of the Naval/

An indication of the duties of the Air Forces of the Soviet Army can be gathered from the designations of the operational directoratess, for example, ground aid to navigation, attack aviation, reconnaissance and artillery spotting, navigation, fighter aviation, bombardment aviation, transport and auxiliary, and aviation dispatcher/

As in other combat components, the Rear of the Air Forces handles only specialized/ Relations with industry are conductedirectorate of Aviation Technical Service of the Rear and an autonomous Air Engineering Service. The latter is concerned with quality control, acceptances, new designs, and soon, whereas the former is interested mainly in the distribution of aircraft, spare parts, and equipment to the units./

Soviet Naval ForceB.

The most important parts of the Soviet Naval Forces, with the exception of the operational forces (including naval aviation, coastal defense, and PVO elements, amongppear to be the Rear and other procurement organizations. In the latter categoryeries of directorates,eputy Supremeof Naval Forces for Ship Construction and/ They include the Directorate of/ the Chief Technicalhe Artillery Directorate,he Directorate of Mines and/ and the Radar/ Thesemaintain contact with the producers of ships, ordnance, and other equipment. Although details of the interrelationships are not clear, it is known that each directorate has authorized agents (military representatives) at the relevant enterprises who exercise much control, especially through their authority to accept orroduct.

The Rear of the Naval Forces handles special supplywhereas the Rear of the Ministry of Defense carries out general supply of the naval/ "

- 57

c. Long-Range Aviation.

As stated previously, Long-Range Aviation the functional equivalent of the US Strategic Air Commandppears to be an autonomous component of the Ministry of Defense and is independent of the military district system. Its organizational structure issimilar to the Air Forces of the Soviet Army,/ but it is quite possible that Long-Range Aviation utilizes some of theand, undoubtedly, many of the facilities of the Air Forces of the Soviet/ Furthermore, no procurement organizations like the Air Engineering Service and the Dirftntnratp^of Aviation Technical Service have been mentioned

Defense of the Country.

Air defense elements exist in every component of theof Defense. The operations of the Air Defense of the Country (Protivovozdushnaya Oborona StranyVO Strany) thus are not always organizationally unique. PVO Strany is responsible for active air defense, which includes antiaircraft artillery; fighter aviation; and air observation, warning, and/ Air Defense of the Countryeadquarters staff for generalwhich is servicedystem of PVO regions which appear to operato apart from the military districts./ There is some evidence, however, that the PVO districts are for information and coordination purposes and that the military districts may exercise actual command over the air defense/ The precise nature of operational control for air defense is unknown. Although little is known about the procurement supply of items specifically designed for air defense use, existing channels are probablyto for instance, the artillery supply directorates provide weapons and ammunition; the procurement organs of the Air Forces of the Soviet Army provide aircraft; and the rearultitude of/

Landing Troops.

The function of this organization is self-explanatory, but the internal organization is obscure. These troops maintain their

- 58

own staff and headquarters directorates, which work through thedistricts. The most important activities are in all probability those dealing with personnel and the servicing and procuring of/ Whether this component has its own procurementis not known.

4. Logistical Organization.

Many organizations within the Ministry of Defense carry out the procurement, storage, and allocation of goods for the Soviet military establishment. Each organization maintains direct contact with the economic ministries and enterprises producing goods for military consumption. At the enterprises, military representatives of the various logistical organizations accept the finished product, arrange for shipment, andultitude of miscellaneous |

"Kayment tot tne nrnineo pronact is prooaoiy nanaiea in

The goods usually are shipped to military depots, presumably those subordinate to the relevant logistical organisation. ecent! report listsdentified military bases and depots in the

USSR, vni

Shipment, storage, and issuance of these supplies is facilitated by subordinate logistical organisations' at the military district level.

a. Rear,

The Rear of the Ministry of Defense is responsible forstockpiling, and allocating to the military establishmentsupplies and for performing many general servicesconducting operations. / Some idea of the functions ofmay be obtainedisting of some of the identifiedfunctional organizations: the ChiefDirectorate, the Military Medical Directorate,Directorate, the Directorate of Fuel Supply, theDirectorate, the Management Directorate, and

- 59

Contrary to general opinion, the Chief Directorate ofTradevvoyentorg) hasart of the Ministry of Trade, at least This organization providesrice with restaurant, barber, tailoring, and other services beyond the minimum furnished by the Ministry of/

