THE 1970 SOVIET DEFENSE BUDGET IN PERSPECTIVE: TRENDS IN SPENDING FOR DEFENSE A

Created: 1/1/1970

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.SeCret"

DIRECTORATE OT INTELLIGENCE

I ntegenee Memorand um

0 Soviel Defense Budget in Perspective: Trends in Spending for Defense and Space0

SKIM0

CENTRAL INTELLIGENCE AGENCY Directorate of Intelligence0

INTELLIGENCE MEMORANDUM

The 0 Soviet Defense Budget in Perspective: Trends in Spending for Detonso and Space

Introduction

Onecember Soviot Minister of Finance Garbuzov0 defense budget9 billiona one percent increase over the planned budget The wide attention given the annual Soviet budget announcement in the Western pressa broad range of questions on the economic aspects of the Soviet defense and space effort. This memorandum addresses many of these questions.

The Soviets do not themselves provide useful data on their spending for defense and space programs. Each year theyingle ill-defined budget figure for defense and one for "science" n striking contrast to thedetail published on virtually all aspects of the US defense and space budgets.

To overcome this problem, the CentralAgency hasirect costing method which draws on all sources of information to build up economic data relating to Soviet defense and space outlays. (The total Soviet space effort is included in the analysis because the administration and funding of both "civil" and "military" programs ore co intimately relatad in the USSR.) Theintelligence information has made it possiblo

This memorandum uae produced solely by CIA It vas prepared by the Office of Strategic Research and coordinated uith the Offic* of Economic Research.

to measure, aggregate, and compare the sizes of the entire range of Soviet weapon programs and forces. This provides an appreciation of how the economic implications of these programs may influence Soviet policy and planning.

This memorandum outlines the methodology used to develop estimates of Soviet spending for defense and space programs andescription of the main trends in spending. The broader economic aspects of defense and space programs also areby relating the expenditures to the general Soviet economic situation. Some of the possible implications of this relationship for Soviet policy are examined.

A summary statement and general conclusions are presented beginning on

Contents

Page

The Announced Soviet Defense Budget

Methodology

Validity of Expenditure Estimates

Trends in Soviet Defense and Space

Expenditures .

Strategic Forces

General Purpose Forces

Comparisons of US and USSR Spending for Defense

and Space

The Economic

The Burden of Defense and Space Programs .

MilitaryDiversion of Resources

Effectsew Round in the Arms Race

Summary and Conclusions

2 -

The Announced Soviet Defense Budget

The USSR recentlylanned defense budget09 billion rubles. Thisodest increase ofillion rubles, or about one percent, above the announced spending planned formarked departure from the moreble increases proposed for the past few years.

The single figure that constitutes the announced Soviet defense- budget hasolitical and an economic function. It serves to inform the'Soviet public, the party, and government cadres of theintentions with regard to the allocation of resources.. The changes in the size of the defense budget from year to year are probably also intended to communicate to the world at large the stance the leadership wishes to emphasize in its conduct of foreign affairs at the time.

p

?^ASm*il increase in defense spending announcedor example, is consistent with the image of moderation that the Soviets have projected at the preliminary strategic arms limitation talks in ucisinKi

The Soviets have never published an officialstatement like that presented each year to the Congress by the Secretary of Defense. Moreover, they have neveretailed explanation of what the published budget figure covers. Analysis of the available evidence indicates that it covers most direct expenditures for military weapons procurement and for the operation and maintenance of the forces in the

al,so includes some expenditures

Cor military aid to other nations, for stockpiling military commodities, and for some aspects of thend space effort.

On the other hand, most of the large and qrowina

anfry-rejated.research and^evelopmenl9 and both military and civil space are covered by the

for "science." These science expenditures cover nonmilitary matters as well.

The USSR has announced planned02 billion rublos.* This3 percent increase over the expenditures planned In announcing0 plan figure, however, the Soviets stated that it would resultincrease9 spending. This implies that actual spending9 was higher than planned. The increases over the past few years probably have been devoted almost exclusively to military and space programs.** Recent speeches by Soviet leaders whichrowing concern about the increasing gap between the industrial technology of the USSR and the developed West suggestarger share of0 increase may be earmarked for civil

*** BR The Technological Gap; The USSR

z full discussion of the relative levels of teohnolo,

vs the US ana Western Europe,ontains

of the USSR and the West.

