MATERIAL BALANCE ANALYSIS SOVIET BLOC ECONOMIC CAPABILITIES TO SUPPORT SPECIFIE

Created: 1/10/1955

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PROVISIONAL INTELLIGENCE REPORT

MATERIAL BALANCE ANALYSIS OK SOVIET BLOC ECONOMIC CAPABILITIES TO SUPPORT SPECIFIED WAR ACTIVITIES BEGINNING IN

CIA/RRORR

CENTRAL INTELLIGENCE AGENCY Ofricc of Research and Reports

-CONFIDENTIAL

NKWORD

This report is designed primarily to illustrate the application of the material balance technique to the problem of esticatinf tne economic capabilities of the Soviet Bloc topecified war. Its purpose is to explore and illustrate the method, the analytic techniques, and the data requirements of the material balance approach to capabilities Estimation. Within the framework of the assumptions, the method, and the data available, however, the conclusions suggested by thisanalysis are indicative of some of the problems that would be laced by the economies of tho Bloc during wartime.

Three elements impose limitations on tnis reportthe method itaelf, the data used, and tho assumptions made about the war. Since the method used in this report has not hitherto been used extensively in the intelligence community,a devotediscussion of the techniques and procedures as applied to the data available, with an evaluation of the potentialities and limitations of material balance analysis. Section II deals with the Soviet Dloc economies as they would appear lnn absence of war. Section III is aof the assumptions made about the postulated war ana theof estimates of strategic economic resources needed to support the war. Section IV la an analysis of the Impact of tbe var on the economies of the Soviet Bloc.

It must be borne in mind in interpreting this report that the war postulatedear war of land, sea, and air operations eraployinr conventional weapons and massivemplies wartime demands peculiar to that type of war only. Tne nature of the war also influences the supply side. Ko damage to tha economies of the Soviet Bloc is postulated. Further, accretions from conquered territory are excluded. The responses of tbe economies of the Bloc are thusby the nature of warfare. The analysis of stockpiles, for instance, would be quite differentifferent kind of war orar of longer duration. Specification of air damage wouldalter the conclusions. Changing the nature, intensity, or length of the war would require modification of the conclusions.

Several kinds of data required by the material balance technique are available only in highly tentative fora at present. The data on tha cold war structure of the economy are far from satisfactory or complete, and pertain primarily to the Soviet economy. In addition

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it is necessary to know what will be tho impact on an industry ofart of its strategic inputs to the military sector ln wartime. For instance, it is necessary to know by bow much agricultural output will fall when petroleum inputs are reducedpecific amount. Further, it is necessary to know what level of operation of an industry is compatible with the maintenance of the war effort. Agricultural productionpecific level is not consistent with supporting the war; it is necessary to know what that level Is. Moreover, data on other supply and demand considerations in wartiae, such as the rate of withdrawals from stockpiles and the potential wartime output of tho strategic resources, are needed. As these data are developed, it will be possible to place more confidence in the results of material balance analysis.

While information froa military intelligence agencies was used, especially in Section IIIt this report is the sole responsibility of the Office of Research and Reports.

Page

Summary and Conclusions

I.

A.

Data

Industry Growth

of Wartime

J. Limitations and Potentialities of the Method

II, Position of the Soviet Bloc in the Cold War,

of Consuming Industry Srowth Rates

Petroleum

Lead and

Antifriction

Conclusions

HI. Wartime Demand,o 24

and Composition of Armed 25

Demand for 27

Analysis

Analytical

Copper, Alundnura, Lead, Zinc, and Rubber

Petroleum

of thc

Impact on

Impact on

Relaxation of

1. Material Balances for Selected Resources in the USSR, Production in the European Satellites and Communist China, and Stockpiles in the Soviet

13

Indexes of Production Growth by Consuming Sector in

the1 to Year Ending

Material Balances for Selected Resources in thein the European Satellites andand Stockpiles in the Soviet Bloc, Year

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*

-GeNffOMWr

k. Material Surpluses or Deficits in the SovietEnding

21

liUTy ^rvice of Projected Demand for

i^

Postulatedne-Year War Ending

29

Projected Supply and Demand Position for Selected

S^rr^ thSonditions Postulatedne-Year War Ending

33

CIA/RR PR-91

(ORR

ALANCE ANALYSIS OF SOfflEtCOHOMIC CAPABILITIES

'ort

Summary and Conclusions

Tha material balance technique, used in this report to test the capability of the economies of the Soviet Bloc to support large-scale warfare, hasseful and flexible tool of analysis. Although additional and more reliable data are needed, and despite some technical limitations, the technique is suitable for analysis of situations in which the impact on the economy Is likely to be of considerableaa in the case of war. Further analysis along these lines, and examination of more varied problems, should result in more conclusive empirical results.

Preliminary results of analysis limitedelected list of strategic resources indicate that tho Soviet Bloc has the economic capability toear war beginning innvolvingombat divisions and corresponding air, naval, and support forces.

To mount and maintain such an effort would strain to the utmost the economies of the Soviet Bloc and would entail critical shortages of many strategic resources vital to the war effort including petroleum products, steel, amronla, msnpover, and sntifrietion bearings. Soviet stockpiles. If used to suppleaent wartire supply, would cover shortages of copper, aluminum, and rubber.

In order to mitigate shortages of strategic resources within the Soviet Bloc economies, it would be necessary for the Bloc to abandon ita investment program and devote most of its resources to the support of the war. ear war this support could be maintained, but should the same level of military demand extendear, the

* The estimates and conclusions contained in this report represent tha best judgment of the responsible analyst asa.

Bloc economies would probably have serious difficulty in nesting military requirements. Should the assumption that no damage is inflicted on the home soil of the Bloc also be relaxed, then there arises the distinct possibility that the Bloc could not stand up under the economic strain imposed on it. Nonetheless, under the assumptions of this roport the Bloc could support the specified military activities.

I. Hathod.

The method used in this report is called material bslancot is so called because it makes usecheme whereby the supply of material Is balanced against the demand for itthat is, its consumption in the economy. By appropriate manipulations the material balance aysten can be made to represent the functioning of strategic sectors of the economy under several postulated conditions.

A. General.

In approaching the problem of testing the economic feasibility ofar, the procedure Is first toench-mark year. For this base year tho consumption patterns of tho solocted list of strategic resources are then datermined. Theso ronourcos are tho only resources to which tho test is applicable. They are choson portly on the assumption that singly or collectively they may represent problem sectors of the economy in wartime, and partly on tha basis of availability of data. The consumption patterns for all resources are in terms of an identical set of consuming industries. The Hat of consuming industries exhausts the consumption of each of the resources, by definition. For the base year, whichecent historical year, consumption is then balanced against supply, which is atada up of production and imports.

After tho base-yoar tabulation is ccaplete, it is necessary to project those estimatesater period in which wartime conditions are to be imposed. To do so requires an index of the change in output (and hence in inputs) for each of the consuming industries between the base year and the projected year. These indexes reflect the growth of each of those sectors in the absence of any acceleration inof war. Under the sameupply estimate for the projected year is made. The two are matched. rief preliminary

analysis is made of the structure of the economy for the projected year. The analysis of the wartime situation starts from this base.

8. Data Requirements.

Material balance analysis requires six basic sets of information. Theyupply data, including production, import, and stockpileemand data, including the uses to which each strategic resource is put (includingndexes of growth for each consuming sector; (h) special estinates for the consumption structure of the projectedilitary requirements and appropriate data to convert these requirements into demands for resources;ata on supply and demand in wartime.

