ECONOMIC CONSEQUENCES OF REDUCTION IN SOVIET MILITARY EXPENDITUES UNDER ACDA PL

Created: 1/1/1970

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SusnaryConclusions I.

Page

1

k

Military Expenditures Under Planning Aeauaption Ho.

III. Impact on tbe Economy or Reduced Military

tne Rata of Orovthfc

Household

of Savings Undsro the lev Firs-Year Impact on

0. Atomic

Tablet

UBSR: Alternative, La vela of Military5 7

UBSR; Military Expenditures Under PA 3, 9

Appendix

Appendix A. Projection of 26

c-T

ECOBOtCC CClBSQPnCBa Of RgCTJCTIOH IK SOVIET KILTTAHY gJCFgCirtEZa PgDBt ACTA PLATO IW3 ASSUMPTIvS 3

SummaryConclusions

Militaryby the USSR under ACDA'a Planning AssumptionPAould decline2 billtcn rubles50 billion rubles InItuclear weapons production would cease, end Bllltary expenditures other thanould decreaseercent annually for the three yeare, , followedeveling off. In contrast, Sovietisarmament agreement might maintain its share of OBP and incrweae2 billion rubles$ to6 billion rubles This latter alternative wouldontinuation of the present trend In 8ovlet allltary policyneatly, to build up strategic capabilities, tothe large general purpoe* forces, and to pursue coetly research and development programs on the frontier of military-space technology.

The difference in military spending under the two alternatives vould be

illion ruble* Tor the wholebe cumulative

difference wouldillion rubles. If not used in the military sector,

thee*illion rubles could be used to (a) modernise capital plant and thus

Itnot poenlble to follovadetail, but tbe calculation* in thia report do represent cloee approalastIons to tee Btlpulatlone of PA* Research, development, testing, evaluation, and space.

raise the average annual rate of growth In QVPercent5 percent

in thia period, or (b) boost per capita consumption by an averageercent insteadercent per year, orombination of tbeae two. Whether or not PA 3adopted, tie overall annual growth of factor productivity is eatercent in thia report because no transfer of the high-quality resources in ROTEsfl la involved in the planning assumption. The following tabulation give* the growth in key economic variables under tbe alternative assumptions;

Annual Average Rate oflanning Assumption Ho. 3

HoVariant

Input of labor

Input of Capltsi

Input of Labor and Capital

Coabincd

Factor Productivity

Gross Rational Product

These estimates, which are baaedumber of important assumptions described in the text, are less sanguine than those put forth by the Soviet leadership in the recently published five-year. The plan implies an average growth rate in GUP ofercent and an average growth in factor productivity ofercent.

Under PAhe Soviet planners would have to shift large amounts of resources from military to non-military use. In some instancessuch aa in the

Consumption, Per Capita

aircraft and electronics industriesre-allocation or resources would, proceed

smoothly. In other instancesaueh aa the missile Industrypart of the

resources could be transferred rapidly to other uses whereas part would be

highlyn still other instances, such as the atomic energyarge portion of the resources would find no ready or inexpensive alternative use.

In tseneral, the effect on Soviet political economy of adoptingould not be critical. The USSR would continue toormidable military establishment, to modernize its Industry and agriculture, albeit in quite spotty fashion, and to slowly improve the lot of the consumer. Having said this, however, it remains true that the adoption ofould resultarted reduction In the pressures on the economy at the margin andonsiderable lessening of political tensionsexcept from tbe aarshals.

I. Introduction

This reporteneral and tentative assessment of tho economic impact of disarmament In tho UBflB during 1wj, according to tho terms of Planning AssumptionPAf tho Arm* Control and Disarmament Agency, datod Under pahere vouldeduction ofercent In expenditurea for sort military Items each yearnd do change Id expenditures. Exceptions are (a) nuclear weapons, the production of vhlch vould cease completely6 and be prohibitednd (b) KXttAB, vhlch vould be permitted to continue unrestricted, except that tooting and evaluation of exl sting veaponi vould be restricted. umptionhlch le not considered in thie report, vould requirefreeto on production of strategic delivery vehicleb. Planning AeeuoptlonFAouldomplete cessation of nuclear weaponsje thus included es one element in PA 3. Planning Assumptionhlch is not considered in this report,radual reduction in defense expendituree until the point le reached0 when the defense budgetillion less than5 budget.