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It is not clear how seriously the Soviet leaders tnemseives regard the announced defense budqet. rn every year3 the Soviets have said that actual expenditures have been exactly the same as those planned and announced for the year. Given the

year to year Methodology

extraordinary complexity of budget planning in large, modern military establishments, it is hard to believe that the planners of the Soviet Union could arrangeerfect match between planned and actual expenditures year after year. The announced budget is probablyeliable indicator either of the amount of total Soviet spending for military-related activities or of changes in the level of effort from

The estimates of Soviet defense and spacecontainod in this memorandum are developed for the moot part on the basisirect costing Judgments as to the numbers of weapons and forces are based chiefly on what ia observed. These numbers are then multiplied by estimates of what they would cost in rubles and in dollars. Finally, tho results are summed into totals and subtotals using expenditure categories similar to the ones used by the Department of Defense.

The available intelligence information has mado it possible toomprehensive and highly detailed physical data baseosting process. The data base includes such information as thelevels of the Soviet strategic attack, strategic defense, and general purpose forces; the production schedules for major weapons and military equipment items; and the manning requirements of the.forces.

In effect, this work amounts to building themilitaryitem by line item--from the base up. In fact, the job is done twice, once in rubles and once in dollars. Separate calculations are necessary because no single ruble-dollarfactor can accurately reflect the purchasing power equivalents for all of the different types of expenditures that make up total defense spending.

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If the official exchange rate were applied to the ruble calculation of total Soviet defense and space spending, for example, it wouldrossly understated view of the magnitude of the Soviet effort.

The estimates made in rubles show how the levels and trends in the costs of individual programs would look and compare with each other from the point of view of Soviet defense planners. The ruble estimates alsooviet view of defense andhole and how it relates to otherinvestment programs for economic growth and programs aimed at improving the lot of the consumer.

The expenditure estimates expressed in dollars provide an appreciation of the size of Soviet defense programs in terms that are familiar to US planners and policy makers, and they make it possible toSoviet expenditures with US programs.

The technique of direct costing is used toSoviet defense spending for investment and for operating. Investment expenditures include outlays for procurement of new weapons and equipment, and -for construction of facilities. Operatinginclude outlays for personnel (such as pay and allowances and food) and operation and maintenance (such as spare parts and POL).

To estimate total Soviet spending for military research, development, test, evaluation, and all space owever, direct costing cannot be used Although somebe directly costed, there is not enough information on ailrograms torogram-by-program accumulation of expenditures which wouldeliable total. Fortunately, the Soviets haveubstantial amount ofboth statistical data and descriptivetheir spending for scientific activities. This

the basis for estimates of Soviet spending rorhat correspond quite closely in concept

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to US spending by the National Aeronautics and Space Administrationsunding by the Department of Defense and the Atomic Energy Commission.

Validity of Expenditure Estimates

The validity of the estimates of Soviet military costs depends on the reliability of the underlying physical data base, the accuracy of the pricesto that base, and the time frame being The physical data base on forces and weapons reflects the combined collection andefforts of the Intelligence Community,

The price and cost factors are known with lessare necessarily derived only from analogous US data and experience--but they are probably reasonably accurate. Naturally, the degree of confidence in the validity of thedecreases as they go further into the future.

Trends in Soviet Defense and Space Expenditures

Total Soviet spending for defense and space is expected toecord level of overillion7ercent higher than Increases in spending for strategic defense andrograms are the major causes of the rise in total expenditures, asfor other missions are expected to remain at about9 levels.