For each resource it is necessary to have an estimate ofimports, and stockpiling for both the base year and theyear. These comprise the supply half of the material balance equation. On the demand side of the equation are placed all of the uses to which the resource is put. The consumption patterns are needed only for the base year, since the consumption patterns for the projected year are derived estimates. The methods used in making the basicand consumption estimates are complex and varied. For thepatterns it is sometimes possible to derive estimates quite rigorously on the basis of known technological relationships. For other consumption patterns,eneral picture of allocations is possible. For some supplyrecise figure can be obtained from official statistics (electric power, for instance). In otheretailed analysis is required before such an estimate is possible. Imports and exports must be derived in most instances from isolated pieces of information. All the data contributing to the cold-war structure of the economy are subjectargin of error.

The indexes for consuming industries are based upon the trendample of products in each category. In any givenumber of specific products are selected as representative of the time path of the industryhole. Weighting these products by their relative importance with respect to each other yields an index for the sample. It is then assumed that the entire industry moves in time as the sample does.

It is also necessary to have other information so as to correct the projection of the base-year structure of the economy to theyear. Obviously, even1 data were accurate and precise, the use of consuming industry growth indexes to move the table to

ould result in errors. Such errors would arise not only because the assumptions implied in the uso of growth factors nay not be correct but also because tbe structure of the economy may changet-year period. Hence data to buttress theold-war structure are needed.

The military information ia in two parts. First, based upon assumptions as to the kind, intensity, and length of war, it ia possible to derive military requirements. These data are of the form of "x" thousand tanks,thousand aircraft, and so on. The other dataof coefficients reflecting the input of strategic resources per unit output of material, such as "x" tons of steel per tank andtons of aluminum per aircraft. With these two pieces of information it is possible to calculate the total quantities of all strategic resources implied by the military requirements.

Under the stress of war, supply and demand relationships change. Estimates of capacity output are needed. In addition, since it is not possible to know what the minimum nonmilitary demands in wartime would be without knowing in detail the entire range of products necessary to support the economy in war, it is necessary to have estimates of the magnitude of impactthat is, the effectithdrawal of specific quantitiestrategic input would have on the output of consuming industries. With thla information, estimates can be made as to whether or not the war would be likely to have an Impact consistent with the continued support of the war.

All of the data used in this type of analysis must be used with caution, and care must be exercised in interpretations based upon these data. It is possible, however, to mitigate to some degree the debilitating effect of poor data by posing assumptions as to the upper and lower limits of the range and testing to determine what effect, if any, thesehave upon conclusions and interpretations. All tne data are in plain view. They are not subsumed in aggregates or concealed byprocedures inay as to preclude testing the effecthange in data."

C. Base-Year Chart.

The base-year chart embodies the supply and demand data for the base year. In the present1 was selected as the base year.

* It is true, of course, that most of the dataestimates of production, consumption allocations, stockpiles, and so forthare themselves obtained only after analysis.

The tabulation appears aa In the tablo each rowtrategic resource. Theseetroleumetroleum residuals, (U) electricluminum,) ammonia,))) antifriction bearings, and (lu) manpower. The table shows in detail the uses of these items byonsuming industries for the USSR. The consuming Industries are listed in the columns of the table. Another column gives total demand, the sum of all the entries to its left ln any given row.

In addition, there are several columns ln the base-year table which show the supply picture for that year. In the base year, supply and demand are equal by definition and hence there is no surplus or deficit. Another column indicates for each resource the accumulated stockplla. Since the detail is only for the USSR, It is necessary to show the production of the European Satellites and Coaatunlst China and the Soviet Bloc stockpile in additional columns.

Thus the base-year table isollection of data. These data provide the basis for further manipulation and become the subject of special estimates and assumptions for analysis of economic capabilities.

D. Consuming Industry Growth Rates.

The projected year in the present study is the year ending in It is therefore necessary to have for each consuming industry an index for These indexes depict the growth of these sectors of the economy in the absence of any build-up. They are derived from production estimates of products within the various sectors. The indexes for this study are given in'

Tha index for any given sector is multiplied by all the resources which it consumes in the base year, thus providing an estimate of the consumption of that resource in tho projected year. The application of these growth factors implies that the input of all strategic resources is related strictly to the output of the industry, this relationship being such that for every unit of output of the consumingpecific and constant quantity of the resource is necessary.

elow. ** elow.

Such assumptions leave much to be desired realistically. In fact, input coefflcienta change over time, and the input of some resources la related not to the output of tha consuming industry but to some other characterlatlc of the industry.

E. Special Estimates.

For several sectors there la no meaning at all attached to the consuming Industry index. These eeotors are exports and inventory change. Where there is no specific information it is Initially assumed that exports lnre at the same level as Inventory change is assumed to be related to Soviet production ao that the same ratio exists between the two ina

For particular entries it also is necsssary to make special estimates. Agricultural employment and military manpower are two examples where the growth factors do not fit. Special computations were made for both agricultural employment and military manpower.

umber of instances such as those cited above (copper uses and petroleum used lnpecial estimates were made and embodied ln the projected-year chart.

Ab an example, 8uppose that1 therehortage of copperthat ia, not only that consuming industries were compelled to make less of that part of their output using copper but also that the copper-using output that they did make was lean on copper uaa,were used, inferior products wore made, and tho Input coefficient of copper was lower than it would have been if copper had not been short. Suppose, however, that inhis shortage was overcome, so that those items requiring copper had aa much copper as waa technically and economically desirable, substitutes were eliminated, and inferior products were not made. The input coefficient for copper would then be larger thannd the userowth factor with1 allocation to copper-using industries would resultllocation which waa too low.

In another instance, suppose that tho use of petroleum distillates in agriculture isunction of agricultural output but rather of tha stock of capital equipmenttractors in particularln that sector, and that the tractor park ia growing faster thanoutput is growing. Here again, the use of agricultural growth with1 allocation would result in too low an allocation for

Those two instances are actual occurrences. Still other instancesbe cited. It is obvious that it is not possible to apply the growth factors blindly and expect satisfactory results. Each consuming industry and each strategic resource must be considered separately, and adjustments must be made whenever there is evidence that the assumption does not hold.

P. Projected-Year Chart.

The consumption and supply data for the projected-year chart forre shown in Table 3- as derived in the manner described above, by applying growth factors to the allocations for all consuming industries or, in some cases, where this procedure was inapplicable, by making special estimates. These methods permit filling in all of the allocations across the table to the total demand column, which is simply tho eum of all the consumption estimates in any given row. It is then necessary to enter the estimate ofroduction, imports, and stockpiles in the USSR, as well as production for the European Satellites and Communist China. The difference betweenupply and demand is enteredeficit or surplus in appropriate columns. This projected-year chart is then the preliminary estimate ofold-warstructure for these resources, without any allowance for changes in the structure of the economy and before taking into consideration possible errors up to this point.

G. nalysis.

The analysis of material balances fors only aanalytical stage and is designed primarily to indicate any chronic deficiencies In the economy and to correct any inadequacies in the data and the analysis. Where deficiencies occur, it is necessary to indicate how they will be met; where surpluses occur, it is necessary to indicate where these resources will be absorbed. Such analysis is not extensive and merely sets the stage for the utilisationew set of data, tbe combat attrition Information, andore refined analysis of the Impact of wartime demands on these resources.

A surplus or deficit in the projected-year chartan be explained by one or more of the following factors. esource production estimates1 oray be too high or tooonsuming industry growth rates may be too low or too high.

