PRICING THE SOVIET MILITARY MACHINE

Created: 2/2/1968

OCR scan of the original document, errors are possible

'A8

MKMORANUUM FOR: Director of Central Pricing the Soviet Military Machine

our pre-USIB meeting, you asked at one point, "Who takes these estimates we make and hangs them all togother on the wall to see if the Soviets can afford what we credit themhe answer, of course, is, we in CIA do.

Specifically, thisajor andresponsibility of the Office of Strategic Research. Moreover, thisnique responsibility of CIA, for the work OSR does on Soviet military oconomics is not duplicated elsewhere in the Community. This is by agreements reached between Mr. McCone and the Secretary of DefenseSD and DIA in particular depend on us for this analysis, and we service requests from them.

In addition to givingriefof the Bilitary-econoaic process to put in your pocketit is attached to this memorandumI thought it would be useful to have OSR answer your question on adding up the Soviet military estimates. The objective of OSH's program analysis is to assure lhat the estimates of Soviet military forcesmissiles, aircraft, ships, tanks, mendon't make

Soviet soldier look either larger or smaller

Ig7 estimate cycle as the example, we started with analysis performed forch responsible OSR branch prepared dotailed force statements on the production and procuremMJf ol major militarj hardware (missiles, submarinesajrarmbers) on

SECRET

the construction of sites or bases, and on the operational deployment of military units for each year under study. Then we put these data on the computor and integrated them with previouslyoperating cost factors and equipment prices.

These calculations told us that the Soviet commitment to the strategic attack mission absorbed resources equivalent3 billionhey also told us what the cost of this mission would be during each of the next ten yoars, if these forces evolve as estimated.

The process waswe worked on3 for the Sovietand missile defense mission, and on NIEthe general purpose forces.

We are now reexamining the force statements, updating them on the basis of the latest intelligence, and adding in such matters as Soviet expenditures for military research, development, test, evaluations, and space. This will all go on the computer in time to back up tho preparation of4 on Soviet military policy.

The OSR results are meshed with OER estimates for civilian economic activities to round out the estimate of the USSR's GNP. In this way, we can evaluate the economic feasibility or impact of the estimated military activities.

9- Tho work of OSR in effect re-creates the Soviet military budget in detail comparable toe Year Defense Program and the budget sub-

l0nthe Secretary of Defense- This is howiagg aI1 the estimates up together and examine their impact on the Soviet economy.

/s/ R. J. SMITH Deputy Director for Intelligence

Attachment:

-2-

SEORET

SEQjRET

Rubles, Dollars, and Military Spending

1. We build up our estimates of Soviet defense spending piece by piece, much as military budgets are prepared in this country.

many years, using all sources

of information, we have recorded and cataloged

the major elements that make up Soviet military

forcesdivisions, aircraft, ICBMs, ships and so on.

have established the quantities

of men, other equipment and material associated with each of these elements.

detailed information isarge computer for thepresent, and as projected for the futurethree decades in all.

newer information becomesinformation in the computer is updated

and refined.

2. To calculate the cost of the variouswo apply ruble prices as well as dollar prices to all of the quantities, add up the results, and get figures for total defense spending in both rubles and dollars.

a. Separate ruble and dollar calculations are necessary because

1) jsLcial exchange rate is unrealistic and

2) the relative cost of goods and labor in Communist economies and free economies are inherently different.

he ruble figures show how the costs of the military programs or missions look in Soviet terms and how various programs compare wTth earl: other.

SEKRET

Oil

sa:::

i ue

SECRET

a. Theyoviel view of defense spendinghole and how it eats into spending for Industrial or agriculturalor consumer welfare.

4. The equivalent dollar figures enable US planners to understand the size of Soviet defense programs and activities in terms that allow direct comparisons with US programs.

5.

Example; Soviet military personnel costs

estimate Soviet militaryat an average0 rubles peryear. When we price these inthe figureao each ruble.

we were to convertt the official rate of exchangeto the rublethe result wouldappear that the average cost ofpersonnel, in US terms, wastoer man, instead ofwould be entirely unrealistic.

c.

Equipment costs show similar relationships *or example, we estimatearge airradar costs the Sovietsubles. To build this same radar in the US would cost about ono million dollars. The ratio in this example iso the ruble, quite different from that of military pay and allowances. Even in the case of military equipment the relationship is still different from the official exchange rate.

Original document.

---

---