0 increase extends the trend of overall growth which is the dominant feature of estimated

4 ine dollar figures (appearing in parentheses after the rubles) are approximations of what it would cost in the US to purchase and operate the estimated Soviet programs. For further details see.

total Soviet spending during the Sixties (see1). Total expenditures increased in this period7 billionS billion)06 billion rubles0 billion) ise of aboutercent. This growth reflects majorby the USSR to upgrade its strategic forces and to modernize and restructure its general purpose forces through deployment of new weapon systems and through growing programs of research and development directed toward continual improvement of these forces.

i iiim.udtovUl Expenditures (or Detente and0

Tho steady rise in expenditures duringarked change from the Fifties. During that decade, Soviet defense and space outlaysrelatively stable as substantial cutbacks in tho general purpose forces tended to offset the rising trends in outlays for strategic forces and RDTEiS programs.

Within the totals, there are also substantial differences between the Fifties and tho Sixties. Tho shift in emphasis from conventional armament toward advanced weaponry is strongly reflected in the changing mix in weapons procurement. During the Fifties, spending for the procurement ofelectronic equipment, and nucleargrowing rapidly,onlyercent of total procurement for the

decade. in the Sixties, these systems uvoraged almostercent of total procurement.

Large cutbacks in general purpose3teady decline in total operating costs throughout the Fifties. This trend was haltednd since then the cost of operating thecomplex military establishment has been climbing- (see Figure. Theillion1 billion) required for operating costs9 isillionillion) higher than0 level. The current level of operating costs is approximately the same as that required for the much more manpower-intensive Soviet forces of the middle Fifties, when there wereillion more men in uniform.

*

Soviet emphasis onnd on space programs is the single moat important factorto tho growth in total defense and space expenditures during the Sixties. pending grew at an average annual rate ofercent and9 accounted for about one-third of total spending on defcnso-related activities, almost twice the share This rapid growth reflects not only the increasing complexity of advanced weapon systems, butillingness to trade off, at least to some degree, current deployment of existing systems for future deployment of more effoctive systems.

Even if the Soviets are looking for an agreement with the US to limit the deployment of strategic weapons, they cannot plan for it at this stage and they almost certainly will continue to develop new systems to keep their future strategic options open. For example, development program; for improved ABM systems and multiple warhead ICBM systems aro continuing.

decade. In the Sixties, these systems averaged almostercent of total procurement.

Large cutbacks in general purpose3teady decline in total operating costs throughout the Fifties. This trend was haltednd since then the cost of operating thecomplex military establishment has been climbing- (see Figure. Theillion1 billion) required for operating costs9 isillionillion) higher than0 level. The current level of operating costs is approximately the same as that required for the much more manpower-intensive Soviet forces of the middle Fifties, when there wereillion more men in uniform.

Soviet emphasis onnd on space programs is the single most important factorto the growth in total defense and space expenditures during the Sixties. pending grow at an average annual rate ofercent and9 accounted for about one-third of total spending on defense-related activities, almost twice the share This rapid growth reflects not only the increasing complexity of advanced weapon systems, butillingness to trade off, at least to some degree, current deployment of existing systems for future deployment of more effective systems.

Even if the Soviets are looking for an agreement with the US to limit tho deployment of strategic weapons, they cannot plan for it at this stage and they almost certainly will continue to develop new systems to keep their future strategic options open. For example, development programs for improved ADM systems and multiple warhead ICBM systems are continuing.

Strategic Forces

Soviet expenditures for stratogicand defensemoreuartor of total Soviet defense and space spending in the Sixties. reater effort has been devoted to systems for strategic attack than to systems for strategic defense, but spending for the attack forces has fluctuated more from yoar to year than it has for strategic defense (see

During the early Sixties, expenditures forattack (excluding RDTSE) increased rapidly andeak2 when the Soviets were simultaneously deploying large HRBM and IRBM forces and second generation ICBMs. With the completion of these programs, spending for strategic attack declined.6 the leading edge of expenditures for the deployment ofndCBMs and theclass ballistic missile submarine had begun to reverse the downward trend.

Estimated expenditures for strategic defense forces (excluding KDT&E) remained fairly stable during the Sixties atillionillionillion0 billion). Thoy accounted for aboutercent of total. Soviet spending for defense and space. This high level supported large-scala deployment of surfaca-to-air missile systems, an extensive control and warning network,arge number of advanced fighter interceptors. Spending for ABM deployment in the Sixties accounted for lessercent of strategic defense outlays or less thanercent of total Soviet military spending during the period.

