THE CLAIM OF THE SOVIET MILITARY ESTABLISHMENT ON ECONOMIC RESOURCES

Created: 10/5/1962

OCR scan of the original document, errors are possible

Tba_ ClaimHjiiter* Establishment on_ Bcononlc_ ReBjDorce a

22

by

John G. Qodalre

CIA SPECIAL COLLECTIONS RELEASE IN FULL

iitvw^w.0

The Claim of too Soviet Military Bntsbliehment on Economic Mcaources

Tbe claim of tbe Soviet military estsbllahoent on tbe economic resources of tbe USSR la ascertainable only within rather broad limits from open sources of information. Pot only la the Western scholar in this position, but also the vast majority of tho Soviet citizenry, the intelligentsia and the bureaucracy. Such circumstances exist for reasons which are not wholly independenta heritage of pathologiceo-feudalletlc region, and doctrinaire techniques for accounting and economic analysis.

The State Budget

Bach year the Soviet government promulgates what isonsolidated cash budget covering the planned expenditures for all the national, regional and local governments of the USSR. These expenditure are grouped under five general headings: national Economy, Social-Cultural teas urge. Defense, Administration,ubstantial unspecified remainder, "Other'1 In Tablehe latest published Soviet Information on actual expendituresaa been set out to Indicate the magnitudes involved. As the table demonstrates, almost half of tbe total expenditures are accounted for under the beading, gatlonal Economy. The reason la quite ainple. The Soviet government owns outright virtually all of Soviet industryarge proportion of Soviet sericulture. In general, more than two-thirds of the funds expended under tUs title represents thenfusion of new rtats

Table 1

Soviet State Budget

I960

voiis'.on, of cmin^tir n dele; oiwD(Uww:t:

L3-3

L2-7

Tbe facts are that lahis ptirceetwi snt a>fl lasod creptto Since the' the Soviet defense budget announced in mld-lO^l, theoi thl'-tid. 2 plan calls fororcant of tots. fevjuadltuj-to to bt Jrvotiid to defense.

Obviously, theue lov pcorsentagea ny to useful In Jiiterna..Urnnd. pi opt gondii but It Is quits clour tbat the sjoIatji acopo otiovlot budget relative to its] typical Western counterpart, pindcxi ths npai' coeplately aeaningii'su. Bbwcver, sorb lack of aeaniig Is trivial ubsn conpsred with the very real probability that the accje of ton activities financed by thedpfennetlon ie considerably BUtltu- trail that covered by Has bun aofonse apprr>-latlono .*

* Gjtright" falsivfration on the part .nr ;ha Sovletnnpl:ed bora although there Is that possibility. point of wfjcw iss pi-onouocmasnt'* on defense budaets tbj iTotSOt aprnxnint, inlwn lUomntiuniot beiii=allj urfc-uc . The* vr.n.apoaialbla la t? .no* in stabir. tjua btcrnar of very flPfhtt deficient; lea v<jai-rot. daflrJtloir. *il turns wvi of tbif laletjoUi

The scope of the Soviet expenditure account, Oi Tense,olrf Certainly, those definitions which era ofored in 3cviet technical liters tuido nothing to reaolve the question. For example, tlw defenseU stated in Soviet tuxtbooko to include "tho monetary andor arowd force personnel, payment for supplies and repair ofmaintenance of military institutions and schools,onstructinii, and other expenditures Included in tha estinntee Ministry of Defense en" the USSR" (emphasis supplied).* As the underscoring above is litendeti tc emphasize, this sort of definition tends to say tha': defense ii defenne und thus to raise suspicions. In the Russianmulatloa of "supplies and repair of combat equipment" is equivocal with respect to vaather pro-curement of major equipment is covered. hich is more likely to bespeak earth vor.ia than fa. rilluch antraining camps, barracks, depots and missile sites.

Moreover, the budgethole reinforces thane suspicions. The constituent details of the defense "line" haveeen publish ad. The reported allocation for scientific research,nder, Soalal-Cif.tux uJ Hcaaures, baa been growing at ratesar year3 end there are institutional reasons for believing t'urt this alios*xAotionsiderable amount of research and dirvelopment for complex:

* Dymshits, I. at, et al. zrcllt SSSfin nice andn tbe.

military equipment, such an aircraft and nicalLeo, and for nuclear energy and space activities. Tbe published details for the conatltuont activities under the heading. Rational Bconomy, consistently fall to explain the total allocation and the unexplained portion has at least tripledhere aa the total budget has only doubled during that tine. Finally, the general expenditures residual category. Other,0 percent of the total, has continued to exist over the period without any really adequate explanation for its purpose.

as been prepared to illustrate the problem. Itollection of actual or Implied statements mode by the Soviets covering the period0 to date, with some interpolations to fill in certain gaps. In certain of the years more detailed data vhlch would permit some refining ware reported, but in the interest oferies vlth at least superficial consistency over the tin* period, thane few detalla ware not taken into account in preparing the table. Panerally, reported actual expenditures are presented If they ware to be found. Otherwise, reported planned expenditures or interpolations were used. One exception to this rule is to be found in the general expenditure residual. Other. For that heading, planned expenditures were presented exclusively because only six Implied announcements referring to detailed actual expenditures could be found, and the manipulationignificant portion of this residual (the contingency fund of the Council of Ministers) makes planned expenditures and actual expenditures Inconsistent by definition.