* elow.

onsuming industries with high or low growth rates are not allocated ao such as they should be, and consumers with low or high growth rates may be allocated acre than they should be. (Ii) Defense, stockpiling, and imports and exports may be too low or too high. he resources studied are, or are not, being used in quantity in activities showing little or no growth. ertain consuming Industries are not counted or are inadequately counted, or some users are double counted. 1 allocation from which input coefficients are derived may be too low or too high for projection toinally, the resources studied are, or are not, ln ehort supply.

By examining the data in the tables, It is possible tourpluseficit to the relative rates of growth. Foreficit can be traced to the fact that output of the deficit product ie growingata alower than the rates of output of its principal consumers. Conversely, outputroduct of which thereurplus may be growing faster than tha output of Its principal consumers. The observation of this relationship, of course, doeB not provide an understanding of the phenomena, which can come only with an examination of the relevant data and the substance of what lies behind the estimates.

H. Wartime Demand.

To determine the requirements of war necessitates defining at sons length just what war and what kind of war is to be analysed. Thistatement of force levels, tables of organization andand time period, as wall aa strategy and kind and force of opposition. From such assumptions it Is possible to derive the requirements of tha war for military end items, manpower, and auxiliary equipment. From these military requirementsnowledge of the Input of strategic resources per unit output for all thekinds of military materiel it is possible to derive the economic resources required to meet the military requirements. These new economic demands, occasioned by the war, are tnen substituted for tho demands of defense industries under cold-war assumptions.

It is at this point that the analysis begins. It is necessary to consider all the possible actions which might be takon, both on the supply and the demand side, in order toalance in the economy and still meet the demands of war. The demands for these resources in wartime are not the actual demands which will in fact be imposed. Rather, they are computed on the basisll units are fully manned and equipped,hat attrition ln the field is met by

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concurrent production at home. Suppose, forank division has, during the coldomplemsnt ofenanks. Upon mobilization it is necessary to fill out the table of organization and equipment, which callsmenanks. The men must be called up; the tanks must bo taken out of storage. This particular division is one of the combat units and hence is subject to attrition for the periodo The attrition rats, based upon historical experience, isercent per month,anks per year.

Based on the design and construction of the particular kinds of tanks involved, it is possible to determine the input of each strategic resource. Each tank requires specific quantities of steel, copper, aluminum, and so forth; and electric power, coal, and other inputs are consumed in its manufacture.

It can be seen that such data are not actual demands, but rather are fabricated on the basis of fully equipped military units and the presumption that combat attrition is reflected at once by demands upon the economy. In fact, the demands upon the economy are much less certain. Upon mobilization it is possible that some units would go to the field not fully equipped. In addition, attrition is an uncertain measurement. Even If attrition were as stated, attrition actually would not be met at once. The park or stock of equipment would be depleted, orders would be placed, andag there wouldemand upon the economy. Furthermore, even if the demands are levied, there is no certainty that there are sufficient fabricating facilities to make the number of tanks demanded. In this case, the demand for the strategic resources would be lower because the number of tanks ordered was not produced.

Thus the demands as calculated by the above procedure represent an upper limit for the fores levels involvedictitious computation as far as the actual demands are concerned. Nonetheless, they doeasure- of the magnitude of resource cocomltoonts which are necessary to maintain the specified war effort.

I. Analysis of Wartime Denand.

Analysis is in eeneralrocedure which can be outlined precisely and detailed step by step. Section IV, below, contains the analysis of this particular problem. The purpose of the analytical stage is to determine whether or not there are courses of action open to the Soviet Bloc whereby the demands of the war can be met

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while simultaneously maintaining the rest of the economy above lovel.

The general condition, upon the imposition of wartime demands, is that the Soviet Bloc will appesr short of every item in the strategic list except where the entire accumulated stockpile is used to offset the demand. Thus the primary analytical problem is to determine whether or not the Bloc can arrange its economic affaire inanner as to avoid the shortage or eliminate its crippling affects. umber of courses of action are open to the Bloc and must be analyzed separately for each Strategic resource. Some of these responses act on the demand side; others on the supply side. On the supply side it may be possible for thao accelerate production of the strategic sectors more rapidly fromohan would be estimated under nonwaro use strategic stockpiles of these strategico use resources from conquered territory. (u) to salvage plant and equipment for their strategic resources,o shorten andthe pipeline of strategic resources to all sectors. On the demand side it may bs possible for theo eliminateo cut back production in sectors using strategic resources for which tho output iso eliminate some nonstrateglc Inputs into lines of production which use strategic inputs, and (U) to substitute nonstrateglc inputs or less strategic Inputs, wherever possible, for strategic resources.

An essentisl ingredient of the analytic stage is the attempt to determine those sectors whose activities must be curtailed in order to meet the war demand. ithdrawal of inputsonsuming sector and reallocation to the military will adversely affect the output of the consuming industry. The extent of the impact of speoificand the level of output which can be maintained by the consuming industry with the Inputs left to it are central to material balance analysis.

ecessary part of the analytical stage, it is also pertinent to call into question all the data on which the preceding analysis rests. In particular, the consumption patterns and the wartime demands must be scrutinised closely. The use patterns are based upon an updating1 data, Tha wartime demandsalculation based upon meeting attrition. It may be that fabricating or manufacturing capacity is so limited that even if the resources ware available It would not be possible to fabricate enough to use the indicated amount.

This limitation would in affect reduce the wartime demand for the resource. It is also possible that the supply estimates are lower than they should be. Some analytical manipulation of both supply and demand estimates is necessary to indicate the extent to which errors in such estimates affect the results of the research.

As can be seen in Section IV, below, It vas necessary to use quite unsophisticated techniques In the analysis of the wartime situation.irst approximation industrial demand ln tho prewar period was estimated by various techniques. Thisicture of the initial position, one in which the cold-war structure has remained unchanged. It is recognised that this situation must and will change under tha Impact of the war demands. Not only would reallocations be made, but also the actual technological structure would change as the war influonced relative values snd substitutes were introduced.

J. Limitations and Potentialities of the Mothod.

It is worth noting that, in an abstract sense, the test is one which ln fact tests the Internal consistency of the several sets of data. Only insofar as these data represent the actual situation in the USSR can the test beeal test of capabilities. All quantitative testing techniques suffer from this limitation. In the present test two considerations, howavar, make this factor of some importance. First, it is not certain, in dealing with the USSR, wnether oratum is accurate, much less whether orhole complex of data represents the factual situation. It is seldom that complete confidence can be placed in Soviet data. Second, the data used in the material balance technique are Interrelated. The projected-year production estimates of the resources to be tested areart of tha data of the consuming industry growth indexes. Because data are lacking, some of theareunction of the output of tha producing sector, not the consuming sector.

The dataerious limitations] factor for material balance analysis. It Is one which con be overcome only by long-term research. At present, there is some reliance upon analogous US data and quits limited knowledge and understanding of Soviet consumption structure. As more research is performed, the estimates will became mora reliable. The lack of data is especially serious in the analysis of the impact of war demands. Information on what sectors will be cut back and what the effect of these cutbacks would be is of crucial importance, but frequently only conjectural data are available.