General Purpose Forces

Despite the high priority the Soviets have placed on developing strategic capabilities, theirfor the general purpose forces (excluding RDT4E) have remained higher than lor any other major force oloment (paralleling the US experience). The

relatively stable level of Spending ofillionillion7 billion to SI9 billion) averaged about one-third of total spending in the Sixties.

Ground forces have generally accounted for about bo percent of total spending for the mission, naval forces aboutercent, and tactical aviation and military transport aviation each aboutercent.

Jhe importance of general purpose forces in the total Soviet military establishment appears even greater when viewed in manpower terms. hows trends in total military manpower and in the distribution by major missions. 09 total Soviet military manpower increased from aboutillion to aboutillion and nochange0 is expected. Throughout tms period, the general purpose forces havefor abouto CO percent.

The substantial level of funding for the qeneral purpose forces has allowed the Soviets to move stead-iLyalanced mixture of forces capable of re sponding road range of militaryarticular emphasis during recent years has been

placed on achieving an improved ASW capability and on augmenting forces along the Sino-Soviet border.

Comparisons of US and USSR Spending for

Comparisons of any economic measures between countries present difficult conceptual problems because of the use of different currencies and the differences in relative prices and outputs of the economies involved. This is especially true in comparing defense expenditures of the US and the USSR. esult, such comparisons can only be viewed as approximations and not as precise measures.

The comparisons of defense and space spendinq presented here employ dollar measures of Soviet spending that are approximations of what it uould cost in the US to purchase and operate theSoviet military foroeo and programs.

Soviet defense and space upending measured in dollar terms9 ia estimated to be

TheUS figure for defenseisillion, of whichfor the Vietnam

Throughout the sixties the US has outspent the USSR on an estimated dollar-equivalent expenditure but-tne magnitude and timing of expenditures for the major missions have differed considerably between the two countries. Among the factors influencing these differences has been the USin Vietnam.

nSoviets have spent

imes as much as the US for the strategic defense mission during the Sixties.

Total strategic attack outlays have been rouqhlv equivalent over the past decade. The US exoenditurL were substantially greater in the early years whereas the USSR has outspent the US over the'last

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tew years. The difference in timing of expenditureseflection of the difference in timing of major strategic offensive programs. he major phases of deployment of Titan, Minuteman, and Polaris systems were essentially complete while the deployments of the counterpartnd Y. classin their early stages.

On the other hand, the US has spentoercent more on general purpose and command and general support forces in the Sixties. Vietnam requirements have accountedarge part of this difference.

The US spent overercent more than the USSR forn the early Sixties. Estimated Soviet spending90 is somewhat higher than US spending, primarily because of larger outlays for space programs.

The Economic Setting

The USSR has the second largest economy in the world. This strong economic base has permitted the Soviets to build andowerful defense establishment.

Each year the Soviet leaders must make very specific decisions about how the availablewill be allotted to claimants for defense and space programs, for economic growth, and for consumer satisfaction. Two primary Sovietstrength and economicespecially competitive for the same resources. The leadership must consider the fact that current military Strength is obtained in part at theof economic growth, and therefore that large military programs will reduce the total amount of resources available in the fuiure.

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The overall magnitude of the Soviet economy, measured in terms of gross national product as grownoint where it is now about half that of the US. For the pastears, the annual rate of growth of Soviet GNP has averagedercent compared to an averaqe ofercent for the us.

The structure of production in the two economies, however, is quite different (sec Figure. The USSR is unique among industrialized countries inighly developed industrial sector side by sideackward agricultural sectorelatively primitive trade and service network. This imbalance has resulted from the overriding priority long given to the development of heavy industry in the USSR, particularly to producer goods, at the expense of agriculture and services for the population.

Soviet industrial productionhole is now almost half that of the US, but the picturevery mixed one. Production of some producer such as crude steel, coal, cement, and machine tools-is close to or even exceeds that in the US. Inthe USSR lags far behind the US in production of consumer goods as well, as modern materials such as synthetic fibers and plastics, esult, the standard of living for the average Soviet citizen is still only about one-third that of his US.