The column covering published defense expenditures Indicates the single defense "line" allocation referred to and cosnsnted on above.

Selected Soviet Published Information of Poaalblo Defense

Selected Soviet Published Information of Possible DefenseContinued)

a"! Converted where necessary to nev rubles at the rate of one nev ruble

forld rubles.

b. Includes funds of enterprises.

o. Includes allocations for trade, procurement and the municipal economy, d. Includes the contingency funds of the Council of Ministers mm% the loan servloe.

pplanned; the other numerical data refer to reported actual

parentheses indicate that the data within then represent interpolations.

published information for this beadingI impliedexpenditures2n rubles frostillionpublished plan figure) vas subtracted to remove the allocationin order to derive an entry vhlcheasonablytbe other entries in the column.

The column covering iclence includes not only the budgetary allocation* but aloo the allocations from enterprise funds. According to published Soviet material,0 this allocation would seem to cover the financing ofesearch Institutes, and scientific and experimental stations, employingcientists. Activities supported by this allocation appear toarge portion of all research and development, civilian and military (andor tba entire country. This allocation would not however, cover all the activities encompassed by theoncept of research, development, test/ and evaluation Substantial end product development, teat, and evaluation of national significance (considerable amounts of which are undoubtedly military and space) seems to be covered elsewhere in other unrevealed places In the budget.

* It ahould be noted that Mr. Khrushchev is indJ.ed to regard the US debt serviceefense item.

The national economy residual and the general expenditures residual ore also of interest. Because of the possibility that substantial activities of defense (and space) significance may be financed from these portions of the budget, these two residuals have, accordingly, been entered in Tablehese two residuals, as derived, ostensibly cover some items not of military significance. The national economy residual includes allocations for financing trade, agricultural procurement, and municipal services. Similarly the general expenditure residual, as compiled, includes the service of the national debt* and the planned contingency fund of tba Council of Ministers.

these residuals ere not without Interest as possibly financing activities of military (and space) significance. It Is conceivable that these residuals may cover some or all of the following:

the envelopment, tsst, and evaluation of military

and space hardware and systems, the procurement of some if not moat major military

and space equipment, strategic stockpilea of military operational materiel,

such as petroleum products, food and so forth, the construction of military base facilities, tba support of milled security forces,

civil defense activities.

Evaluation

as deliberately not been summed. Its purpose Is to show the fact and general locus of the considerable uncertainties which,illion rubles per year, account for about UQ percent of Soviet annual budgetary expenditures fairly conslatently.

To achieve what isetter appreciation of the range of uncertainty, tna data Inan be adjusted to remove the most plausible overstatementsross sort of fashion. The results of such an adjustment

are summed together with the published defense allocationa and shown graphicallys the "possible total defense and space allocation" Innd 2. In these figures these sums are also coopered with the published defense allocation to Indicate the range of uncertainty with which.ense, the Soviet government confronts the world and the Soviet people.

The adjustments made to the data which were presented inre as follows:

Published defenseone.

orreduced to the undisclosed

amounts Implicit in the Soviet social-cultural* band-book and projected2 on tbe basis of7 relationship between the undisclosed aaount and the published total allocation for science.

national economyxpenditure- for trade,

agricultural procurement, and tbe municipal economy removed, utilizing published data if available and interpolating to supply estimates for other years.

general budgetaryiscounted byercent

in an attempt to removeross way, the planned contingency funds of the Council of Ministers (which appear as actual expenditures under other headings) and other miscellaneous items.

*" USSR, MinYaterBtTO Flnansov. Raakhody na soUlal'no-kul'-turnyye ceropriyatlya po goBudarstvennopu byudzhetu SSSR (Expendlturea for Social-Cultural Measures in the State Budget of the

Data, fear

Tear

a/

a/

a. 0 published Soviet defense allocation.

-

The purpose of Figure j_ (which utilises tbe arithmetic scale) is tobsolute bSTns> that over tbehe amount of what one might term Soviot budgetary obfuscatlon has changed from time to tine and has tended to Increase until,1

On the other hand, the purpose ofwhich utilises the logarithmic or ratio seals) Is to show in relative terms the behavior of tba series over tlmo and vlth respect to each other. What this presentation ahovB Is that the two series, the possible total and tba published, tended to move about the same way during tho, out that* the trends vera quite divergent. figure also sbovs that tba proportion of what was referred to above as Soviet budgetary obfuscatlon tended to Increase through the, but that this proportion seams to tend to decreaseweult of Soviet accounting aalfta to Defense, son* of the expenditures previously carried under other headings In the budget.

In eimnary, the Soviet data suggest defense (and apace)aryingi billion rubles0illion rubles These values are only groeral orders of magnitude which probably bracket the truth. Tba data should be interpreted as suggasting nothing

because of their tenuous rditura, the aeries arc shown in tarns of index numbers to reduce for the reader the temptation to make more of tba absolute magnitudes than he legitimately should.

about year-to-year changes and very little about trend other than that Soviet expenditures on defense (including space) are perhaps half again as high today as compared with theb. That Soviet defense expenditure- fell off somewhat in tbe middle of the decade and have risen again since then is intuitively probable but cannot be considered to be established definitively herein when one considers the inherent di.ta difficulties involved In this analysis.