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There are certain technical limitations to this type of analysis, limitations inherent In what is, in effect, an attempt toeneral equilibrium problem with partial equilibrium techniques. The problem of the impact of wartime demands upon an economyeneral equilibrium problem, but material balance methods are partial in scope. An increaae ln tha demand for aluminum results in an increase in all the inputs into the aluminum industry. The industries which supply the aluminum Industry find their outputs have risen, and hence inputs into these industries have also increased. These supplying industries likewise have increased outputs and hence increased inputs. In this fashion the indirect effectehange in demand can be traced through the economy and determined with some precision. The material balance technique, because It does not include all producing industries and because there Is no differentiation between interIndustrial and final demand (external] sectors, cannot take account of these interrelated transactiona which ln fact take place. In the material balance approach they must beby making special assumptions about what happens to variousindustries upon the imposition of new demands,

A significant characteristic of the material balance method is that no generalizations are possible beyond the specific list of items which are tested. When, as is usually the case, the list of resources is quite limited and does not contain many items which are of great Importance to the economy, the usefulness of the technique is somewhat impaired. Since many of the strategic resources cannot be measured adequately when disaggregated to the level where this technique is applicable, it la possible that the techniqueefinite upper limit on the number of items which can be includedaterial balance analysis.

The material balance method may still be extended in coverage, however,ora exhaustive list of strategic resources, and the number of consuming Industries may be proliferated and refined. It is cumulative, research, such that additional or better data may be inserted to improve the data aa they are required. The methodighly practical and pragmatic method fer testing economic feasibility within well-defined limits and Is arranged inanner that the data are open to scrutiny and examination with little opportunity for concealed assumptions. Thore is considerable potential value in the material balance method as It becomes possible toore extensive list of products in this way and as the quality of the data improves.

II. Position of the Sovlot Bloc in the Cold War,

This section presents estimates of the supply position of the Soviet Bloc and the consumption pattern of the USSR under peacetime conditions for the year onding in The sectionhe base-year chart of the resources available1 and their consumption pattern, given inndexes of consuming industry growth used for the projection of consumption patterns up to the year ending iniven inhe chart for the year ending inivsn in Tableable of surpluses and deficits as aofupply, given in Tableor eachrief analysis of its supply position,escription ofmade to the projected consumption figures;onclusions.

The chart for the baseiven in Tableontains the detailed consumption and supply data from which are made the projections for Each row is devoted to one of tha lh individual material resources. The columns are the consuming industries for thencluding exports, stockpiling change, and total dam and. In addition, there are columns for production, imports, and total supply for tho USSR. Columns are provided for European Satellite production and Chinese Communist production, and Soviet Bloc stockpile, but these data are not included in the total supply figure. Details on tbe preparation of the base-year table are included in the proceding section.

A. Indexes of Consuming Industry Growth Rates.

The Indexes used In converting the quantities of materials consumed1 to those consumed in the year ending inre given in Table 2, These indexes reflect tho growth of these consuming industries during that period.

bove. ** elow. elow.

The use of these indexes involves the assumption that each raw material or resource consumed by an industry increased In the same proportion as production for that industry increased in the1 to There are some notable exceptions to this, such as tho substitution of hydroelectric for thermal electric stationsource of electric power, thereby causing coalin the electric power industry to increase less rapidly

Indexes of Production drouth by Conaumlng Sector In the1 to Tear Ending

nn

Agriculture and Food

Textiles and

Logging, Pulp, Paper, Sawmills, Wood and Paper

Chemicals and

Coal end

Petroleum and petroleum

Electric

Iron and

Konferroua fetals and Konmetallic Minerals and

Agricultural, Construction, and Mining

Machine Tools and Metalworking

Industrial

Electrical and Communications

Automotive

Ships and

Locoeotives and RailroadManufacturing Industries, Including

Consumer Durable

Rail

Water

Motor and Other

Trade, Services, and

Army, Navy, and Air

over the period than over-all electric power production. Allowance must therefore be made for such special circumstances, after the indexes have been applied, to determine the preliminary consumption estimates. The adjustments made for individual materials are given in the material resources sections which follow.

Thetockpiling change estimates were derived for the materials involved by applying1 ratio of stockpiling change to production to theroduction figure. An exception is the cose of rubber, foreparate estimate was made.

B. Empirical Result.

la General.

For the lb, resources tested, theold-war position of the economy is substantially balanced. Approximate balances appear for coal, petroleum products, crude steel, copper, ammonia, antifriction bearings, and manpower. Slight surpluses are Indicated for electric power and rubber. Somewhat larger surpluses exist in aluminum, lead, zinc, and toluene. There are no significant deficits. The product mix in petroleum products seems out of balance,urplus in petroleum distillates about equal to the deficit in petroleum residuals.

The coal Industryeficit0 metric tons,otal supplyotal demandetric tons. It seems highly doubtful, however, thateficit will in fact exist for the year ending in There appears to be no basic resource limitation If the USSR is willing to invest the capital equipment and labor necessary for proper mining. Reserves are generally adequate. It appears to beatter of priority whether or not the USSR produces to meet almost any level of demand.

Products.*

Petroleum distillates include reciprocating engine aircraft fuels, motor gasolines, naphtha, ligroin, kerosine-type jet aircraft fuels, lighting and heating kerosines, tractor kerosinea, distillate fuel oils.

The figures on petroleum distillates inere altered to reflect greater usage in the agricultural sector. Petroleum

inputs areirect function of the output of agriculture but rather of the park of mobile equipment In that sector. The park is growing faster than output in the USSR, and for that reason the petroleum product input was altered to reflect this situation. In addition, petroleum distillates imports were increased byetric tons for the year ending The projected-year consumption estimates were made to conform to the latest petroleum consumption estimates,OBspite some small differences with the projected procedure outlined earlier.

The total petroleum production position of the USSR is inbalance for There appears,urplus of petroleum distillateshortage of petroleum residuals. The product mix of petroleum products can usually be altered to meet the demand, especially if the shortage is for less refined products. Foretroleum products do notimiting factor for the Soviet economy.

U, Copper.*

Alterations were madetraight projectionigures. Theonsumption of copper by all manufacturing industries from agricultural, construction, and mining machinery through miscellaneous manufacturing industries inas increasedercent to allow for the improved copper supply situation as compared with the basehen allocations were more severely restricted.

diesel fuels, and petroleum solvents. Petroleum residuals include lubricating oils, residual fuel oilsopped crude oils, asphalts, waxes, and miscellaneous compounds and lubricants.

* Copper includes primary and secondary copper.

In the early postwar period and up23 the lack of copper haiapered the fulfillment of Soviet Plan goals and made necessary the use of inferior products. The rate of growth of the production of copper, however, has been substantial, and the Soviet supply position has been gradually improving. ontinued need for imports is indicatedlight surplus (importsart of supply) in copper shown in Table U. The tabulation for copperercent surplus for the year ending in This estimate includes imports into the USSR from non-Soviet Bloc sources0 metric tons and allows for addition to stockpiles0 metric tons. While tooigure to be positive evidenceurplus or deficit int doeseed for care in copper allocations.

iiiiiiiiiiiiiii

5. Aluminum,

The surplus for primary aluminum production comes0 metric tons. This result is in spite of an increase0 metric tons in the aluminum consumption of miscellaneous manufacturing industries over the projected figure to approximate an announced total allocation for utensils0 metric tons for theli

Some of the surplus ofons may be stockpiled. For part of the remainder, aluminum consumption may have increased disproportionately in the electrical industry for wiring and also in the construction industryteel substitute.

Table h

Material Surpluses or Deficits in the Soviet Bloc a/ Year Ending

, M "gardedbeing in short

supply. The additions to capacity in the past few years and estimatesproduction indicate clearly that the USSRufficient

6. Lead and Zinc. 7a Ammonia.

ndicates an exact balance for ammonia, which isin terms of its nitrogen content. Tho possibilities for error

lh't tneia, while not plentiful,

should be adequate if carefully

ii^for tolueneurplus0 metric tons, aboutercent of total supply. The difficulty in deriving accurate data for this productarge margin of error.