A further breakdown of the Chief Quartermaster Directorate reflects two very important organs: the Directorate of Food Supplies and the Directorate of Clothing and Equipment Supplies./

Where necessary, each of these directorates of the Rear appears- to have an account number in the Budget Section of Gosbank, through which funds are allocated for designated/ The Finance Directorate of the Rear apparently supervises, coordinates, and has ultimate responsibility for the financial activities of theae and Other organizations of the/

The Financial Department of the Management Directorate of the Rear financea all Miniatry of Deferhte military representatives at the various economic enterprises. Financing extends to salaries, travelper diem payments, clerical expenaea, and soi-on, but it does aqt include purchases' of-end/

Since the financial accounting of the Ministry ofbe centralized at some point, the Finance Directorate ofis the logical organization to performask.many components outside, tha Rear reaort to theDirectorate tor advice, and instructions. IB*/ In fac*.the interest of the "directorate in financing military

construction by organizations outside the Ministry of Defense. /


The hierarchy of financeulminating in the Finance Directorate of the Rear also processes the periodicof funds and credits by the military units and arranges that such funds and credits are put at the disposal of the military units. 1

Each chief directorate and directorate of the Rear has its own system of depots and bases. /

]that the military establishment, in some instances.

may utilize bases of the Central Union of Consumer's Societies for storage and/or distribution. /

b. Chief Artillery Directorate.

Besides the Rear, the Ministry of Defense containsautonomous logistical organizations, the Chief

Directorate and the Chief Armored Directorate. The formerfor "stocking items of artillery supply, that is,field pieces, machine guns, optics, and so on;of artillery supply; and distribution of items ofto military units through its bases and/ be taken not to confuse this organization with thethe Soviet Army. The important directorates of theDirectorate appear to be theDirec-


concerned with construction ofhe Directorateand Supply of Artilleryprobably overseeswork done for the Artillery of the Soviets the title indicates,

the last named organization has an important function. Whether it is concerned with operational planning in addition to financial planning is not readily discerned, but the latter function seems more likely./ Payments for production apparently are handled in Moscow,/ presumably through, or with the knowledge of. the Finance Di'recto/rate of the Rear. .


Chief Armored Directorate.

a third autonomousorganisationhe Chief Armoredt responsible "for the supply and distribution of armored vehicles and relatedto the armed/ This directorate should not bewith the Armored and Mechanised Troops of the Soviet Army. Although the organisational structure and the duties are not spelled out, one activity of the Chief Armored Directorate is to supervise tbe repair of armored vehicles at its own military base*, of necessary spare parts accompanies this responsibility./

suggest that thia organization might procure

armored venicies ana related/

d. Other Logistical Organizations.

Besides the logistical organizations attached directlyMinistry of Defense, others are located within each Rear organizations of each component handlestorage, and allocation peculiar to the particular arm.special supply directorates handle special equipment.rgans presumably work with their own financeFinance Directorate of the Rear assuming the role ofgeneral supervisor.

5. Construction.

a. Directorate of Military Construction.

The Directorate of Military Construction7 and took over the construction functions of theChief Directorate of Construction and Quartering ofas well as some of the activities of the Ministry of theof Military and Naval/

- 62

i ft.

Construction under its jurisdiction would include quarters^

shelters for equipment, and storage depots. Supplementaryshows that this directorate was concerned in some degree with the constructionchool for the Ministry ofefrigerator plants for the meattadium for the city of

and,ivil air construction7 The Prombank (Industrial Bank)ajor part in the handling of finances for this/

Naval Construction Directorate.

The Chief Naval Construction Directorate came into existence8 and, along with the Chief Military Construction Directorate, took over some of the functions of the Ministry of the Construction of Military and Naval/ This directorate hasariety of construction activities, including coastal defense works, harbor installations, defense batteries, naval barracks andowerement factory, and constructionilitary trade/ Responsibility for coordinating all navalactivity appears to reside in the Chief Naval

Directorate of Capital Airfield Construction.

The Central Directorate of Capital Airfieldas TsUKAS) at the present time is apparently an

organization of the Ministry ofThereuggestion, that6 the Ministry of Internal Affairs containedirectorates of Airdome Construction and Defense Construction (which were transferred out of the ministry after World War/



It is believed that the subordinate organizations of TslIKAS "are an integral part of all the fleets and military districts, receiving their direction, technical control, and finance from the Central Directorateut operationally subordinate" to the commander of the military district orinancing of'construction is carried out through the/

A relationship with the Chief Directorate of Highways of the MVD might still exist. Co-location of construction units of the separate organizations is commonplace, and there have beenbetween them of road-building organizations or equipment for airfield construction/

d. Chief Directorate of Special Construction.