Claims on Specific Resources

Given the difficulties involved in attempting to measure with any precision the claim of the Soviet military resources in aggregate terns, the measurement of claims on specific resources is even more difficult. It is the purpose of this section to establish an illustrative example of what these claims might well have beenprincipally in terns of manpower and in terms of defense and space system* procurement.

Manpower

Within recentariety of Soviet announcements permit the derivationrude measure of what the levels of active military manpower In the Soviat forces probably have been The data and the derived aeries are presented inhere it can be seen that the Soviets probably had (in man-year terms)illion men under armsad increased this level, tond bad cut downillion men. This series seems

Soviet Military Manpower and lto

Published Serlea

Series

men at beginning of year)

men at beginning of year)

awja yean)

(nev) rubles

1/2

l/h

5/a

V8

V*

V*

Vk

3/*

3/h

3A

3/k

1/2

3A

1/2

l/"t

3/*

1/2

1/2

1/2

l/k

5/

1A

a/**

y

y*y

ot available.

Footnotes follow on

and5

Sources: Tbe data in the column beaded "Soviet Published Series" represonta an nmalgaiuation fron Mr. Khrushchev's statement of lU0 and the series of previous announcements of reductions in the Soviet amed forces.

according to the announcement of lbheto reduce their forcest million sen by the and however, was halted, not later thannd at leasta class of conscripts was retained in serviceow classIn tho fail In the derived series the level of 3vas assigned arbitrarily for the beginning1lua forman-year terms,1 levelilllnn) was Ho inference3 military manpower projectionpart of the author should be drawn.

deriving the serlea for manpower levels at the beginning of thepubliohad Soviet level- were used If available. 2 the level of

5ullion men5 level) was assigned. Mr. Khrushchev stated that this level had been achieved. Because he was shying sway so obviously from thet scona equally obvious that tho Soviet forces ware at quite high levels of manpower strength for some considerable tinend tho beginning2 was arbitrarily selected as equal

Soviet Military Manpower and, itsContinued)

Soviet Military Manpower and its Coat

Continued)

In level to the beginning5 to reflect tela situationeneral way. The levels for the beginning of tbe Intervening years vere obtained byand rounded to the nearest quarter-million In the attempt to remove the suggestion of precision. For the levels taken0ee footnote a/ above.

To obtain the derived aeries in terms of man-years the mid points between the series in terms of tbe levels at the beginning of the year ware taken as representative of the average man-years for each particular year. For the level taken2 see footnote a/ above.

c. Confuted on the basisillion (old) rubles (mid-point of Mr.illion "saving')illion men converted at the rate of one new ruble forldubles per man.

gene rally plausible in view of the probable influence of the Korean War during tbea and tbe fact that the Sovietaharply shrinking availability of conscripts (who ester service inhh year) by reason of tbe drastic reduction in the birth rate during

In Tablehe cost of this asnpover is also confuted, utilising Nr. Khrushchev'a remark;eductionillion men would resultavingillion (old) rubles,ost ofnew) ruble* per man. It is assumed that the reference was to the primarily personnel related costs of these man, including pay, food, clothing, and other services. It la also further assumed that tola cost factor Is applicable over tbe period, that is to say that such declining pricea as vers experienced vera more or less made up for by increasing standardsmors highly remunerated technicians, improved rations and quartara, enhanced auxiliary services and prerequisites sad so on.

Defense and Space Systems Procurement

Defense and space systems procurement here la defined to cover all defense end space expenditures not directly related to military personnel. As thus defined, the term covers not only traditional machinery and metal products but also such items as electronic equipment, construction end construction materials, petroleum products, research and development, propellents sod explosives, and nuclear weapons, while this concept of

procurement seems superficially to lack analytical dsfinitsnees and clarity, it actuallyeality which has emerged during the past decade in military economics, fio longer is it possible to think of the mix of defense procurement as munitions oriented primarily In the direction of large tonnages of steel, copper, aluminum and other basic materials. Rather, the defense (and now the space) procurement mix tends more and sore to reflect the Increasing embodiment of technical manpower and sophisticated materials and coanpoaents which themselves in turnreat deal of such manpower. Also,rowing extent the composition of this manpower la increasingly being weighted more heavily with skilled and professional manpower. The emphasis baa partly shifted sway fron bigger and heavier equipment to better, smaller (evenut especially more precise, more reliable and more efficient equipment. This phenomenon la particularly evident in the field of missiles and space but may also be found in high performancein airborne equipment, and in equipment for special forces.

Thus, by subtracting the probable level of Soviet expenditures for military personnel derived as indicated inrom the data underlying the indices presented Inndhe patterns of Soviet procurement of defense and space systems (aa defined above) can be derived. The indexes of the results of such procedure are shown in Figure 3. The "published" defense and space systems procurement series is that derived froa the published defense allocations; the "possible" defense and space oystems procurement aeries is derived from the possible total allocation described earlier in this paper.