Soviet industry uses more labor and less capital than US industry, and its overall Level of efficiency is perhaps about half that of the US.

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There is no simple way of measuring the burden of defense and space spending on the Soviet economy. One measure which is often used is the share of defense and space in GNP. When valued in ruble prices, as the Soviets would view it, the current

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defense and space share of GNP isercent. This is about the same share of GNP that the US devotes to comparable programs.

The lopsided development of the Soviet economy has caused an apparent anomaly that arises when the economic burden of its military effort is considered Given that US GNP is about twice as large as Soviet GNP, it would appear to be logical to conclude that Soviet defense and space programs, therefore, must be about one-half the size of US programs. Thishowever, is incorrect because it fails to take into account the significant structural differences between the economies of the US and USSR caused by the peculiar nature of Soviet economic development described above.

In fact, Soviet defense and space programs are currently about three-fourths the size of the US This relationship is more appropriatelyby pricing the Soviet programs in terms of what they would cost if purchased in the US.

The fact that the USSR supports defense and soace programs almost as large as those of the US but with the same shareuch smaller GNP does not mean that the USSR is more efficient than the US in the production of military goods andfact, it is probably less efficient, it does mean that the defense sector of the Soviel: economy is more efficient relative to other sectors of its own than the US defense sector is relative to other sectors of the US economy, vox example, although the USSR is efficient in the production of military goods and services, it is.notoriously inefficient in the production of consumer goods and services The US, on the other hand, is an efficient producer in both sectors.

A more meaningful appreciation of the burden of Soviet defense and space spending can be gained by considering its impact on economic growth than by making the simple GNP comparison. It is clear that the persistent escalation of the militarywith the West has been and continues to be an important factor retarding economic growth.

In an economy as taut as the USSR's, military and space programsirect diversion of resources from other programs. The impact ofand space programs falls primarily on Soviet industry both by diverting machinery and equipment output from investment programs and by preempting the services of the best managerial, scientific, and engineering manpower.

During the Sixties outlays for purchases ofequipment and for RDTEfiS increased more rapidly than expenditures for total defense and space. The work on increasingly sophisticated aircraft, missile, and space equipment skimmed off the best of thetechnical, and material resources available in the Soviet economy and certainly retarded investment programs and technological progress in the civilian sector.

boutercent of che output of heavy industry was devoted to defense and space needs, including more thanercent of machinery output. In certain key areas, such as electronics, the share of output channeled into defense and space proqrams is even larger.

Although the portion of current industrial capacity that is being allocated to the defense sector is large, the share of total research and development resources devoted to defense and space programs isercent. The denial ofesources to the civilian economy undoubtedly contributed to the Soviet failure to maintain

during the Sixties the rates oJ growth in industrial productivity that were achieved in the Fifties!

As noted above, total expenditures for8). The oattern of nrm^h

ncreases in iw rowth, and a

CCSleration The growth ?n

rapid for any four-year period

The acceleration in defense spending5 has been accompaniedhift in traditionalallocation policies Lhat has led to anin the share of resources devoted toprograms. This has taken the form of increases both in current consumption levels and, more important in the long term, in rates of growth of investment in such sectors as housing, consumer services, agriculture, and light industry. The increased allocations to defense and tosatisfaction have been achieved at the expense of investment in heavy industry, where the rates of growth of investment have fallen to levels even below the low rates experienced in the early Sixties.

The slowdown in the rate of growth of industrial investment occurred simultaneouslyharpin the return on new investment. It is clear from the Soviet press that the Soviet leadership is distressed by the diminishing effect it has boon getting in recent years from the use of itsmethod for achieving rapidinjection of large doses of investment. The rapid decline of productivity growthain reason for the economic reform launched by Drezhnev and Kosygin. But the economic reform has yet to prove its worth, and the prospects for its doing so are highly unlikely.

Tho effects of the economic policies andof the past few years were reflected in Soviet economic performance The growth

of industrial production, for example, was the loves; If the trends in investment andin industry continue, the industrial slowdown will become even more pronounced over the next few years.