The Chief Directorate of Special Construction1 from the Directorate of Defense Construction ofArmy and subordinated directly to the Military Ministry.change of name suggests that the construction activity ia ofor sensitive type,

the Chief Directorate of the Northern


Although at one time the Chief Directorate of Specialand its predecessor may have directed and coordinated certain construction independently of the military districts, it is now believed that the regular military district system is utilized. There is no reason to surmise that financing is carried out in any extraordinary manner.



probable that the Quartering Directorate is now an independent

organization of the Ministry of"

I Activities

- 64

include the provision of firewood, water supply and firefightingthe estimation of necessary living space, and the coordination and checking of barracks/

It is known that the Directorate oi special construction oi the Lniel Directorate of the Northern Sea Route has done work for the Quartering

the completion of "heated








data on personnel costs for the

for selected areas of the USSR. These data represent about one-fifth to one-sixth of total personnel costs as estimated in the text (under II, A, An index based on these data and applied to total estimated expenditures for personnel1 gives an alternative series of personnel costs, as shown in

Table 16

Comparison of Estimates of Personnel Costs of the Soviet Armed Forces

Billion Current Rubles






Personnel Covts from Table 5


Total Dcf crise



on data in Tablesin Tablesp.below.


are from Table 5. This is thefor all other years of column one.

indicate an estimate basedplan figure.



The averages of personnel costs by the two methods fornot differ significantly. 24 the differencestoo great to be disregarded if thesample were judged to be

representative. The area of coverage is such, however, that aplouneJii-oiJxoosjLJ^uUd bring aboutiscrepancy. therefore, exaggerates year-to-

year movements. It is, however, more sensitive to annual fluctua-tions in aggregate Soviet military personnel expenditures than the other procedure and may be used to indicate year-to-year trends and to set extreme limits.

is interesting that the

varies in trend with

defense expenditures for those years. Total defenseinclude personnel costs, procurement, and maintenancecosts. The category most subject to short-termpersonnel costs because increasing costs of end items andlong-term planning schedules should provide relativefor end items and maintenance. The numericalthe armed forces is perhaps more responsive to current

The implied numerical strength of the Soviet Armed Forces froms as follows:



These re-

ports give cumulative totals of budget expenditures and income for

- 68

areas served by the reporting bank. Pertinent data concernexpenditures, since the entire defense budget is part ofbudget. There are three types of such budgettotal expenditures of the Union budgeton-strategic" expenditures of the Unionhirdexpenditures of the Union budget. These latterand internal security personnel costs. MVD constructionenergy, and state reserves purchasing, The third reportbut by subtracting the sum given in Tne

non-strategic report from the sum given in the total expenditures report, the sum of strategic expenditures can be. derived. In the past, defense personnel and internal security personnel have accounted for aboutercent of strategic expenditures, and an index of strategic expenditures thus should correspond to an index of defense personnel and internal security personnel costs asortion of strategichis is Shown in

The area of coverage used for the index is the Soviet Far East Primorskiy Kray, Khabarovskiy Kray, Magadan Oblast, Amur Oblast, and Irkutsk Oblast. * gives total strategic expenditures In these areas.

The alternative figures for Magadan and Khabarovsk may bebecause they do not include allocations for economic activities of the MVD, which receivedseparate allocationillion rubles for settling debts. The inclusion of this allocation inexpenditures would detract in years of such fluctuations from the reliability of the index for military personnel costs.

* Tableollows on* Tableollows on


Eighty percent of strategic expenditures in the aroas in Tables about one-fifth to one-sixth of total estimated personnel costs. The number of military units in these areas corresponding to the reported strategic expenditures includes about one-sixth of all military units

Table 17

Personnel Costs oi the Soviet Armed Forces in Selected Areas,hare of Strategic Expenditures a/


Amur Oblast b/ Frimorskiy Kray c/ Irkutsk Oblast d/ Azerbaydzhan SSR e/ Khabarovskiy Krayf /


Total Strategic Expenditures (Million Current Rubles]

Military Personnel Costs

1 Mill ion Current Rubles)

Percent of Total






January0anuary to



Tabic 18

Strategic Expenditures for Selected Areas of the Soviet Far East a/

Million Current Rubles


Oblast Total

















indicate estimates.

which do not include MVD economic activity forMagadan34 are an, follows: which makes the totalillion rubles and theillion rubles, which makes the totaland the

estimated to be these areas. For example, the army has an estimatedutine divisions in the East Siberian and Far EasternDistrictsut ofntiaircraft artillery/ The navy hasutersonnel in the Pacific and Amur/

One Important qualification should be noted in connection with the

index. The area

may have been unusually sensitive in meearsnanges in personnel strengthesult of the Korean War and other Far Eastern developments.




