DOLLAR COST ANALYSIS OF SOVIET DEFENSE ACTIVITIES

Created: 12/22/1981

OCR scan of the original document, errors are possible

FOR:

of Central Intel 1Igence Deputy Otrector of Central Intel

National Foreign Assessment Center

of Soviet Analysis

Cost Analysis of Soviet Defense Activities

our recent meeting, you indicated tnat you would like to discuss trie OoD's use of our dollar cost analysis of Soviet defense activities at your Meekly breakfast with Secretary Weinberger. This memorandum summarizes the basis for our dollar estimates and provides some talking points which we believe are appropriate.

The dollar cost method of estimating Soviet defense activities was developed in response to DoD and Congressional requests to compare like categories of Soviet and US defense activities. The approach uses prevailing US prices and wages to estimate what it would cost in the US to produce andilitary force of the same size and with the sane weapons inventory as that of the USSR and to operate that force as the Soviets do.

The resulting dollar estimates are the only means available to the Intelligence Community to make the kinds of aggregate and sub-aggregate military-economic comparisons of US and Soviet defense activities listed in Figure 1. The dollar estimates are usefulortraying the magnitude and trends in total Soviet defense activities and can do soorty year period. Our building block approach also allows us to make US/USSR comparisons at many levels of aggregation using DoD force and financial accountingmajor mission, by resource category, and by US service definitions. It is In fact detailed comparisons of this type that are of most interest to DoO.

Figure 1

Uses of Dollar and Ruble Estimates of Soviet Defense Activities

Type of Analysis

be done using:

Present Dollar 8uilding Method

ubles) (Rubles Only)

Defense Comparisons

Mission Comparisons

(Strategic Forces, General Purpose Forces, Support Forces)

Program Comparisons

6 vs. Flogger)

Yes

Yes

Ha

No

Comparisons

(RDTJE, Investment,

Service Comparisons

{USAF, Army, Navy, Defense

Soviet Oefense

Soviet Burden of

no

Yes

Yes

2

OFFICIAL^tlS^ONLY

OFFICIAL USI ONLY

There are, however, issues that cannot be analyzed with dollar costs alone. To measure tne burden of defense on the Soviet economy, we must usedollars. Only rubles measure actual resource costs within the Soviet Union. With our present dollar building block method, about half of the value of the ruble estimate Is derived from our dollar estimates, lo the absence of reliable Soviet statistics, weapons procurement andosts first must be estimated in dollars and then converted to rublesomplex series of ruble-dollar ratios. Thereufficient Soviet data available to estimate the costs of personnel, construction. RlilSL. and part of operations and maintenance directly in rubles.

SomeOVA analysts and about one million dollars of annual contract funds are directly or indirectly required to produce our dollar and ruble estimates of Soviet defense activitiesuilding block form. To discontinue US/Soviet comparisons based on tne dollar estimates but to continue to estimate ruble costs through the building block method would savenalyst-years of effort andhousand dollars of contract funds. If we were to shift toery aggregate ruble method to estimate Soviet defense costs, the dollar analysis needed to support the construction of building block ruble estimates also could be discontinued. This would mean thatnalyst-years andhousand dollars of contract funds could be saved. However, this method wouldow confidence estimate and we would no longer be able to analyze the costs of Soviet defense activities in detail as we now do.

The comparison between US and Soviet defense expenditures Is one of our most frequently requested products by DoD and the Congress, lt Is controversial, trie answers are occasionally misused, and it may inspire as much public confusion as insight. But, the dollar cost estimates are still the most commonly used way of aggregating the disparate parts of the Soviet militaryanner that allows comparisons with the defense activities of the US and other countries. They have proven consistent and usefuleasure of the trends in Soviet defense activity over time. They are also the only means available to assess Soviet military programsission or resource basis.

R. M. HUFFSTUTLER Director Soviet Analysis

CIAL

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