Data for Figure 3

Tear

a/

a/

b/

b/

ystem* procuremant derived from0 published(aee text J,

0 level of each of the underlying series.

-

Tiw purpose ofratio or logarithmic acaloj la to shov lu relative terms the behavior of the aeries over time and with reapect to each other and tba rather substantial range of uncertainty engendered by Soviet pronouncements. What these series tend to shov Isonsiderable increase in the level of systems procurement occurred In thee, probably in connection with the Korean War. Then,baof the series was essentially sideways* with some indicated tendency to waver downward, perhaps due to changing objectives coincident with the shlftings of the balance of power within the Soviet hierarchy following the death of Stalin. Beginning, the series suggest, there vas another increase in the level of Soviet defense and space systems procurement which, despite the asnpower cuts, undoubtedly was the Inevitable consequences of decisions to proceed with sputniks, luniks, missiles and other modern weapons.** however, considerable doubt must be entertained

* The sharp dip in tho "published" aeries* probably should be discounted to some considerable extent because the basic datum at that timelan snnouncensnt. Tho Soviets have carefully avoided giving out much Information about that year which suggests considerable divergence of actual from plan.

** The data underlying these series and the implications of Soviet Seven and Twenty Tear Plan data are of such quality that it would be foolbardl-ness to attempt to project future Soviet defense and space systemstherefrom.

with respect to the timing or with respect to the extent of such increase In view of the real possibility that significant accounting shifts wore also occurring at tbe sane tine.

Abram, The Real national Income ofasla,.

he Orowth of Industrial Production in.

The specific reference at this Juncture is to the Bergson and Butter sarias in currant rubles. Attempts to develop andrice index to theseries were eschewedhe grounds of practical If not conceptual impossibility This author is aware of no way ofatisfactory price indexapidly shifting mix with new products Introduced in rapid succession and with these "new" products rapidly becoming obsolescent and bolng phased out. On balance. It seeas best to use current rubles arguing that the largest input, labor, la roughly at constant cost over considerable ranges of time because increased wages and increased productivity tend to cancel out moat of the possible movement-

In their scholarly works Professors Bergaoa a/ and Sutter b/ have dealt for thoith essentially the same subject natter aa is under consideration here. On methodological grounds their findings'* as to trend are to be compared with what has been ternnd tbe "published" aeries In Figure 3- omparison reveals no fundamental disagreement as to the gross shape of events over the tine period covered. The seeming discrepancies between the three series are probably more apparent than real and are due to variant assumptions as to definitions, levels of

military manpower and the like. It it worthwhile to note, however, that consideration of the possible application of other unaxplalned fund* In the Soviet budget suggests sufficient uncertainty about th* levels and trends of Soviet weapons and epuce syateas procurement that sole reliance probably should not be placed on tbe published Soviet defense budget allocationsenchmark. Hor,onstant relationship over tin* between the published and total defense budgets be assumed.

* iscussion of this phenomenon as it relates to Bovist industrial production for tbeee the OreeMlade-Wslloc* article, p.circa).

Thus, It seems probable that Soviet defense and space procurement claims on economic resources have passed through at least one and one-half cycles during tbe past twelve years, when these fi^iw hare been on the increase, the re source a, machinery and equipment, industrial manpower In general end skilled and professional personnel in particular, have been made available by soma decoloration In the overall investment program and Soviet economic growth. This phenomenon stems virtually axiomatlaally from the Soviet government's continuing policy of forced full employmont and has been noted to occur in th* episodes of both the early and thes.*

Tee Claim of tar Soviet Military EatsbU cannot on Bcononic Resources

The claim of the Soviet military establish-flat on the economic resources of tbe USSR la readily ascertainable goly within rather brood llodta from open sources of information. Hot only is tlx; Western scholar in this position, but so too are the vast majority of the Soviet citizenry, the intelligeatoia, and the bureaucracy. Such circumstances exist for reasons which are not wholly Independenta heritage of pathologiceofeudalIstic regime, and doctrinaire techniques for accounting and economic analysis.

The State Budget

Each year the Soviet government promulgates what laonsolidated cash budget covering the planned expendlturee for all the national regional, and local governments of the These expendlturee are grouped under five general headings: national Economy, Social-Cultural erasures, Pcfepoc, Administration,ubstantial unspecified remainder, "Other", in Tablehe latest published Soviet Information on actual expenditures (forban been set out to indicate theinvolved. As the table deoonatratec,ercent of total expenditures la accounted for under the heading national Economy. The rosson is quite aioaJle ?hn Soviet government owns outright virtually all of Soviet Industryarge proportion of Soviet agriculture -in funeral.twe-thiedo of the ftuidis expendedhis ha.iiing

Table 1

Soviet State1

Current .Ruble a

Eecoomy

*3

Measures

b tratlon

USSR, Central Statistical Administration, aarod-noye fchozyaystvoI godu (The Rational Economy of tbe USER.

represents the year 'a infusion of nev state capital for Soviet industry and agriculture- Thus, In the USSR, expenditures "ior the national econoary" include the equivalent of the year's aggregate long-term loans and nev capita.', stock issues of private firmsestern country.