In all prewar and postwar budgets there is an item of expenditure designatedhich refers to the Ministry of Defense or its predecessors, depending on its particular organizational status, for defense have been defined in'Soviet literature to include "expenditures for maintenance of the armed forces of the/ or "expenditures according to the estimate of the Ministry of Armed/

Items traditionally outside the explicit appropriation for defense include some research and development and militarized security troops. The excluded research and development probably are financed in the budget category Social-Cultural Measures, under Science. on militarized security troops are included in the budget category Internal Security, which covers the maintenance of the Ministries of Internal Affairs and Statehere is no evidence at this time that any other budget category includes defense has been evidence in postwar budgets that the budget category for atomic energy (included in expenditures for national security but excluded from defense, as defined) had shifted from the undisclosed budget residual to Financing the National Economy. It may be assumed that this transfer was on the basis of increasing integration with the rest of the national/ urther indication of thisis the possible shift5 of atomic energy expenditures from the residual in Financing the National Economy to Heavy Industry.

1. Explicit and Hidden Defense Expenditures.

State subsidies to defense industries existed, during the war years, and presumably up to and It is stated

* Since4 this organization has been called the Committee for State Security.

**" Investment in defense plants is notefensealthough it does have ultimate defense relevance.


that they have been used8 only in the initial stages In79 an attempt was made to abolish state subsidies by increasing wholesale prices. In both these years it was announced that the main cause for increases in explicit defense expenditures was the increase in/ In view of thisit may be assumed that subsidies for defensewere curtailed biUion-ruble decrease was planned in noninvestment budget allocations to industry. It might be estimated, therefore, that8 subsidies to all industry were somewhere near this amount. At present some subsidies may exist for new production, but tbey probably do notillionillion rubles for all of industry, including defense industries.)

Up until the endtomic energy expenditures were in the undisclosed general budget residual. Beginninghey were transferred to the residual within Financing the National/ It may be assumed that the cost of research and development involving nuclear energy weapons has been borne by those categories in which atomic energy allocations have been perating expenditures for atomic energy may have been transferred into the category Heavy Industry under Financing the National Economy, possibly under the Ministry of Machine Building.

* Seeelow. ** These figures should be treated with proper restraint. The relative value of the ruble for the atomic energy program is not known.


0 the undisclosedthe budget8 billion rubles;fter the transfer of atomic expenditures to Financing the National Economy, it had declined toillion0 the residual category within Financing the National Economy was plannedillion rubles, and2 it had increasedillion' rubles. From thisange of expenditures to atomic energy might be derivedhat is,illionillion rubles* he residual within Financing the National

Economy decreasedillion rubles, and the item Heavy Industry within the category Financing the National Economy increasedillion rubles. There is as yet no supportingimilar to that which substantiatedhat any cate-gories have shifted

There have been some suggestions that35 the large unexplained increases in the budget cover hidden military expenditures -in particular, expenditures for new weapons development. These large increases can be explained by the introduction of new, fictitious entries on both sides of the budget which reflected budget losses resulting from retail price cuts and rising agricultural procurement prices. These measures were taken at the expense of turnover tax receipts whichecline3 The fictitious entries in the budget are the value of lost turnover tax receipts and merely indicate that the budgets ot those, years wouldnave beenize had retail price cuts and procurement price increases not taken place. In effect, theseentries merely enlarge the size of the budgets35 there have been no retail price cuts, and the amount ofentries is less than3 It amounts only to the value.of losses due to increased agricultural procurement prices.*

*iscussion of fictitious entries, see* Tableollows on


There seems to be little doubt that there are entries on both sides of the budget which represent tax reductions resulting from price cuts and from increases in state agriculturtfl procurement and purchase prices. In order to obtain comparable budget figures for the years before andherefore, the fictitious entries have been separately listed in alludgets shown in* and only actual revenues and expenditures have been compared.