Bn, -v- basic ineredicnts in aviation . ofis possibla. It is alsostockpile one of the principal end products, TNT. This usage Isprimarily by the military

< t* ki i 0 metric tons, is shown forIT!C0"PuUtl<>n> imports0 metric tons fromthe Soviet Bloc, the same asere included in totalimported rubber would be available under cold-war conditions. minimum stockpile additions0 metric tons yearly. figure includes reclaimed

he absence of imports the USSR would be able to get along only by ceasing to stockpile and by drawing down existing stocks. With

30. Antifriction Bearings.

There appears tomall deficit in bearincs. It is well within the margin of error of the data. All bearings estimates are being revised at present, and the inclusion of this estimate is primarily for Illustrative purposes.

11. Manpower.

Forhereercent deficit in manpower. alance is predicated uponlightn the agricultural labor force, and increases in tha labor force for other sectors corresponding to their increases in output. The manpower supply isatercent per year. With this factor alone, there would bepercent deficit for Labor productivity increases byercent per year in industry. In services and agriculture the rate is considerably lower. Using an over-ell rateercent per year,balances very closely, although1 manpower estimatethe number of people in the labor force,5 estimate represents5 labor force adjusted for Increased productivity1 and expressed in man-years.

The indication is that manpower, in the aggregate, will notimiting factor in the fulfillment of Soviet Plan goals. Particular skills and occupational specialties mayroblem, but this test cannot indicate them.

C. Conclusions.

Ho shortages sufficient to Impair the cold-war operations or the fulfillment of Soviet Plan goals for the year ending inppear likely for any of the lb. material resources under consideration.

The Soviet system of planning, wnichasic and extensive use of elaborate material balance sheets, Should be capable of forewarning of shortagse in time for remedy, unless the resource is not presentlyin adequate quantities within the USSR or the Soviet Bloc. Natural rubber and copper are the most notable examples of the latter situation. Inowever, under peacetime conditions, sufficient supplementary quantities of rubber and copper should be available as imports from the non-Bloc area. In addition, it is necessary to keep in mind the data limitations in interpreting these data. Errors may appear in estimatesroduction snd1 consumption allocations,ndsxes of consuming Industry growth, or (h) special estimates. Such errors may

be compensatory, but It le elso possible that tney nay be cumulative. eneral rule, conclusions based upon quantitative results not closer than plus oroercent must be interpreted cautiously.

Although some resourcessuch as petroleum products, steel, copper, ammonia, antifriction bearings, andeficit or small surplus, it appears tnat their careful allocation will prevent any limitation in Soviet production. The small size of these deficits,with the margins of error in the data, rakes It uncertain that these shortages actually exist. Although petroleum residualsatner sitablehange ln product mix involving less emphasis ondistillates could more than compensate for this shortage.

The largest surpluses appear for aluminum, lead, zinc, and. toluene. In the case of aluminum, it is believed that sizable quantities are being allocated to stockpiles,arge amount of the remainder being assigned to consumer goods production. For lead and zinc, It would seem that their rather high rates of growth since the base1 largely account for their surpluses. Toluene will probably be absorbed in aviation gasoline and TNT and possibly will be stockpiled as TNT.

III. Wartime Demand.o

This section outlines the characteristics of tne postulated war to begin innd laat through Ti tareiscussion of the force levels involved. Tne method is else indicated by wnich the demands for strategic economic measures are derived from the nature, magnitude, and duration of the war.

A. Assumptions.

In approaching the problem ofite demandsypothetical war, certain basic assumptions mustde as to its nature, magnitude and duration, and as to circumstances surrounding the conflict.

The first controlling decision relstes to the size of the forces involved. Because of tne experimental nature of tne analytical technique to be used, it waa decided to hypothesize the useaximum military force. Suchorcee demand large quantities of resources for their support, and results with the material balance method are more conclusive when the impact is of considerable magnitude.

Mrr to specify the general condition surrounding theof these maximum forces. The assumptions adopted are as follows:

Mobilization of military forces would be substantially completeday. This assumption simplifies the calculation of requirements by abstracting from decisions portaininr. to the timing of initial andcommitment of forces.

No significant industrial or economic mobilization would have occurred prioray. This assumption also helps to simplify the problem by indicating that the war would beginiscalculation rather than as the result of deliberate planning.

Political alignment of the Soviet Bloc would be the sane as at present, including the USSR, the European Satellites, and Communist China.

h. Throughout the hypothetical war tne level of opposition to Soviet forces would always be sufficient to require the continuousof Soviet Bloc forces at long-run rates of activity. This assumption was necessary to avoid tho problems associated with war gaming.

goal and objectives of the Soviet Bloc would be such as

toull-scale goneral war involving Scandinavia, Western Eurooe. the Balkans, and the Middle East.

hypothetical war would be "conventional.** Thiscertain security classification problems but leads toas is explained *

will be no air daaagc to the economies of the Soviet

Bloc.

will be no accretions to the Soviet Sloeesult

B. Size and Composition of Armed Forces.

The first concrete task involves tho specification of size and composition of the forces. The general principle was adopted that, within the limits of the manpower mobilization potential of the Soviet Bloc, the level and composition of forces should be such that the inventory of major military equipment would be substantially exhausted by the initialof these forces. No attempt was made to prejudge the most likely or probable mobilization level for the Soviet Bloc. Obviously, the choice would depend on many factors outside of tho purview of this study, such as the Soviet Bloc estimate of the opposition to be faced. High force

levels and correspondingly high cosritment levels were established so as to require large quantities of resources and hence lead to results unclouded by error margins in the data and limitations of the technique.

Ground force commitment levels were established by assuming thatoercent of the major equipment inventory would be necessary aa pipeline and etrategic reserves. Further, it was assumed that Zone-of -Interior forces would be equipped at aboutercent of combat strength, Tho remainder of the equipmont stocks was ssaumed to be available for the initial equipping of the committed forces. These assumptions served only aa rough guide lines. Some reconciliation was required before ground force levels and their distribution were finally establishedifle,echanised, andank divisions committed by the USSR and the European Satellites, plushinese Communist divisions.

For the air forces it was assumed that the maximal force would consist of the continuous employment of all aircraft in military operational units, as well as all trainers and civil aviation. Commitment of these aircraft in support of the ground forces was assumed to be limited to the capacity of airfields availableWestern" theater, defined to include the areas contiguous to the Soviet Bloc boundary between northern Norway and the Caspian Sea. Airfield capacity was assumed to be sufficient tootol of0 aircrsft, of whichould be singlo-engine planes. Essentislly, this assumption provides for continuous Intonsive use for most of the Soviet aircraft exceptoderate restriction imposed on the utilisation of short-range fighter planes; sure Of these are available than can presumably be deployed in the West.

For tho sea forces tho force level was defined as the fleet in being,j major shipso submarines with all suxiliaries and minor craft. The fleet is to be continuously sustained and fully employed.

In applying the general principle of exhaustion of major equipment inventories, difficulties oroso because the inventories were not perfectly balanced. Stocks of certain weapons were exhausted while others remained plentiful. onsequonco, larger force levels than those selected could have been outfitted initially. However, these larger forces could have been established onlyonsiderable sacrifice in equipment standards for the air and ground forces (there apparently is no "mothball* fleet for the sea forces). Por example, much of the excaas inventory of ground force equipment consiata of towedood part of which is limited in applicability. In short, tne inventory of militaryin excess of that needed for initial equipment of tho large forces

hypothesized in this study, including provision for reserve andis ofature that it may safely be ignored.