Expenditures under the heading Social-Cultural Measures account for an additionalercent of Soviet budgetary expenditures, as shown In Table 1. Here, too, the ecope of activity covered is very much broader than the equivalent entries In the budgets of Westerngain, tbe Soviet state budget consolidates all theactivities undertaken by state end local governmsotaeducation, research, public health, welfare, and pensions. Further, the state budget Includes funds for the equivalent of auch private activity in the West. The equivalent of private schools and hospitals, private insurance companies, private research foundations, and an independent presa or radio and television Industry do not exist in the USSR, and all these activities arc provided for, to some degree, by the social-cultural outlays of the budget.

Defense ExpendlLures The bulk of the remainder of Soviet budgetary expenditures is made under the heading Defense, as shown in Table 1. The relationship of this amount to total budgetercent]avorite

Dean- that the USSR uses for showing how peace-losing thela. For example,0 Soviet statlatlcalresents the following statements of expenditures for defenseercentage of totall

B 6

The facta are that Innterval this percentage got us low asnd crept up to- Since the revision of the Soviet defense budget announced inhe trend has shifted. I defense expendlturee wereercent and2 plan ealle forercent of total expenditures to be devoted to defense.

Obviously, these lov percentages may be useful in international propaganda, but it is quite clear that the swollen scope of the total Soviet budget relative to its typical Western counterpart renders the comparison completely meaningless, however, such lack of meaning Is minor when compared with the very real probability that the scope of the activities financed by tbe Soviet defense appropriation is considerably

1 USSR, Central Statistical Adtinistratfoa. Harodnoye xbogyaystvo0 godu (Tbe national 3coaosty of the USSR,l; .

smaller than that covered by Western defease appropriations. d

Tbe scope of the Soviet expenditure account Defenseoot point. Certainly, those definitions which ore offered in Soviet technical literature do nothing to resolve the question. For example, the defease category Is statedoviet textbook to Include "the monetary and material allowances for armed force personnel, payment for supplies and repair of combat equipment, maintenance of militaryutions and schools, military construction, and otter expenditures Included in the estimate of the Ministry of Defense of the USSR" ^smphasis As the underscoring above is intended to emphasize, this sort of definition tends to say that defense le defense and thus to raise suspicions. In the Russian, the formulation of "supplies and repair of combat equipment" Is equivocal with respect to whether or not procurement of major equipment is covered. "Military constructloa"erm which lo more likely to bespeak earthworks than facilities such as airfields, training camps,epots and missile sitae.

8 Outright falsification on tne part of KM Vac* - -c although that possibility exists. The point o*e>- jwf In Its pronouncements on defence budge's th* Soyie* gives information which is not basically untrue. The problem Is that i'. la usually impossible to be sure in whattatrvnt Isf very great deficiencies in tbe relevanticope of categories.

3t al.renit SSSR (fiovie- ted Credit In tbe USSR J,-

Moreover, tbe budgetJ ci'orces tho so S'-nslcioni. The cjustltuent details of tinav* not been wV/.iabsd. The reported allocation for so.vnt.tfic roae?rch, largely iindwrheo hid large annualv.th the i'lfe plronMa'tanding at VOO percent of3 i nstitutional reasons for believing that this allocatlononaldaruble amount of research and development for co/plei; military equipwant 3uch as aircraft and missiles and for nuc.'ear energy and space activities. The published details for the constituent activities under Che he&ding national Economy consistently fall to explain tha total eilocotion, end iihe unexplained portion has at least tripledhsroun tte total budget ban only doubled during that tic:. Finally, the general expenditures residual category Other, at '} toercent of the total, has continued to exist over the period without any really adequate explanation for its purpose.

as been prepared to illustrate the problem. This tableollection of actual or Japlisd statements fade by tbe USSRe period0 t; date, vitaiaorpecatioas to fill in certain *rps. In ccsral or the yjai-s, ixtra Aatailed data wiich would permit soars refining were reported, but lo the inwrust oferieseast supe-fiiii. cinsistency over the tiee parlod,few dnta.Ue ware no. uoen Intot in prepir.-cT ;tt tshlj

Selected soviet Published .ttata-cstlan of Poaslole Dsfenes

Tabic >

Selected Soviet. rhibliabedffcnse Significance

Continued)

where" ncceDsary to now rubles at tbe reseew rubJe forrubles.

funds of enterprises. In this series ln:erpola,tione werethe data given in the official Soviet eeonoaic handbook aeriesuse earlier data from Other sources. This was deemed necessary inoferies which is comparable over time in view of theapparently the scope of thin account was changed by the Bowie ta.

allocations for trade, and the municipal economy.

the contingency funds of the Council of Ministers and the

tbe other numerical data refer to reported actual expenditures.

parentheses indicate that tbe data within them represent interpolations.

published information for this heeding1 implied6 billion rubles, from" billion rublea (thefigure) was subtracted to remove the allocation for transportationin order to derive an entry vhlch is reasonably comparab2eother entries in. tho column.

- fl -

Generally, reported actual expenditures metanbe found. Othervlso, reported plannee expenditureswere used. xception to this rult is ton fv Htaarai expenditure residual Other. For tbat heae'lng, p> nonedurn* were presented exclusively because no completeopl.vrd auuouuo*-meats referring to detailed actual expenditures could be found, and the manipulationignificant portion of this retiduii (the contingency fund of the Council of Ministers) rexes planned expenditures ted actual expenditures inconsistent by definition.