Categories for Soviet Hidden Defense Expenditures (Plan Figures) Selected Years.

within Financing the National Economy




s. Total expenditures minus Financing the National Economy, Social-Cultural Measures. Defense, and Administration.

t. Excludes fictitious entries as follows: retail priceillion rubles; inventory revaluation.illion rubles, procurement priceillion rubles;illion rubles.

fictitious entryillion rubles for procurement price increase.

indicate estimates.


2. Residual Budget Categories.

A budget residual can thus be defined as the difference between total expenditures and the sum of known expenditures. Two residual categories are pertinent to this report, one an over-all budget residual and theesidual within Financing the National Economy. Information on the components of the general budget residual was publishedor the0nformation was providedoreign reporter present at the meetings of the Supreme Soviet, who took.notes on the meetings. Components of the general budget residual have been traditionally: Internal Security, MVD and MGB; Reserve Funds. Soviets of Ministers of the Union and Union Republics; Allotments to Special Banks, for expansion of credit resources; and Returned Revenues and Other Expenditures.

the last item, Other Expenditures, to have been used for allocations for atomic energynd for the Red/ It also covers other minor items.

that Returned Revenues is the item under which fictitious entries are being/ In ahort, retail price cuts and increased agricultural procurement prices are, ineturn of turnover tax revenues to the population, but since the announced plan for turnover tax receipts takes these measures into account, the supplementary items are

The residual category within Financing the National Economyincluded appropriations to the atomic energy

program In1 budget this category was broken down as


Billion Current Rubles


Chief Directorate of

Chief Directorate of Auto


People's Commissariat of Finance, Chief Directorate of Precious Metals

Chief Directorate of Geodosy


Chief Resettlement3


recent years,his category also in-

Prison labor camps (after

Chief Directorate of Hunting (before

Atomic energy program

Chief Directorate of Organized Recruitment of Manpower


Chief Directorate of Hydrolysis and Alcohol Sulphite


All the items listed1 also appear on this category. hen the category increased by It) billion rubles, some atomic energy activities were known to have been moved into it. There is no postwar information on ruble allocations to any of the other components of this category.


that the only place

hidden expenditures for national security occur in present budgets is in the residual category Financing the National Economy. his may have amounted to.billion rubles.


but these expenditures were (or atomic energy and are not .defined as defense expenditures. If there are any defense expenditures in the general budget residual of the entire budget, they aresmall. 2 the unidentified components of the residual of the entire state budget wereillion rubles. They probably have not varied much since.

J. Soviet Defense Budgets

A review of budgetary practices in selected years illustrates earlier

Soviet principles for handling defense appropriations, as shown in


Planned defense appropriations7illion rubles, as against actual expenditures6. billion rubles, an increase ofercent. Defense industries were to receiveillion of4 billion rubles planned allotments to industry. The following reasons for the large increase in this category were given by Finance Minister

increase in strength (numbers) of the Red Army.

increase in cost of military end items owing to technological advances.

development of reserves for all types of goods, which involves payment both for the reservesand for construction of warehouses andof storage.

further construction and repair of barracks, and of housing for commanders of the Red Army, and the further development of political-educational measures in the Red Army.

- 79

Soviet Stateelected
















1 il

Financing the

Pi W

=L, Social-cultural measures HM p





All figures are actual, except where rioted.

Parentheses indicate estimates.

In budget plans, reserve funds are entered; they usually are not in actual budgets.

removal of all privilege prices on supplies to the

army, including such large items as motor gasoline and other types of oil fuel, coal, firewood, and repair materials.

removal of all privilege rates on rail and water


The increases resulted from the liquidation of rationing in the distribution of goods and from the establishment of unit prices for all national economic turnover in the country.

These items listed under the explicit defense appropriation indicate that beginning7 the Ministry of Defense ceased to receive preferential treatment as regards prices on maintenance and operations supplies and perhaps other supplies and equipment. This arrangement remained in effect for all industry until the war, when budget subsidies to the defense industries were again applied.

The defense budget was under fulfilled byercentctual expendituresillion/ Except forofillion rubles to Internal Security, there was no evidence of hidden defense expenditures in the budget. Undisclosed residuals in Financing the National Economy were plannedillion rubles, and in the totalillion rubles. *the former category contains outlays for reserves,reserves are not financed there; they are included in the explicit defense budget.

b. Plari).

* In local expenditures, which do not have defense significance, these amountsillion andillion rubles, respectively.