In order to assess the economic Impact of PAhe defense budget ofs compared with the probable defense expenditures of the ussr In the absenceisarmament agreement. The latter alternative vould represent a

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continuation of the present trend In Soviet military policynamely, to build up strategic capabilities, improve general purpose forces, and pursue research and development programs in advanced, weapons systems. Associated with this latter defense budget are projected growth rates in investment, gross national productnd consumption. The changes In these growth rates are then examined whens substituted for the present trend in Soviet military expenditures* "

Preliminary analysis suggests that underilitary expenditures might not bo reduced as rapidly as under PA 3. Underhe cumulative savings might be slightly greater than under PAart of the savings under PAould be In research and development, resources which would be exceptionally useful to the civilian economy. y itself, would havemall effect on military spendinglso appears as one element in PA 3. Within the broad analytical framework of this report, It is probable that the economic impact ofould be slightly less than that of PAhereas the impact ofould be greater, neither, however, would be markedly different from that of PAore detailed analysis would be required to aharpen tho differences In impact among these three planning assumptions.

The calculations and results presented in this report should be treated circumspectly because of difficulties In methodology and data. Data on labor are subject toof measurement. Capital Is elusive conceptually as well as

define and to teasure. Itystem of weighting that is clearly arbitrary, and different assumptions give different In making projections little account can be taken of possible future changes in organisation and technique, which may affect the various sectors of the economy in different

weys. Therefore, it ie not known exactly how the Soviet economy would perform

given any particular shift of resources. The projections presented here are thus to be taken as illustrative, and they Justify only the broad conclusion thatould not radically alter the oourse or Soviet economic development.

Section II of this report compares military expenditures underith probable expenditures in the absencelaarmaaent agreement, flection III discusses the impact or reduced military expenditures on the economyhole. Section iv presents some general observations about the impact ofn the major defense Industries. escribes the method of calculating the OHF projections used In this report. II. Military Ixpendltures under Planning Assumption Mo.J

Military spending by the USSR underould decline2 billion rubles58 billion rubles in lyTO. In contrast,isarmament agreement might maintain Its share of OKP and increase2 billion rubles5 to6 billion rublessee Table The cumulative difference In military spending during

Table 1

USSR: Alternative Levels of Military50

Billion rabies

Category Agreement 5/

RDTSAS

Investment plus

.Assumption No. 3

/

Investment plus

a7. The total0 is based on the assumption that military spending would grow at an average annual rateear, thus maintaining Its share in qhp. Division of the total among ROTE&S, Investment, and operating expenditures is based on current treads, vhlch suggest continuing growth in the share of ROTEAfl.

b. Research, development, testing, evaluation, and epace.

nder these tvo alternatives would be aboutillion rubles, or

I

ercent bo re than totel defense apendlng

Underhe moat pronounced annuel decrease in totel expenditures would occurhen procurement of nuclear weapons would he completely curtailed, (See Table. 9) Expenditures would reach their lowest levelut alter that would begin to rise again ss spending on military research and development continued to grow and other Items became stabilised at their new low levela. Defense expenditures0 would be one-third loverexcluding Rffrasfl but only one-eighth lower Including RDTsaS.

In addition to reducing the level of solitary spending, implementation orouldroround effecthe structure of spending. Outlaye ror R'JTZtG would grow rapidly under either alternative, but0 they wouldarger share or total dsrense spending underercent) than in the absence or aneroent). nvestment and operating expenditures would decline underromillion rublesillion rubles but would increase without en agreement5 billion rubles.

, military manpower would fallinionillion called for under PA 3. In this period tbe savings on personnel costs would amount toillion rubles coopered with the total savings ofillion rubles.