Toe column covering published defense expenditures indicates the single defease "Jine" allocation referred to and corannd on above Too column covering science includes not only the bud^tarybut also the allocations from enterprise funds. AccordiDg tn published Soviet material,0 this allocation would mca to cove/ the financing ofeaearch institutes and scientific and experimental stations, employingcientists- Activities supported by this allocation appear toarge portion of alland development, civilian and military (ando. the entire country. This allocation, however, would not cover ell the activities encompassed by theoncept of research, devolopxent, test, and evaluation Substantial end-product development, test, and evaluation of national significance (comei-terabltrof vhlch are undcubtsdly military and space" seem tcd

elsewhere Id the budget.

The national economy realdual and thependiturea realdual are also of interest. Because of the possibility that substantia! activities of defense (and apace) significance may be financed from these portions of the budget, these two residuals have, accordingly; been entered in Table 2. These two residuals, as derived, cover some items not of military significance. The national economy realdual includesfor financing trade, agricultural procurement, and municipal services. Similarly, tbe general expenditure residual, as compiled, includes the service of the nationalnd the planned contingency fund of the Council of Ministers. Moat of these contingency funds eventually show up aa actual expenditures for financing activities under the heading, Rational Economy. However, these residuals are not without interest as possibly financing activities of military (and space) significance. It is conceivable that these residuals may cover Borne or all of the following:

the development, test, and evaluation of military and space hardware and systems;

tbe procurement of some if not coat major military end space equipment;

strategic stockpiles of other military materiel, such a* petroleum products, food and so forth;

It should be noted that Mr. Khrushchev seems to be inclined to regard the US debt serviceefense item,

tbe construction of military base facilities; tbe support of militarized security forces; soon Intelligence activities; and some civil defense activities

Evaluation

as deliberately not been sissned. Ite purpose la tc obov tbe fact and general location of tbe considerable uncertadntiee which,illion rublea per year, account for aboutercent ofSoviet budgetary expenditurea fairly consistently.

To achieve what laetter appreciation of the range of uncertainty, the data inan be adjusted in gross terms tothe most plausible overstatements. The results of eucb an adjustment are summed with tbe published defense allocations and shown graphicallys the "Possible Total Defense and Space Allocation" lu the accompanying chartsnd 2. In tbe charts these sums are also compared with the published defense allocation to indicate tor range of uncertainty with which,esse, theernra?ntho world and tbe Soviet people.

The sdjuatasnte mode to the data which verc presented Inre as follows:

a) Published defense expendituresnone. BOTE: as been deleted.

a.published Soviet defense allocation,,

, reduced to the undisclosed

amounts isjpliclt In the Soviet social-cultural^ Handbook end2 on the basis of6 relationship between the undisclosed amount and tbe published total allocation for ociunce.

national economyexpenditures for the

municipal economy removed utilizing available published data and interpolating to supply estimates for other years. It would be most desirable to resoovefor agricultural procurement and trade as well. However, combination of tbe devaluation of tbe Soviet foreign trade ruble, the lack of information on expenditures for agricultural procurement, and possible accounting shifts between tbe two accounts makes It difficult to remove the Influence of those accounts from the residual. As tbe result theof the movement of theaeries my well be overstated in tbe latter part ofa and understated In tba final years.

USSR, Kinlsterstvo Flnonsov. Rasktodjt uyye

aeronrlyatlya po gosudsrgtvennomu byufltustuxpenditure fW Social'

Cultural Measures in tbe State Budget,

d) Tbe goneral budgetarydiscounted byercent In an attempt to raaxtveross way tbe planned contingency funds of tbe Council of Ministers (which appear as actualnder other headings) and other miscellaneous items. The purpose ofwhich utilizes the arithmetic scale) la to show In absolute terms that over thobe amount of what one might term Soviet budgetary obfuscation has changed from time to time and has tended to increase until,l,On the other hand, the purpose ofwhich utilizes tbe logarithmic, or ratio scale) la to show in relative terms tbe behavior of tbe series over time and with respect to each other. What this pre-Bentation shows is that the two aeries, the possible total and thetotal, tended to move about the same way during the, but that6 the trends were quite different with published defense allocation quite flat during thend with the possible total the flatter. The figure also ahoua that the proportion of what was referred; to above oa Soviet budgetary obfuscation tended to increase through theut that this tendency seems to have been reversed inwhen,esult of Soviet accounting shifts, soan of the expenditures previously carried under other headings. In tbe budget were probablyo Defense.

In summary, the Soviet data suggest defense (andditurea varyingillion and II billion rubles0 and'.Uon andillion rubles These values are only general orders of magnitude which probably bracket tbe truth. Tbe data should bepreted as suggesting nothing about year-to-year changes and very little about trend other than that Soviet expenditures on defense (including space) are perhaps half again as great today compared wltn tbea. That Soviet defense expenditures fell off somewhat In tbe middle of the decade and have since risen is probable but cannot be- considered to be established definitively herein when the inherent data difficulties Involved in this analysis are considered.