No attempt Mas made to reduce demand because of the Inventory of consumption items such as petroleum products and ammunition. Instead, it was assumed that the inventory was "necessary andnd tnat at the outbreak of war all efforts would be bent toward immediateof consumption and toward augmenting these inventories wnere possible.

C, Military Demand for Materials.

Having established force levels and, for all practical purposes, having eliminated the equipment inventory, the next step was to estimate current equipment requirements and, through these, material requirements. It was assumed that the postulated fores level would be fully sustained for the duration of the war. This being the case, it became necessary to assumed that combat losses would be fully replaced from current production (weapons inventories having been exhausted). It is unlikely that such would be tho case in fact, since weapons production could not be increased rapidly enough and perhaps could not even reach the equipient attrition levels implied by tha assumed force commitment level. However, the purpose of the project is toost of feasibility under rigidly simplified conditions. Thus, the estimate says only that demand would bearticular magnitude if the poatulated combat force levels were in fact maintained fully from current production.

The Initial equipment of the forces servedase on which to apply appropriate attrition and consumption rates. The rates selected were drawn mainly from US historical experience, with modification based upon Soviet military practices. For example, US tank destroyer attrition rates, rather than self-propelled artillery attrition rates, were applied to Soviet light and medium assault guns. It is worth noting again that only attrition from conventional causua is accounted for. Some additional calculations were made to assist in gauging the effect of requirements registered against the automotive equipment industry, the electric and electronic equipment industry, and the construction equipment industry.

Finally, attrition (and consumption) calculated in terms of physical units was translated into the strategic resources required to replace these units by means of input-per-unit-output factors. Tne input coefficients reflect the net disappearance of resources in the process of producing the items, giving appropriate consideration to the stage of productionto tne estimate of resource supply, irrecoverable scrap losses, and indirect consumption in the production process.

Perhaps an example will serve to illustrate the specific steps involved In the process of calculating requirements. The sise andof the ground forces in use indicated an employment of0 tanks and assault guns. ariety or attrition rates, depending upon assumption as to the nature of employment, was applied to this base. The result was an indicated replacement requirement for0 units in the first year of war. This requirement may be expressed asillion metric tons of tanks and assault guns. Since approximatelyercent of tbe weight of Soviet tanks and assault guns is steel, most of it heavy castings, and since about hO percent of the steel poured in heavy castings is removed in the finishing process, the steel requirement for this type of equipment is, tons of crude steel per ton of finished equipment. Therefore tbe requirementillion metric tons of tanks and assault gunsequirement forillion metric tons of crude steel input. Other requirements werein sled lar fashion.

A special word of caution should be entered here as to theof the assumption made concerning the nature of the war. Ground force activitycale sufficient toommitted divisionsull year in the Western theatre alone is postulated. Thisnecessarily leads to extremely high replacement requirements for all ground force equipment items, particularly tanks and ammunition. In turn replacement and consumption requirements for these items result inilitary demand for steel, chemical explosives, and petroleum distillates. It may be, however, that future wars will not involve the use of ground forces on anything approaching this scale- if so, the operational utility or the results would be severely circumscribed.

ollows on

Toull-scale conventional war wasear in Europe and the Middle East. It was assumed that Soviet Bloc forces would face sufficient opposition to keep this issue in doubt. These Soviet force levels were translated into quantities of replacement and consumption items requiredear, by means of appropriate long-run fvTiandJCO?5umpUon ratas* equirements were, in turn,Undfrlyi['g ba8lc Serial inputs. Meanwhile, it was assumednvon*?ries remained after initial equipping of forces would oe held constant. The econcoy of the Soviet Bloc thus immediately would face the demand generated by attrition. Tableummarises the amounts of the various strategic resources required to sustain the forces under the postulated conditions without regard to whether or not fabricating capacity was available to convert these materials into finished end items.

Breakdown by Military Service of Projected Demnd for Selected Resources in the Soviet Bloc under Conditions foatulatedne-Year War

Ending/

Navy_ Air Force Total

Petroleum Distillates

Petroleum Residuals

Total Petroleum Products

Electric Power

Crude Steel

Copper

Aluminum

Zinc

U. Ammoniaontent)

Toluene

Rubber

Antifriction Bearings

Manpower

rtT Thousand HT Thousand MT Thousand MT Million KWH Thousand MT Thousand MT Thousand MT Thousand MT Thousand MT Thousand HT Thousand MT Thousand MT Million

Units Thousand Kan-

Y'_ art

A. Principal Conclusions.

Tne principal conclusions of tne analysis are tne following;

With respect to tnetrategic resources studied in this report, the Soviet Bloc economies would probably bo able to supportear war activities outlined in Section III.

The principal products for which the Soviet Bloc would have great difficulty meeting the demands of the postulated war are (a) petroleum products, (b) steel, (c) toluene, (d) ammonia, (e) bearings, and (f) manpower.

ilet Uloc wartime demands for copper, aluminum, and rubber

jk^ ^ if,th? aoc woreown the si"ble stockpiles that had been slowly accumulated over the postwar period.

?3ck of steel wouldsubstantial modification of

the Soviet Bloc investment program. Additions to assets during the war would occur only in the armaments sector and in industries closelythe military program.

5' icultural production would suffer little during thewar period, but the lack of petroleum products, amonia, andcutbackagricultural production in the year fol-

6. Although outside the scope of this analysis, there

indications that war activities of the same magnitude lasting moreear would press against the upper limits of Soviet Bloc economic

support tl6S ^ difficult' Perhaps impossible, to

B. General Analytical Considerations.

c *edar of ttle "latitude postulated in Section III, would hove open to itnumber of choices with respect to the arrangement of its economic affairs in meeting the demands of the war. It is not possible through analysis to determine positively what the Bloc would do when faced with war. It is possible, however, to trace the implications of different courses of action. By so doing, it may be possible to eliminate some responses as unreasonable and to select the course, or courses, that seem most likely. For instance, facedrast'c coal shortage, the USSR might be able to Make ends meet only by cuttingto either household consumption or electric power stations. In the

nind& of the Sovietost calculation would be involved, and in the absence of information to the contrary it seems likely that household consumption would suffer most.

Both supply and demand are subject to close control by thein the Soviet rJloc and, within limits, could be altered in an attempt to meet the demands of war. There are two kinis ofar demandsonwar, or industrial* demandsboth of wnich must bo met out of tne supplies which could bo made available during the given period of time. In the analysis of the problem it is initially assumed that the war demands are fixed. As can be seen in Section III, however, the warare based upon attrition rates appliedypothetical force levelull table of organization and eouloment for all military units, and an assumption of unchanged weapons inventories. Hence, if attrition wore not as predicated, if all units were not equipped as stated, or if stocks were permitted to fall, the demands upon the economy would not be exactly as computed. Industrial demands upon resources would be changed by reducing the outputs of the consuming industries, ln both quality and quantity. It might be possible toess strategic Input and thus maintain the level of output of the industry by deteriorating its quality. In some instances the lsvel of output would fall tecause the priority of the consuming sector was clearly subordinate to the war Some products made ln peacetime might not be made at all in The nature of the wartime demands and the possibilities forchange, substitution, elimination, and product deterioration in the industrial sectors, must be considered inudgment about the total demand for resources In wartime.