Table 2

USSRi Military Ixpendlturea Under

Billion of Rubles

Armaaenta

Veaaels

30

71

Systama

Equipment

Vaapona

Procurement a/

Procurement

Investment

& Maintenance

Operating

Derens* Including RCTZAfi

Defense Excluding ROTSaB

Includea genaral purpose vehicles, or,far. national equipment, auppllea and equipage.

III, Impact.pn. the Economy of Reduced .Milltary Spending

The reduction In militaryunderf Bootillion rubles

ould give the Soviet leaders en option of increasing the annual rate of economic growth} percent (through increasingr of Increasing the annual growth in household consumption psr capitaercent, or some combination of the two.

A. tocraaalna, the Rate of Qrowth in QsTF

For the purposes of this report It is assumed that, in the absence of

a disarmament agreement, trends In labor and capital and in factor productivity

output per unit Input of labor and capital combinedwould result In an

average annual growth in ow ofercent during This

figure for the growth of OIF assumes for illustrative purposes tbst defense

willonstant share of OBF. Qiven implementation of PA 3

and ellccation by Soviet planners of all savings to investment, the rate of

growth of capital stock would Increaseercentercent per year.

Inputs of labor and factor productivity would be unaffected, but tbe growth

rate of OMP would then be raisedercentercent per year.

This response of QHP to additional investment is relatively week because with

little or no reduction in growth of military RDTEsfl the Quality of resourcee

Details on trends in factor productivity and on the projection procedure are presented in the Appendix.

s

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released from the military underould be approximately the sea* ea tbe average quality of resources currently used for civilian investment.*

Tbe growth rate of OTP would be far more responsive to an Increase In factor productivity thantraight increase In average-quel ity investment. An increase In the growth of factor productivityercent would raise the growth rate of OTPercentin that case, OTP would growercent annually rather thanercent. In order to raise factor productivity and gat more OTP growthiven addition to investment, the resources released from the military must be of higher quality than implied under PArecise quantitative response of factor productivity to the quality of investment cannot belear relationship between the two is apparent for the

The rate of growth of factor productivity wasercent annuallyeriod when defense expenditures were relatively constant and when outlays on military RDTX&fi representedercent of total defense spending. By contrast, the growth of factor productivity fell toercent annually, when defense expenditures were eccelereted and when military fuTTEM Increased by two and one-half times end representedercent

* "The quality of military resources is generally superior to that of resources in the civilian economy. It ie believed, however, that the resources released from military operations and from production of military hardware underay be of the seme general quality as the nigh priority civilian lnveatmsnt in the current fire yeer plan, such aa chemical plant and equipment.

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of total defense spending. Toe extra-scarce, high-quality men and materials

that vent into military RDTESfl during the latter period deprived tbe civilian economy of tho Inputs needed to sustain the growth in fector productivity. For example,be number of advanced degree holders in the USSR increased at an average rate of aboutercent annually, whereas outlays on military ROISIfl rose st an average rate of about Ik percent annually, suggestingisproportionate share was directed to the military. It lo believed thatxpenditures for RDTKifl will continue to expand and that growth In factor productivity vill reoevin stercent annually.

Implementation ofrobably vould not release the kind of resources that could accelerate the growth of factor productivity In the USSR. Expenditures

for0 vould Increaset percent) higher than the rat* of Increase In advanced degree holders, and many high-quality men, machines, and matarlalo vould continue to concentrate on military research and development sod space activities. This high concentration on RDTEfifi vould interfere seriously with the Introduction of new technology in the civilian economy. The impact vould be critical in such areas as oev chemical processes and senU.-eutoms.ted machinery, where the requirements for modern, sophisticated equipment compete directly with the requirementspace-age armaments industry.

Thus, under Mo the civilian sector probably would continue to be short-changed in favor of the militaryignificant Increase In factor productivity would not be forthcoming.

B. Increasing Bmusehold Consumption

In the absenceUearmamant egreemmat, Soviet military empendltures would grow aa Indicated innd Investment and GUT would increase at average annual rates ofercent andercent, respectively. Undar these conditions, per capita consumption would Increase at an average rateercent annual ly If the Soviet leaders should decide to allocate all of the military aavlage undero consumption, the rate of growth in per capita consumption would beercent annually. Although this alternative use of military savings would be Immediately beneficial to the Soviet consumers, it would be at the expenselight increase in tbe growth of GO?he growth la 0BP would remain at percent per year rather than Increasingj percent annually as estimated inbove).