The Claim in tbe Aggregate

In Western concept, the appropriate measure of the claim of an end* use (consumption. Investment, defense,n an economy in the aggregate la best measured in termsercentage of gross national product (GAP) at factor costs. In Soviet terns the closest appropriate equivalent measure Is Soviet national incomehich censure differs fron tbe western concept of national income. The conceptual differences us well as the Soviet attitude towards western concepts are perhaps beatby the following quotation:

"US statistics include in the production of tbe national income not only tbe material production but also tbe

production of services, thereby artificially raising the volume of national For purposes of comparison with tbe USSR, tbeational income was recomputed by the methods used in Sovietithout tbe

Q

income of the nonproductive braacbas. In short, Soviet national Income (SnTj la considerably leas broad in scope than seemingly equivalent western concepts.'

0 USSR, Central Statistical Administration, narodnoye hhotyaystvo0 spdu (The national Economy of the USSR,.

9 Ostensibly, in general terms, GBP less value added in the non-productive (service) sector, leas indirect taxes, subsidies and capital consumption equals SHI. The Interested reader willseful introduction to the conceptual and statistical probieas Involved in estimating Soviet national Income both in terms of Soviet and Western concepts In Koser, Hichael"Estimating the Soviet Nationalhe Economic Journal Vol. LX7II,lOU. Since Kaeer's article was published the Soviet official handbooks have Included tbe Soviet official estimates in absolute terms vhlch permits one to approximate the values represented by the index numbers published for earlier years.

If one compares the defense serlea developed above with Soviet national income, one conceivably is approximating the relative claim on econoadc resources as viewed by tbe Soviets despite the fact that to some extent this claim may be overstated in terns that would be deemed more

appropriate in the WeBt. oaparJson la shown inhich indicates that la Soviet teino defeasen tbe early'o and have been^ percentihere within theae ranges the actuallie* and how the actual pcr-centagee change from yesr-to-yaar are not intended to be suggaavad by the figure. The aost the figure csn portray is that the defense claim in the Soviet Union is and hasubstantial one and that Inrobability tho claim was,tatistical sense, relatively aare buidensome during the early fifties than It boa been since

Clalme on Specific Resources

Given tbe difficulties involved In attempting to measure with any precision the claim of tbe Soviet military establishment on resources in aggregate terms, the measurement of claims on specific resources is even more difficult. It is the purpose of this section toeneral appreciation of these claims historicallyprincipally In terms of solitary manpower, and defense and space systems procurement.

omparison of Soviet defense and Soviet QKP estimated in accordance with the western concept see the Cobn article in this series. There, the author finds0 defense claim on GUP to be of the order ofercent-

Nsnpover

Within recentariety of Soviet announcementurude measure of what the levela of activein the Soviet forces probably have been Thethe derived series are presented in Tablehere it can bethe USSR probably had (in man-year terms)illionarmsad Increased this levelillionnd had cut downillion aen Thla series see ma generally plausible in view of theof tbe tore an War during tbas and the fact that

the USSRharply shrinking availability of conscripts by reason of the drastic reduction In the birth rate.

Inhe cost of this manpower la also computed, utilising Mr. Khrushebev'a remarkeductionillion men would resultaving ofillion toillion (old) rubles, implying an average cost ofnew) rubles per man. it Is assumed that the reference was to the personnel-related costs of these men. Including pay. food, clothing, and other services. It is also further assumed that thla cost factor is applicable over the periodthat is to say that such declining prices as were experienced were more or Ivss mode up for by increasing standards (more highly remunerated technicians, improved rations and quarters, end enhanced ancillary services and perquisites) and by tone price increci'es.

Soviet Military Manpower and its

Footnotes follow on pagee

Soviet

Series

Series ft/11

y

men at beginning of year)

man at beginning of year)

man-yearfl)

new rubles)

cf

.

d/

+

3/

Soviet Military Mwpowar and itsContinued)

Sources: Tbe data In tbe column headed "Soviet Published Series" represents an amalgamation fron Mr. Khrushchev's statement of la0 and the serlea of previous announcements of reductions in the Soviet armed forces.

deriving tho series for manpower levels at the beginning of thepublished Soviet levels were used if available. 2 the levelmillion men5 level) was assigned. Mr. Khrushchev statedlevel had been achieved "by Because he was shying awayfrom thet seems equally obvious that thewere at quite high levels of manpower etreagth fornd tbe beginning2 was arbitrarilyevel to the beginning5 to reflect this situationenerallerela for the beginning of the various intervening years wereinterpolation. For the levels taken1ee footnote

To obtain the derived series In terms of man-years the midpoints between the series In terms of the levels at the be ginning of the year were taken as representative of the average man-years for each particular year. For the level taken1ee footnote b/ below-

on the basis5 billion (old) rubles (midpoint of

Mr. Khrushchev'sillion "saving')illion menat tee rate of one new ruble forldubles per noa.