In1 budget plan, explicit defense appropriations wereercent of total expenditures, or aboutillion rubles, of whichillion were for the army andillion for the navy..

Increased emphasis on defense is evident both from increased appropriations to the explicit defense category and increasedto defense-producing industries for investment. Internal security was to receiveillion rubles

Zverev. the Finance Minister, stated that in order to cover the expenditures on defense, the income tax on kolkhozes and theincome tax on kolkhozniks and individual peasants had been/ Obviously1 budget was geared much more toward defense production than was7 budget. Budget allocations for capital investment were to amount toillion rubles. Ofillion rubles were allocated to Industry, which includes certain defense activities, broken down as follows: aviation, illionillion rubles; ammunition,illion rubles;illion rubles; and Chief Directorate of Militaryillion rubles. This excludes investments by the Ministries of Defense and Navy, estimated by Kaplan to be5 billion/

1 the budget indicated that explicit defensecovered all expenditures to be made by the Ministry of Defense. In presentations of the Union budget, which is contrasted to the state budget in that it excludes allocations for the republics, expenditures are listed according to organization. There is no functionalas there is in the state budget presentation, as for example. Social-Cultural Measures and Administration. Each ministry or chief directorate is listed with all funds receivable from the Union budget, regardless of the designation of those funds. Since it is known that tbe Ministry of Defense at that time received all of its funds from the Union budget and none from republic budgets and since thebudget was the same when listed in both the Union and state budget presentations, it may be assumed that the Ministry of Defense received no additional funds from other budget categories.

There may be an expenditure for scientific research with defense applications outside the defense appropriation. Suchexpenditure,ood portion of it, would bo considered applicable to the budget of the ministry which would apply theof the research to its own activityor example, new fighter aircraft design would be put into use by the Ministry of Aviation.


The list of items included in the defense appropriation6 and the indications1 that all expenditures of the Ministry of Defense arc paid out of the Defense budget show that in prewar budgets, at least, the category defenseure one and that there were no allocations to the Ministry of Defense from other budget categories.


efense appropriations were the highest in Soviet history illion rubles, or aboutercent of total budget expenditures. Financing the National Economy and Social-Cultural Measures amounted to aboulercent of total expenditures.

Turnover tax receipts amounted to aboutercent of budget revenue. This reduction of turnover tax receipts during the warthe change from consumer goods production to In order to supplement revenue for financing warmoney was collected from tbe population in the form of voluntary contributions, war loan subscriptions, money lotteries,pecial war tax on the income of all citizens with the exception of servicemen and their/ Receipts from subscription to the war loan4 amounted toillion rubles; from the war tax,illion rubles; from voluntary contributions,illionnd from lotteriesillion rubles. In all. receipts from these sources accounted forercent of total revenue. Besides these, deposits of gold and platinum and savings deposits amountedillion/2urrent budget expenditures exceeded current revenues, and the deficit was covered by "the printing of money and mobilization, through the credit system, of material reserves and supplies formed in the national economy of the USSR before.the/ An item of revenue that increased considerably during the war years and decreased immediately afterward was receipts from customs. This was probably related to the lend-lease program.ustoms receipts were planned to beillionhey were planned toillion/

Expenditures for the internal security troops4illion rubles, which was lower than planned appropriations in


This can bo explained by the fact that many internal security functions were taken over by the armed services during the war.

4 there was no evidence of any hidden defense% Unexplained expenditures from the Union and republic budgetshat is, exclusive of local budgetsere planned atillion rubles, and within the category Financing the National Economy, the residual wasillion rubles from all budgets (including local budgets). This amount was to cover allocations to state reserves, gold purchases,umber of other small organizations.


xplicit defense expenditures had fallen topercent of total expenditures. On the other hand, internalto receiveillion rubles, asillion Inexplicit defense budget may have included more items than Inprices may haveecause expendituresillion rubles, as4 billion spent inat the same time Sverev stated that "if one takes comparableexpenditures for tbe armed forces8 will declineubles in comparison/ This may haverelated to the reorganization of military constructionthe functions of internal security wore increasing as thewere being

rogram of increasing prices in industry and transport was begun in order to abolish subsidies in these sectors. During the war, subsidies to these two sectors had increased because prices on industrial products were maintained at thelevel and costs of production were pressing/ Undisclosed expenditures from the Union and republic budgets, exclusive of local budgets, wereillion rubles,jlhey contained some strategic expenditures for atomic energy development. / Within Financing the National Economy unexplained expenditures from the'stale budget were planned

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atillion rubles. Actual expenditures wereillion rubles. State reserves, gold purchasing, and other activities probably were increasing in these years. These in addition to atomic energy developments would tend to explain this increase).