There hasownward trend in the growth of household consumption In theines During the decade ofs, the annual average increase In per capita conaumjrtlonwashe race of iccre.se In per capita consumption averagedercent annually. The boost to consumption under PAherefore, suggests only an arrest in the decline in consumption growth ratheroticeable increase.

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The Increases In OB? that would result from savings undar PAalthough

dioappolntinglly small in tha aggregate, might appaar mora, important as marginal

coatrlbutions to tha recently announced Soviet fire-year plan.

It was conceded in the announcement of the plan that the resources taken for

defense purposes hamper general economic growth and that 'further growth of the

defense might or the Soviet union" is required in the nev.plan period. At the

same time,eadership isetermined effort to regain the econoalo

momentum of* byate of growth in OS? estimated at 6>

percentercent annually. Zf defense azpendltures should decline ae called

for by PA i, the Soviet planners would examine carefully the alternative uses

of the released resources. Some of the resources mightubstantial boost

for the most important areas of investment, and would tend to makeore

attractive to Soviet planners than suggested by the5 percentsge

point increment to tbe growth in OaT.

The released re source ejsalght be particularly welcome to help meet

promises to increase consumer welfare. Zf all of the savings were used for

consumptlos, the rate of increase In per capita consumption underould

be tsdaerthe rate of increase in the abeence or an agreement. This doubling

would definitely be attractive to the hard-pressed Soviet leadership.

IV. Impact op Industry

Reduction Qf military spending would bring both new problem* and new opportuaitis* to the Soviet leadership. The laboriously prepared five yearould have to be recomputed to absorb the resources released under PA 3. It seems likely, hcwever, that the highercent) of growth plsnned for GNP vill not be achieved and that adjustments In the plan vill have to be made anyway toover rate of growth. Under these

circumstances, the resources released underould he's windfall, and the

it *

adjustments necessary to reallocate them would be relatively easy to make.

In the past the USSR has solved the problems of converelon from militaryproduction, rxirlng the massive reconstruction following World Warshare of defense fell from about HO percent of OHPopercentr. More nearly analogous to the situation thatas the experience follovlng the Korean hostilities, when themilitary spending fell fromercent0 toercentoercent In

All sectors of the economyortion of their output directly to the

'

armed services, but Industry it particularly involved. Within Industry the

shipbuilding, aircraft, electronics, ordnance, mlaaile, and nuclear energy

industries are most heavily coam.lt ted. Examination of sever ui of theae major

Soviet defense industries suggests that, as in earlier periods of

history, conversion generally could be relatively easily ecccopllahed.

Tbe proposed reductions in expendituree on aircraft vould present a

number of minor problems for the Soviet sircraft industry. Currentlymall

O percent) of capacity is used for production of sircraft, and about

ercent of this capacity is elloosted to civil aircraft. 0 percent

out In military; production vould affect lessercentercent of

the industry's total capacity. The Soviet aircraft Industry has experience in

adjusting to much more drastic declines in military demand. Production of military

aircraft declinedillion rubles5illion rubles

or st an average rate ofear. In three of these yesre, expenditures

fell about Octillion rubles, and7 the decline amountedillion

.

rubles. In contrast declines underould beillion rubles.

The plant, equipment, and labor force released vould be much more easily

adaptable to production of civil aircraft than to any other civilian item.

Since World War IX moat Soviet airframe and engine plantenave produced some

consumer goods, chiefly items made of metal. Such production is inefficient

relative to that performed in plants engaged primarily In Banufacturing consumer

goods, hovetot, snd is carried on only to avoid periodic unemployment in the

sircraft

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be absorbad at plants producing civil aircraft. Many of the Items used In aircraft production require long lead times for procurenent, end an airframe

plant progrejonsdertain rete of civilian production cannot substantially

Increase tnat.rate on short notice. Thus there would be inevitable delays In

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transferring workers from military to civilian production.