Soviet Military Manpower and ItsContinued)

Mot

d. Originally, according to tbe announce cent of V*be USSR planned to reduce lta forcesillion ran by tbe endI. This reduction, however, was halted, not later thannd at"least ^artlass of conscripts was retained in serviceew class was Inducted in the fall In tbe derived eerlea tbe levelillion men was assigned arbitrarily for tbe beginning1lus million In man-year terms03 million) was continued arbitrarily1 Ho inference3 military manpower projection on the part of the author should be drawn.

Sgfense pp*5aatngtg- _j? raa^iwat

Defense and ap.-ice wyatewes deflaed toall defense and space, expo-stitvior, not directly related to military peraonnel. As tau* defined, tho term covers not only traditional machinery and metal products but. also ouch iteiss as electronic equipment, construction and construction materials, petroleum products, rsaearch and development, propellents and explosives, and atttlear vcajons. Although thla concept of procurementerficielly to lack analytical definiteneos and clarity, it actuallyeality which has eaerged during the past decade in military ecoooadcfl. Ko longer is it possible to think of the mix of defense procursnBct as munitions oriented primarily in the directlou of large tonnages of steel, copper, aluminum, and other baoic materials. Rathsr, the defense (and now the apace) procure&ent mix tends .tore and core to reflect tbe increasing embodiment of technical manpower and sophisticated materials and components which themselves in turnreat deal ofupow&r. Also,roding extent, the compoaition of this laaepower ia increasingly being weighted uoVe heavily with the skilled and the professional. Che enp basic hashifted away from bigger anduipinnt to better, asuller (evenut especiallyrecise, core reliable,fficient equipment. This chnconencnlYIn thsof mieslleS anddAri^.ft,rborne anuJ.uBfficty and ir. squip-wtt forjc*s.

ThuH, by oubtrfecting tV- prcbeble level of Soviet ej^naJturoa for military personnelndicatedoe tbenc'nr-lying tbo Indlcea presentedad etonof Soviet procurement of defense exd ap iw ays-cams (as defirefiim b: derived. Toe Indent of tbe results of ivicb procedure oren Figure ^- The "published" defense andsteos procurementhat derived froa the published defense allocations; the "poaslblu" defense) and opens systems procurement aeries is derived from the possible total allocation described esrlier in this paper.

The purpose ofratio or logarithmic scale) is to show in relative termo the behavior of the series over time andspsct to each cher and the rather nubstintlal range of uncertaloty engendered by Soviet pronouncements. What theae series tend to enow is tbat aincrease in tho level of aystens procurement occurred in the earlyn, probably in coonsc'.ion with tbe Korean War. From thanyr tbe movement of tho series was essentially aideer have owing to changing objectives coincident with the shlftlnge of the balance of power within tho Soviet hierarchy following tire death of Stalin. Beginning, the series ougfsst rnat there wis

^ Tbo sharp dip in tbeseries4 probably should be discounted to some considerable extent because the tanlc datuo at that tic?lan annourcejant. The USSR ha* carefullygiving out

much Information about tbat year, thusonsiderable (rpvard; divorgepco of tbe actual pf^brmsocs froT the plan.

Data rev figure

6/

ft. 0 defense and space systems procurecent lerlvec fromC pub11abed defense allocation, b. evel of each of tho underlying series.

another increase lo the Level of Sovietx'. apace sy'teas pro--cureatsnt which, la eplte of tbe manpower cuts, umioubtedly was the inevitable ccoaequence of decisions to proceei with sputniks, luniks, mlaailea, and other modern weapons." Coasldsreble doubt, however, must be entertained with respect to the timing or with respect to tbe extent of such Increase in view of the real possibility that significant accounting shifts were also occurring at tbe same time.

In tbelr scholarly works, Professors Bergson a/ and Kutter b/ haws dealt, for tie, vlth essentially the same subject matter aa is under consideration in this report. On methodological grounds.

The data underlying these series and the Implications of data on tbe Soviet Sevennd TwentyFlans are of such quality that it would be foolbardlness to attempt to project future Soviet defense and upace systems procurement tberefion.

Abram, The Real aational Income of SovietI, p. Jo*.

he Growth of Industrial Production in-

ttmtxtf.$ anfcu*

nrlsa jj. ?ifevr> luohnfla* i tU wo--, itvpatr U* la*

'j>pu>ttnt than real sod ore dtottt fiaauj^lona rn tolevels of militarynd tbe lite, jt Is worthwhile to note, however, that consideration of tbe possible application of othtnr unexplained funds is the Soviet buaget auggsats sufficient uncertainty about the levelo end trendst veepois anil space systems procirerrent that sole reliance probably ahoivld not be placed on the published Srrlet defense budget allocations at c. benchmark. Aironstant or consistent relationebip over tine between tae published and total as.'ease budgets be assumed.

1(* The" specific reference at this Juncture is to the Bergson and Butter series In current rubles. Attempts to develop andrice index to the procurement series were eschewed on the grounds of practical if not conceptual impossibility. Tble author in aware of no way ofatisfactory price Indexapidly shifting nix with new products introduced in rapid succession and with these "new" products rapidly becoming obsolescent and being phased out. On balance, it sterns best to use current rubles urguinf that the largest input, labor. Is roughly at constant cost over considerable ranges of tine because la;reaae^ vagea and Increased productivity letd to cenosl out most of thr poaaItte movement.

Original document.

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