Expenditures (or defense2 Increased to aboutercent of total budget expenditures. This proportion ia comparable with defense expendituresercent) andercent). The reason for increased defense expenditures8 la stated to have been the "necessity for strengthening the defensibility of the USSR under threatew/

llocations to internal security wereubles, slightly leas than The Undiaclosed part of Financing the National Economy2 was planned to be aboutillion rubles, as againstillion ndisclosed appropriations from tbe Union and republic budgetsillion rubles^ aa2 billionefore the shift of categories. It would be difficult to imagine that there is any significantriation of strategic import in the budget residual

Ofillion rubles for Financing the National Economy, aboutillion went to industry and Pf billion to transport. Thisignificant reduction in expenditures in both sectors, resulting from the abolition of subsidies90 and subsequent price reductions. At present, subsidies are used only In initial stages of plant operation on new products.


xplicit defense expenditures amounted to aboutercent of total expenditures, which represents both an absoluteelative decline as compared Within the category

* All budget figures, total and residual, refer only to the adjusted expenditures and revenues. See discusaion of fictitious entries,bove.

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Financing the National Economy, the residual category was about the same if not less than It rose3 and decreased4 back to2 level. Thoategory may not be strictly comparable with theategory, however, since beginning3 the subcategories of Financing the National Economylightly different manner. At any rate, expenditures for new weapons development in this category are estimated not to have increased significantly1lthough it is impossible to break down the category further.


efense appropriations are aboutercent of total appropriations, the same share as plannedercent increase as compared The increase is probably theof an increase in the value of defense procurement, much of which is related to advances in weapons design. The budget residual is of the same magnitude as4 (Plan). Therefore, it is probable that no significant change has been introduced in any of the components of the residual. Allocations to the residual within Financing the National Economy will decrease by an estimatedillion rubles, but there is an implied transfer of categories from the residual to Heavy Industry. Of the components in the residual, it seems that the one most likely to shift is atomic energy. The creation3 of the Ministry of Medium Machine Building with its connections with atomic energy may have heraldedhift and may have been anof further integration of atomic energy activities into the economy. It ia unlikely that such items as: state reserves or Ministry of Finance, Chief Directorate of Precious Metals, would be shifted, for they have been located in the residual since before the war.

Allocations to internal security5 are unknown, although the residual within which this item is located has not increased relative Internal security allocations have in the past accounted for about two-thirds of the residual appropriation, and this proportion is assumed to apply


In summary,5 budget indicates that there has been an increase in explicit defense expenditures of aboutercent relative to planned expenditures There are no signs of hidden defense expenditures, but atomic energy allocations may have been changed from one category to another.






The most serious gap in intelligence relevant to the determinationeries of Soviet expenditures on military and items in constant pricesrice index. Price indexes for selected classos of industrial equipment would be appropriate for military end items, if adjustment were made for scale of effort.

A gap in the distribution of total defense outlays among its major classes concerns expenditures for maintenance and operations.







top Secret j










.. Eval. RR 2.

Suchkov, A. K. Goaudaratvennyye dokhody SSSR' (The State Revenue of theoscow,. Eval. RR 1.


Plotn kov7 K. N. Byudzhet sotsialistichcskogo gosudarstva (Socialist

Stateoscow.. Eval. RRIA. onstruction of Soviet Gross National

Product Accounts. . Lasevich, G. M. Tor^ovyyeslridki prQdovo!l, "stvennyye

i promyBhlunnyyc tovary (Trade Discounts on Food and


. Eval. RR 2.

- 93

top Secret

Spravochnik-tsennik po osnovnyye Btroitcl'nyye,Bpomogalcl'nyye materiaty proiavodstvenno-tekhnicheskogo naznacheniya.0chetom snizheniya00 Price Manual for Basic


Technical and Supplementary Materials Baku,olartJ. Eval. RR 1.



op.7nd RR

iazy" (Peer

. i, RRedomoati verkhovnogo sovcta, SSSR,


no 2, . Eval. Doc.. Eval. Doc.