In the'course of several year* all of the workers could be transferred, thereby permitting major Increases in production of civil aircraft. At present aboutercent of total Soviet expenditures for aircraft is estimated to he allocated to military aircraft. The effect of transferring the reductions

In military expend!turee undero the production of civil aircraft would

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be as followsi.v'

Percent of TotalIncrease in

for Aircraftfor Civil

Production

so

25

20

Such rapid Increases in expenditures for civil aircraft wouldajor

expansion of civil aviation programst

civil aircraft or consumer good* vould depend on the degree of change involved, but in no case vould exceed half the time end cost necessary to construct an entirely nev plant for the sane purpose, lorhift from military training planes to civilian aircraft vould require very little tine and resources, whereaslant producing more sophisticated military aircraft to output of civil aircraft could not be accomplished without considerable delay. vltch from aircraft to consumer durables vould require substantial time and some nev equipment. However, much of the material, aluminum, for example, currently flowing to aircraft plants for military production vould continue to be. delivered, to the same plants to be fabricated into civilian aircraft or other items.

B. Electronics

J

implementation ofould produce only negligible conversion problems for the electronics Industry and vould present an attractive opportunity for mors rapid expansion of consumer and industrial electronic*. An appreciable conversion froa military to civilian production probably would beo accelerate technical advance in Industry (through automation and greater applicationo eliminate tbe current serious log in installations of communications facilities,o accelerate output of consumer electronics. The plan for production of military and nonmilltary electronics taken together

1 .A

probably voul4^remin unchanged, but the abara of ccasumer and Indue trial

electronics vould increase froa less thanercent5 toercent in

nd to ainoetercent in

The electronica output released underouldery substantial impact on any single non-military sector. For example, production of consumer olectronica planned for tbe, primarily radio and TV receivers, could be more than doubled. Alternatively, planned production of electronic computers could be increasedactor of four to five,-or planned production of civil commnn teat ions could be expandedactor of fi.ve to six. Finally, planned production of electronic instruments could le increasedactor of more than eight. It is not likely that the Soviet, leaders vould single out any one of these alternatives, but they probably vould (five some priority to production of electronic computers and electronic Instruments, Including items necessary for automation.

Plant, equipment, materials, and labor (including skills) employed In the Soviet electronica industry can transfer quickly and easily from military to civilian output and back sgsin. Military electronics plants typically are veil lighted and veil ventilated, and they are equipped for bench assembly operations under labor-intensive conditions. They could be converted quite readily to production of nonmllitary electronics and probably to production of

many'other lies* ot light industry. /Furthermore, only partial conversion of plants currently producing military Itams vould be required because the high rate of growth planned for the industry would allow the Soviets to adapt planned expansion* to Civilian uses. Personnel In this industry generally are skilled in precision hand work, and almost all could continue to use their skills at their present places of employment. Material released from production of military electronicb vould be readily useable in production of civilian electronics, and could also be absorbed easily b/ other sectors of the economy. C. Missile Industry

Implementation cfould pose no major problems of converting the Soviet missileindustry to civilian uses. Evenisarmament treaty Soviet authorities have chosen to reduce outputate close to that called for under PA 3' Further cute in production of ten percent annually frost the5 base would. In absolute terms, be little more than half the slsa of cuts actually mads In recent years.

A substantial portion of plant, equipment, and personnel currently producing missiles could transfer easily to production of civilian items. Some of the facilities can be converted easily to clvHisa production whlls maintaining the potential for reconversion to output of missiles on relatively short notice, feat micelle freme plants and missile sub-contractors could be converted to production of civilian items such as consumer durable1 and farm machinery* i

J "7 !

Missile, engine plantstatic test facilities, and. several large missile plants vould hare to be maintained as producers of military hardvare with no capability fDr^clvillan output. They could be converted to civilian use onlytrlnl coat aad vith littlef reconversion: on short notice.