Effectsew Round in the Arms Race

A major now round in the arms race almosty would entail rates of growth in military expenditures on the order of those of the past four years. It is unlikely that this could be achieved without restraining the growthourse of action which could .ie more distasteful to the Soviet leaders than in the past. An arms limitation agreement, on the other hand, which would permit tho Soviets to hold military expenditures at present levels, or oven reduce them, could present an attractive alternative, at least to some of the Soviet leaders These economic considerations undoubtedly havethe Soviet interest in arms limitation talks .

The Soviet leadership appears to be faced with the need for allocating additional resources to economic growth programs and for improvingefficiency in the near future. If they do not they will incur some risk that the economy will be unable to achieve enough growth to simultaneously meet its military requirements and maintain current programs aimed at substantial improvement in the lot of the consumer. It must be borne in mind, how ever, that the Soviet economy is now so large that even low rates of growthery substantial ab solute increase in available resources. Thus,nlikely that the USSR will be deflected, by purely economic considerations, from those future military

programs that it believes are required for its seen ri ty.

The Soviets recentlylanned defense budget09 billionincrease ot just one percent over9 figure. Thisarked departure from the sizable increases announced for the past few years.

The USSR releases almost no other information about its spending for defense and very little about

r*nand Chat *hich ifc does release can be misleading. To assist in understanding the

size and goals of Soviet defense and soace programs

and how the USSR allocates its economic resources, a

Shich

ot Soviet defense and space spending.

Total estimated Soviet defense and spacewas relatively stable during the Fifties, for strategicere accompanied by large cuts inthe general purpose

the Sixties total expenditures qrew

69illion)bOUtPercent. Total Soviet spending

including

UndGd Pri'M"lye announced expenditures forbe overillion7n increaseo /percent

will maintain the stead?

growth characteristic of the Sixties.

J!JI!?in9 exPendiLureS during theva theose foVces

by

erWy^and

their share of total defense spending increased from underercent0 to more thanercent Expenditures for both major strategicand defenseaccounted for moreuarter of the total, with the spending for the strategic attack forces being consistently higher. Even if the Soviets are looking for an agreement with the US to limit the deployment of strategic weapons, they cannot plan for it at this stage and they almost certainly will continue to develop new systems to keep their future strategic options open.

Despite the high priority the Soviets have placed on developing their strategic capabilities,for general purpose forces have remained at slightly above the level of the two strategiccombined. General purpose forces also account for well over half of total military manpower.

The Soviet economy is both large and viable. Measured in terms of GNP, its annual rate of growth over the past ten years hasercent and it has reached the point where it is now about half the size of the US economy.

When valued in ruble prices, as the Soviets would view it, the current defense and space share of GNP isercent. This is about the same share of GNP that the US devotes to comparable ore meaningful appreciation of the burden of Soviet defense and space spending, however, can be gained by considering its impact on economic growth than by making the simple GNP comparison.

Each year the Soviet loaders must make verydecisions about how the available economicwill be allotted to claimants for defense and space, economic growth, and consumer satisfaction. The leadership must consider the fact that current military strength is obtained in part at the expense ol economic growth and that large military programs

will reduce the total amount of resources available in the future.

The impact of defense and space programs falls primarily on Soviet industry both by divertingoutput from investment programs and bythe services of the best managerial,and engineering manpower. Developments during the past few years appear to bearked slowdown in the growth of industrial output.

A major new round in the arms race would require increases in defense expenditures that probably could not be achieved without restraining growth in consumer-orientedcourse of action which could be more distasteful to Soviet leaders than it has been in the past. An arms limitation agreement couldan attractive alternative, at least to some of the Soviet leaders.

The Soviet leadership appears to be faced with the need for allocating additional resources togrowth programs and for improving production efficiency in the near future. If they do not, they will incur some risk that the economy will be unable to achieve enough growth to simultaneously meet its military requirements and maintain current programs aimed at substantial improvement in the lot of the consumer. It must be borne in mind, however, that the Soviet economy is now so large that even low rates of growthery substantial absolute increase in available resouicus. Thus, it isthat the USSR will be deflected by purely economic considerations from ihose future military programs that it believes are required for its security.

Original document.

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