Zasedaniye verkliovnofto aoveta,ession of the Supreme Soviet of theoscow. Izdaniyc verkhovnogoU. Eval. RR



Mar M, c.3- Eval. RR 1.



Farleigh Press,.. Gosudarstvennyy byudzhet SSSR (USSR

Stateoscow, Gosfinizdat,

. /Eval. RR 2.


72. CIA. he Increasing Soviet Production

of Wooden Packing for Ammunition in Economicand TS




top secwet



k no, survey

Electronics in the USSR.. TS" Navy, Atlantic Command. The Atlantic Command"

Intelligence .


Navy. .val. RR 1.






CIA. 4, S. Eval. RR 2.

HeymiTvrr1 Hans, Jr. ilitary Expenditures in

the Soviet Budget. RAND. Eval. RR 2.


and Heymann, op.bove).

Delense. Annual Reportstatusings,Functions, U. Eval. Doc. CIA. ORRnit-Cost Index for Capital

Investment in the USSR. to be.







voznssensKiy, in. a. ine economy of the USSR During World War ii, Washington, Public Affaire.. Eval. RR 2.


he Soviet Potential for tho Production


Defense Department. Estimated Expenditures by Budget

Category. Military Functions, periodic issues

. Eval. RRIA. CIA/RRoviet Capabilities and Probable

Soviet Courses of.

(ORR Contribution toongressional Record,,

U. Eval. RRIA. CIA/RRp.bove).

"Ukazy" (Decrees). Vedomosti verkhovnogo soveta, SSSR. no9. Eval. Doc. CIA. p.bove).

Defense Department. Estimated Expenditures by Budget Category, Military Functions, periodic issues, U. Eval. itR 2.

CIA. CIA/RRp.bove).

Congressional Record,,, U. Eval. RR 2.

CIA. CIA/RRp.bove!

^rkhovnogo bovcta, SSSR,

CIA. .. Eval. Doc.


FDD, Summary,,. Eval. RR. 3. S-




iar -ji,


CIA. hanges in Sovietin Certain Regions ofS;



. Combined Soviet Order of Battle,ct 54

and RevisionsS


Zasedaniyc verkhovnogo soveta, SSSR: stenograficheskiy

otchet, op.,. Ekonomicheskaya statistika (Economic

oscow, Gosfinizdat,, U.

Eval. RR 1.

CIA. he Location of Atomic



oscow,.val. RR 1.

Planovoye khozyaystvo. no 2,. Eval. RRIA. p.IA. ORRoviet State6

(to beIA. p.rinko, op.bove).

Zasedaniye verkhovnogo soveta, SSSR: stenograficheskiy

otchet, op.,bid.,. Eval. RR 2.

State, Moscow. 5. Eval. RR 2.

Zaspduniyc verkhovnogo soveta, SSSR: slcnograi iche skiy otchet, op., above),. Eval. RR 2.

khpzyaystvo, no. State, Moscow. 0.

RRval. RR 2.


stonograf icheskiy Eval. RR 2.

Zascdaniye verkhovnogo soveta, SSSR: otchet, op.,.

Grinko, op.. Eval. RR I.bove).

Zasedaniye verkhovnogo soveta. SSSR: stenograiicheskiy otchet, op.,. Eval. RRaaodaniye verkhovnogo soveta, SSSR: stonograf icheskiy

. U. 0.


. Eval. RR 2.

Eval. RRval. RRval. RRval. RR 2.

0. Eval. RR 2.

verkhovnogo soveta, SSSR: stenograiicheskiy


op., above),. Eval. RRredit, no 5,. Eval. RRasedaniye verkhovnogo soveta. SSSR: stenograiicheskiy

otchet, op., above),. Eval. RRaplan. N. apitaVlnvestments in the Soviet, RAND Corporation,. Eval. RR 1.

Zasedaniye verkhovnogo soveta, SSSR: stenograficheskiy

otchet, og.,. Eval. RRp., U. Eval. RR 2.

Zasedaniye verkhovnogo soveta, SSSR: stenograf icheskiy, above),.. Eval. RRlotnikov,,,,

U. Eval. RR, U. Eval. RR 1.

. Qcherki istorii byudzheta sovetskogo goBudarstva (Outline of the History of the Soviet Stateoscow.. U. Eval. RRbid.

oichct. op.. above)., U. Eval. RR 2.

- Eval. RR 2.

Ibid.,. Eval. RR 2.

. Eval. RR 2.

Plotnikov, op., U. Eval. RR 1.

Original document.

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