It is extreevjly unlikely that any use oould be found for *ne faculties nov

t".

used for testing rocket engines. Soviet authorities probably vould replace

old equipment St these facllltlea In order to maintain nuirlrmrm standbyproduction of military items. If they chose instead to convert thesecivilianoonths vould be required and toe cost vould bemost of tne specialize! machinery and equipment vould have to bethen the'facilities vould be best suited for vork on. projects suchtransports, ccamerclal rsa-Jet enginee, end commercial rocket enginesvith uncertain demand during the next five

Disruption of Soviet atomic energy facilities underould be farthan in any other Industry affected. Hot only vould requiredmuch greater, but the Industry vould have more difficulty adjusting toin military demand, ery largo share of the output fromis uniquely military in nature. Furthermore, .the major itemoutput is electric poveran iteajvjbat vould be inecause Its consumption by gaseous diffusion plants, reactors,beneficlating plants

Most of tha inputsenia energy end nuclear1 weapons programs could serve no alternative purpose. Exceptions are manpower, certain power stations, somend scientific equipment, end various chemicals. Uranium mines and mills, facilities to convert concentrates to metal and uranium hexafloridroduction reactors, gaseous diffusion plants, chemical processing plants, snd laataiiatibns for developing, manufacturing, and testing weapons could not he transferred to.othor employment. It vould be many years before the USSR would have need for existing weapons facilities to provide raw materials and fissionable materialseaceful nuclear program. Very small quantities of plant, equipment, and scientific instrument* could be used elsewhere, but not as effectively aa In their present employment. If the USSR were to close all

y

facilities involved in the production of nuclear weapons, probably more than

ercent of the net fixed capital stock would have no alternative employment.

The uranium mines and mills In the USSR and tha European satellites,

capital items whose value probably2 billion, vould substantially

reduce their rate of operation. arge surplus of concentrates already

available, it will be atecade before these facilities ere needed to

olely peaceful nuclear program. Some mines would continue to operate

inimi level necessary to prevent losses of ore, snd seme mining and milling

equipment would find application In other sectorsof the mining industry.

arge portion of the production potential of mines and ml lis

would not be used.

Vithexceptions, the dual purpose reactors, vhlch provide pover as veil a* plutonlum, vould have to shut dovn. At some plants, plutonlum vould continue to be produced for future use as fuel In nuclear pover reactors. Eventually sons of the reactors nay operate at full capacity again, but others may have to be abandoned completely in the abseaceemand for their output.

Several facilities for the Soviet nuclear veapons program are currently under construction. Probably all of them can be completed6oat0 mm tonhe nev facilitlea probably vill be much more efficient than the old, and they almost certainly vill be completed, evenut-off in production of nuclear veapons mere agreed upon in the very near future.

Of the',irectly eru^ged In the Soviet nuclear program, probably shout half vould be trsnsferredout of the program.

At0 are employed at^otefiifja institutes vhere research end

supporting activities In the nuclear energy field vould be continued. ev

thousand mcre'are employed In operation of civilian facilitlea such as the

Beloyorsk and Bovovoreneih nuclear poverater desalination plant

%

on the Caspian Sea cost, end the Lenin Icebreaker. Caretaker employees vould be required to maintain and/or operate at lov levels uranium mines and mills,

' '* 'This ruble "cost 'is equivalent to0 million. Theappropriate for nuclear veapons programs isuble to oca Includes Yorkers engaged in mining and processing uranium ore in

conceotratlng plants, gaseous diffusion plants, snd oh^Eiical processing plants. Apart of the cut-book would be In mine employment. Posslbliy more0 employees in the USSR0 In tbe European satellites vould be released from uranium mines end mills, but tbey have skills that vould be useful in non-uranium mining operations. Most employees in other nuclear Industry activities also have skills that could be transferred to other industries.

Cessation of fissionable materials production vould release large Quantities of electric pover for other use snd vould result in sizeable surpluses of power Inssoms regions surrounding large gaseous diffusion plants. The nuclear industry of the USSR has consumed roughlyercent of the national output of electric power, principally at gaseous diffusion plante, and projections for the next few yearsontinued growth of consumption.