On the supply side there are several possibilities open to the Soviet Bloc. It may bo possible to increase the output of the strategic resources. In the period of time underear, there are limits to what the Bloc could do. By straining capacity to the utmost, it is nearly always possible to obtain :oas additional output from existing facilities. It must bo kept in mind, however, tnat insofar as it is possible to increase the output of the strategic resources, it is also necessary to supply the facilities providing this output with Inputs sufficient to support the higher level of output. There iseciprocal effect upon the demand for these same resources through the necessity of maintaining the output of sectors which both use the strategic resource and provide economic goods used in the manufacture of the strategic resource. Other methods for making supplies available may not involve tnese indirect effectB.

Tho most obvious method of supplying resources to meet war demands is to use stockpiles which have been accumulated. The Soviet Bloc has substantial stockpiles of copper, aluminum, lead, zinc, and natural rubber. It also might be possible to reduce the magnitude of the supply pipeline for the resource, thus freeing additional quantities of the resource. For instance, aboutercentear's production of steel is inwarehouses, depots, at the fabricating plant, and at tne sits of use. By tightening controls over this supply pipeline, it might be possible to squeeze out additional steel supplies, although drastic use of this device would run tho risk of reducing the flexibility needed in an economy. In war activities of considerable magnitude, it might be felt that some peacetime facilities were unnecessary. Salvage operations on capitaland plant facilities could thus increase supplies of sons kinds of strategic resources, especially metals. Resources existing in conquered territory might also buttress the indigenous supplyimited extent but are excluded by assumption from this study. Wartime attrition rates postulate zero recovery and no scrap availability. Nevertheless, some rubber and metals could be obtained from attrited equipment and thescrap added to the total supply insofar as fabricating capacity permits.

It is often not possible to quantify judgments about manipulations and alterations in the supply and demand patterns resulting from the imposition of war demands. Unless the difference between supply and demand is quite significant, therefore, it is unlikely that the material balance technique wouldirm conclusion with respect to the ability or inability of the Soviet Bloc to meet wartime requirements. The errors in data are sucheasonably close balance under wartime conditions makes it very difficult to draw positive conclusions.

Tableontains the basic data used in analysing the Soviet Bloc capabilities to meet the demands for thetrategic resources undor tho conditionsear war beginning in hows the supply and demand position before wartime alterations in the structure of the economy have taken place. It is assumed that non-Bloc trade would disappear completely and that Soviet, European Satellite, and Cninese Communist resources would be freely interchangeable. Tne wartime military demand applies to the Soviet Bloc efforthole. It is not possible to break down wartime domand into the three areas, nor is it possible to analyze in detail the prewar structure of sach of the three areas.

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Inhe supply figures are estimates of production at capacity for tha year ending Inxcept for copper, lead, and zinc, for which production estimates rather than estimates of smelting capacity were usad.

Demands during wartime are in two categories. The war demands were taken ss given in Section III. Industrial demands are all of the other demands of the econotryj they represent the desends of the consuming industries of the Soviet Bloc, assuming tnat prewar conditions prevailed, but not including the demands of the military establishment and armaments sector, stockpiling, and exports. For the USSR, industrial demand was computed by applying the ratio of Soviet industrial demand to total demand for the year ending ino an estimate of Soviet total demand under peacetime conditions for the year ending The latter was derived by extrapolating tliroughhe carve of Soviet total1 to Since there are no detailed industrial demand data for the European Satellites and Comrainist China, the ratio of Soviet industrial demand to total supply for the year ending inas applied to production estimates for the European Satellites and Communist China for the year ending in Tho Industrial demand for the USSR, Suropean Satellites, and Contiunist China, fIus the Soviet Bloc wartime demand, equals total demand. heck on tha general magnitudes involved, industrial demand was computed in several other ways. The ratio of industrial to total demand for the USSR inas applied to production in the three areas for ndustrial demand for the USSR could be used as an estimate6 industrial demand, and the ratio of Soviet industrial to totalforpplied touropean Satellite snd Chinese Communist production. These different ways of determining industrial demand by the use of aggregative ratios made no significant difference in the final results.

It must be kept ln mind that the Industrial demand figures ineferituation in which the prewar structure of the economy is unchanged. This is theoviet planner might face at the outbreak of war: consumption by all industries at prewar rates plus wartime demand. From this base he would start making decisions as to how much to cut and where to expand or contract. The initial surplus and deficit columns ineflect this tentative position of the economy at the outbreak of war.

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C. Product Analysis.

Being armed with thla information, it ia possible to make aome general comments about tha sort of impact tlie postulated war would have upon tha economies of the Soviet Bloc. Flrat, certain resources can be eliminated on the basis that supply is adequate to meet the demands for this period of time. This situation exists clearly for copper, aluminum, lead, and zinc, as veil as for rubber, provided that stockpiles are assumed freely available for use. In each case, supply plus stockpiles would be adequate to meet the demand and in some cases would considerably exceed it. Even if it ia aseumed that estimates of stockpiles are too high, thereomfortable margin for these commoditlea. for lead and zinc, supply (without stockpiles) would be more than sufficient to cover industrial and military demands. This result suggests weakness in some of the underlying data (either production too high or industrialand military demands being considerablyince it la not likely that an economy wouldurplus of any resource under the initial assumptions postulated here. It la almost certain that in wartime, strenuous efforts to economize nonferrous metals and rubber would result in tho ability toarger proportion to the war effort. In addition, it must also bo remembered thatfrom conquered territories wouldubstantial addition to tha Bloc supply.

Products.

The Soviet Ploc wouldotal supply (aero stockpiles)0 metric tons of petroleum products as comparedotal demand0 metric tone, end this would have an initial deficit0 metric tons, orercent. The deficit would consist0 netric tons for-petroleum distillatesetric tons for petroleum residuals. It would have to be made up mainly through reduced allocations to agriculture, motor transportation, and trads, services, and households. Demand in wartime is particularly strong for high-octane aviation gasoline, motor gasoline, jet fuel, and possibly diesol fuel. For all petroleua products the wartime military demand would exceed the peacetime military demand by aboutillion metric tons.

Although there is considerable flexibility in the mix of petroleumhange in the mix cannot relieve the over-all

shortage. Hence, substantial curtailment of peacetime allocations 1* yallocation pattern ifas follows: aVriculSrn and food products,ercent; motor transportation,Tpercen^ Sa^ services, and households,ercent;ercent: the

-

^Klo_ Reduction of any of these allocations would present serious problems. It would be possible to reduce the tractor fuel allocation to agriculture byillion metric tons, about one^th^ofthS

i'l^ distillates. Allocation to trade

olds would be reducedillion metrical tS. Construction-would have toT3 SlS'^ o" ^tric tons. By cuttingt t0 thTe indu8trialit would be possiSe^ make good the severe shortage. alance could not be achieved,however rttWignificant limitation uponroleSonsum^ '

3. Steel.

ldeficient byillionSt8?WJy WOUldX)tons and demandA Shortaee oftude would requires

frnm(b) diversion of steel

fmachinery and equipment and from

i^^T^ fu "Ult4ty BMmost

sector and closely allied

WtJn^fc be neces3atthe Soviet Bloc to make rood

facStiX ta^ir4eCaUseckindustries. If sufficient fabricating

facilities were not available, then thent of steel woulffnot

af3Wd not te ovore^izedl Th7 nature of the demands for steel is such that no highlytechnical facll-

e deSaS would* artillery shells and casings. About one-third would be for other oouio-ment, especially tanks and vehicular equipment.