The Impact ofn the electric power industry vould be substantialev region*, For example. It is estimated that the Yerkhttevlnsk gaseous diffusion plant accounts for aboutercent of total pover consumed by industry

In thef this plant ceased operations, it vould be st least three years

before other ocnounera vould need ell of the additional power that would become

jv

available. However, the added supply of pover could be readily used within this region which' &ports high cost energy from other regions* Nuclear facilities

at Tomsk consume aboutercent of the electric power used by Industry In

sift

if.

of other ixduatries (mainly steil end coal) vould expand sufficiently to absorb the pover that vould be released st the Tomsk facilities. After thle three year period, however, the surplus of pover in Vest Siberia vould nave disappeared and, in time, all the dual purpose reactors at Tomsk aould be generating electrlclty for non-nuclear consumers. In Bast Siberia tvo gaseous dlffaaicn plants nov account for more thanercent of total pover consumption. It might be tea years before Soviet planners could find suitable uses for this pover.

A reduction or elimination of demand for chemicals by the nuclear Industry vould bareinor impact on the chemical industryhole. Eventhat the nuclear industry requires in relatively large quantities could be easily diverted to other uses. Surpluses vould arise inev casea, such as graphite, heavy water, lithium compounds, end possibly flourlna.

The Soviet nuclear Industry has important needsariety of metalsferrous alloys, lead, copper, calcium, and nickel. Annual requlrementa for

soma of these amount to thousands of tons, but reallocation could be accomplished

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vith only temporary dislocations. Cessation of veapons production, however, probably vould result in closure of scow facilities producing calcium, lithium,

zirconium, hafnium, snd

APFSHDIX A

*

iele,'trends In input* of capital and labor and in factor productivity

form tne basis' forercent growth rate projected for ONP in the absence

;*

loarmancct agreement. Capital, labor, and factor productivity vera projected at ratea that reflect long run trends and'recent developments.

Given the projected trends in inputs and in factor productivity, projections

P were nade byasic Cobb-Douglas production function. This

function Is of the fore: bs factors the

labors the capital stock,onstant estimated by

analogy vith the United States. The functioninear relationship between

relative changes in output, Inputs, and factor productivity.

Growth of input of labor is projectedear, the same rate

as the adult population. This rate of growthlight acceleration

over the recent past. The growth of labor Inputs, In tsrms of

man-hours, probably averaged little moreercent per year even though

.'if

the civilian labor force was growing atercent per year. The disparity between growth In tbe labor force and in msnhours worked was largely the result of reduction in the workweek. Ho further reduction in tbe workweek is expected

Growth of "fixed capital ia projectedataetveen the longV) rateear and the rate of approximatelyear experienced in the acre recent past

It teens likely thathere vOlendency for

growth in capital stock to decline tovard the longer term rate. * the

rate had already dropped toear. Sven thia growth

was sustainededucing retirementa to very low levelsa reduction

that cannot b* fushed nuoh further. Ratea of growth of groaa inveatment hare

arked tendency to decline) in recent year a, specifically, from

earear0 and to approximately

6ear

It is assumed that factor productivity vill grow atearbout the eaas as the rate. Probable expendituree on military KfBUA will continue to absorb theilled personnel end complex machinery needed to raise factor productivity in the civilian economy. It is unlikely that the high growth rate in factor productivity

ercent) could be achieved unless the entire Soviet system of economic administration vero radically reformed to achieve greater efficiency. On the other hand, it seems more likely that the decline In productivity grovth toercent experienced in recent year* vacemporary dropev trend that vill continue in the future. There ia some evidence that the high

rates of growth In factor productivity In tha USSRnd again after World War XX nay have resulted in parteclining average age of capitalondition that is associatededuction In,the disparity between beet end average techniques. If, as seemsubstantial portion of factor productivity growth in the peat has been ettrlbutaile to this source, prospects for further repid Increase are dim. By theb's the average age of Soviet capital had fellan to ouch low levels that further eubstantlal reductions were not possible. Furthermore, If the rate of growth of capital stock Is noted, the average age of Soviet capital say actually begin,.to rise end In turnrag on factor productivity.

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