The supply of steel could be enhanced slightly by operating existing facllltlosaximum and by reducing somewhat the substantial pipeline of steel products. In addition, the use of scrap metal from damaged equipment and from shell casings might help some. This factor would alter only tho scrap-pig ratio; final output would still depend upon ingot capacity, however, such increases in supply could not make upton deficit.

The peacetime demands for steel are dictated by the investment pattern. In wartime, this investment pattern would' be distortedand tha total amount of investment would be reduced. It is improbable that lb percent of all steel would continue to be allocated to construction in wartime. Miscellaneous manufacturing industries, including consumer durables, would also have greatly reduced allocations. Unlike the US, however, the USSR does notugs automobile industryotential source of steel in wartime. It is not possible to list in detail the consumers that would suffer reduced allocations and to estimate by how much they would suffer, but it seems possible thatmaller Investment program, reallocations, some increase ln supply, and the possibility that all the war demands would not occur, tho Soviet Bloc could raako sufficient steel available to meet requirements.

Ii. Ammonia.

The demand for ammonia in wartime derives from the need for explosives, in which ammoniarimary input. Total supply for the Soviet Bloc wouldetric tons, whereas total demand Is estimatedetric tons,esulting deficitetric tons. The wartime military demand wouldetric tons, or nearly as much as would be available in the Bloc, assuming that all plants operated at capacity. The only way to make up the deficit is to cut off practically all consumers of ammonia except the military. This is not technically possible, although nearly all nonmilitary allocations can be substantially reduced. Agriculture, whore the ammonia is used in fertiliser, primarily for technical crops, is the largest single user in peacetime. Only by stripping agriculture would it bo possible for the Bloc even toalanced position for amnonla.

The possibilities for increasing the output of ammonia are quite limited. Itears to bringew ammonia plant, and the estimates givan lnlready are capacity production estimates.

Toluene Is another Important Ingredient in some explosives and would be seriously snort in the Soviet Bloc. Total supply plus stockpiles would boetric tons, as comparedloc total demandetric tons, six times the estimated supply. The deficit is so great that evenevision of tho prewar consumption pattern, production plus stockpiles would not be adequate to meet the estimated wartime demand. Thereonsiderable amount of flexibility, however, in the percentage of toluene that is required ln various explosives and the extant to wnich other explosives can be substituted. For Instance, the demand estimate was computed by assuming that toluene would beercent of the weight of the ingredients going intoercentage that could be reduced considerably. Furthermore, TNT could be replaced to some extent by picric acid, cyclonite, and possibly other newer explosives.

Toluene production could be increased more easily thanof some other strategic concocities, since toluene can befrom oil refining and from the coke-chemical industry by the addition of some specialized equipment. In addition, there is some indication that tha Soviet Blocubstantial stockpile of TOT. Therefore, although there wouldhortage of toluene, the possibility that its effects could be avoided is great enough to conclude that theear war could be carried out.

The manpower data given inre misleading to the extentroductivity adjustment has been used to make all figures The actual military manpower demand is9 million men in the USSR and the Europoan Satellites. This clearly would resulttrain on all sectors of the economy. Chinese Communist manpower has teen eliminated from Table 6.

D. Implications of the Analysis.

1. Impact on Industry.

Of theommodities under consideration, the steel shortage would have the most serious impact on Industry, although smaller deficits in antifriction bearings, petroleum products, and manpower would also present problems. The steal scarcity wouldevision of the investment program, probably with the purpose of bringing into

production only those plants that were strategically important and capable of completionhort space of time. Therefore, production growth through the construction of new facilities and new machinery would be limited toew of the highest priority products. In addition, steel allocations for nonstrateglc production, such as consumer goods production, would be eliminated, and allocations to many other consuming Industries revisedriority basis.

Tbe decrease in petroleum products mighttrain on the lntra-urban transport facilities of industry. It would also be necessary to withdraw from industry moreillion metric tons of petroleum residuals. Furthermore, in order to man their armed forces, the Soviet Bloc countries would find it necessary to draft stalled and semiskilled workers from industry. The reorganization of industry and changes in the investment program would tend to release workers to the armaments sector and to the armed forces.

2, Impact on Agriculture.

Petroleum has been used in increasingly large quantities in agriculture in the Soviet Bloc in peacetime and has become an essential ingredient of agricultural technology. In recent years, new agricultural machinery has been specifically designed to be used with tractors, and animal draft power has been steadily declining. The trend toward mechanization would have to be interrupted in the event of war. The limited animal draft power would have to be pressed to the limit and old agricultural implements again put into service, since much of the new machinery cannot be used with animals.

after the outbreak of war, agriculture would receiveno ammonia and considerably less petroleum, but the harvest would not be seriously affected during the first year.

The war is postulated to beginime when fertilizing and planting for that year's crops would have been largsly completed. Dscreased petroleum supplies andlight pinch in manpower would cut down on the cultivation possible and hamper harvesting somewhat, but would not reduce the total harvest enough to interfereoar war. Food reserves in the USSR are substantial. f the grain is in reserve. This, plus the annual carryover, amounts toear's food supply in grain.

The virtual elimination of ammonia allocations to agriculture would offoot industrial crops, the main users of ammonia, starting with the second year's harvest,but would not affect food crops unless food-crop fertilizers were substituted on technical crops having heavy wartime demand.

At the same timeack of petroleum would be putting pressure on the agricultural economy, manpower would be drafted away to serve ln the armed forces or ln munitions industries. More than one-half the labor force is in agriculture, and there is no reason to believe that the draft would bo proportionately lighter in agriculture. Indeed, it is possible that tha manpower call would hit agriculture proportionately harder than it would industry. anpower withdrawal froa agriculture would reduce agricultural output somewhat, but the impact would not necessarily be additive to that already Imposed by the lack of petroleum. In addition, it might be possible toanpower shortage in agriculture by using Zona of Interior troops to help with the peak harvesting requirement. This was done by several nations, including the USSR, ln World War II andethod for avoidingloss ln harvest, even though it might bo necessary to lengthen the harvest season.

3. Relaxation of Assumptions.

Several assumptions have been made wnichirect and immediate effect upon tho conclusions of this analysis. In brief, the assumptions are as follows:

1-year war beginning in

use of only conventional and not atomic or

Ko allowance for damage to tha Soviet Bloc.

No economic benefit from the accretion of territory

to the Bloc,

stockpiles heldonstant level.

Changing any of these assumptions would change the For instance, if military stocks were permitted to fsll below their prossnt lovel and were held constantower level, some of the military demands would disappear. The massivo land war postulated ln Section III results in huge quantities of many inputs, including those which were found to be in short supply in wartime. ifferent kind of war were to bo fought, then the economy would be called upon for support by other industries, and the critical sectors outlined above

notroblem at all, Accretions from conquered areas, both in the form of produced goods and in the form of capital facilities andmight substantially offset many of the hear/ demands of the war.

The assumptionear war with no damage to the economies of the Soviet Blocighly restrictive assumption and quite unrealistic, Even if the war in factear, the economic planners could not know this in advance, and the indeterminacy would affect their plans. Furthermore, it does not seem reasonable to suppose that Western countries would leave the Soviet Bloc countries undamaged at hone. If these assumptions areuch more elaborate analysis and more information is needed. It is clear, however,ar of tbe same magnitude extendingear woulduch more serious threat to the economic and industrial support of the Bloc economies, add toar in which damage was inflicted upon tha economies of the Soviet Bloc, and there develops the distinct possibility that the Bloc could not stand up under the economic strain imposed upon it. nonetheless, under the assumptions of this report, the Bloc could support the specified military activities.

Original document.

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