METHODOLOGY FOR ESTIMATING SOVIET MILITARY EXPENDITURES (SC RR 60/6)

Created: 8/26/1960

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CIA HISTORICAL REVIEW PROGRAM RELEASE AS SANITIZED

Ditwrioarie*.

Auijtom Direct.,

f Current

METHODOLOGY FOB ESTIMATING SOVIET MILITARY EXPSNUJTL'P ES

Office of Rescaicheport* CENTRAL INTELLIGENCE AGENCY

POREWORD

eport It one of severalby this Office as par: c( aft 3ver-aof Soviet military expenditures. Ths orientation of ths report is direeied toward the methodology employed innalysing these expenditure).

The purposi of the report is to provide sufficient technical details tendependent evaluation of the results and conclusions. These findings haveprimarily as contributions to4 series of National Intelligence Est* mates dealing with Soviet capabilities. An extensive presentation of the finding* is yet to be published.

A series of reports more limited in scope is being prepared to provide more exhaustive treatments of specific topics. Theeverts in this serie Havebeen published

No appendixes on methodology and gars in intelligence have beenhis report, because the report is primarily ms thodolegical.

Hi -

TOP SPWr?

CONTENTS.

OtMril Methodology

L System oi Accounts

Z. Flexibility in Coverage and Format.

J. Budgetary and National Accounts

4. International

Methodological Cos* Ida

Valuation

Costa oi

Dollar

Estimates of

Methodology for Specific Categories of

A. Military

1. Active Regular

a. Pay and

Ruble

Dollar

131 Ruble-Dollar Ratios

(4) Further

b Subsistence

Ruble

Dollar

(4) Further

(1) Ruble

{3) Ruble-Dollar

(4) Further

CI) Ruble

12] Dollar

(JI Ruble-Dollar

I4| Further

Z. Militarised Security

I. Pay and Allowance!

Ruble

Dollar

(J) Ruble-Dollar

(4) Further

3-

and Allowances

(I] Ruble

<2I Dollar Values .

Ruble-Dollar

(4| Further

4. Retirees

11} Ruble Values

Dollar

Ruble-Dollar

Further

B.

Valuss

Values and Ruble-Dollar Ratios

Combat Vehicles

Values

- VI

Ratios

Considerations

). Artillery and Other Weapons

Ammunition

Truck*

Value

Value* .

Ratio*

Considerations

Vessels

Values

Values .-

T. Ground

Values

I. Cuided

Value*

9. Organizational

Values

C. Operation and

and

Ruble

Dollar

Ruble-Dollar

Further

lothing, and Miscellaneous

of Facilities

-*vii

ECRET

p.,

I. Petroleum Product!

Values

Valuer

Ratloa

*. Maintenance of

Valuea

II) Aircraft

12] Armored Combat Vehicle.

(1) Artillery and Other Weapons .

(41

(5) Trucks .

(e) Naval Vessels

(7) Ground

(I) Guided

(W Communications

DC) Organisational

5.

Values

Values

Ratios

b. Medical Cars

Values

7. Printing and

Values

d.

Values

Ratios

- nu -

SECRET T

Considerations

for Operation of .

jl) Ruble Values

(Z) Dollar

(31 Ruble-Dollar

(4) Further

Missile Construction

Ruble Values

Dollar Values and Ruble-Dollar Ra;ios

Further

Facilities for Maintenance of

Facilities for Personnel

Values and Ruble-Dollar Ratios

Communications

o. Ruble-Dollar

and

Ruble

Dollar

3- Ruble-Dollar Ratios

4. Further

Programs and Activities

I. International Transactions

- ix -

TfflP- SECHST

METHODOLOGY FOR ESTIMATING SOVIET MILITARY EXPENDITURES'

i. Iairodu;:ior.

The studies of Soviet military expenditures referred lo in this report began' several years ago when i: became apparentore comprehensive means cf determining thc economic implications of Soviet military activity was required. Meaningful aggregative data of Soviet origin were not available, necessitating some method of deriving suitable Substitutes. Investigation indicatedurprising amount of quantitative data cither was directly available or was inferable from the context of programs. ystem of accounts was evolved to encompass the pertinent Soviet activitiesanner that would best facilitate thc employment of the data at nand and describe these activities in accordance with the various concepts with which these Soviet programs might be viewed meaningfully and profitably.

Section ii of tntt report deals with general methodology and presents the sysiers Of accounts, its purpose, and its use. Thereiscussion of certain broad methodological problems primarily associated with pricing.

Section IH presents the Specilic methodology employed toonetary terms, each of the programs and activities represented by the accounts. The organ! sail on of the System of accountsdhered to, and.discuss ion of the method, problems, and techniques concerning thc respective ruble and dollar values is in-eluded. Most of this discussion is found under subheadings (or ruble values because ruble valuation is fundamental to the studies.

Finally.f this report is devo;ed toquestion of whether or not the Soviet military establishment pays the turnover tax. Appendixo the present-tier, of weighted ruble-dollar ratios; and Appendix C, to price indexes used tcr.ge both ruble and dollar price bases.

-he estimate's and conclusions in this report representudgment ef this Office as

IJ. General Methodology

A, Framework

For the purpose* oleport* the term Soviet militaryto comprise programsctivities that are compasiblc to thossUS major national security expenditure* that n, the military functions. military assistance, of the Department of Defensehe entireand civil, of the Atomic Energy Commission. Thus all of theassociated with military establishments are included and, because offor comparability, the nonmll'.tary nuclear energy program as well. investment in the nuclear energy program Is an exception. Otherwise,in armament plants and the like are specifically

Given this delineation of the scope of theseystem of accoui was derived that would accommodate both thc desired end products and ths avail able data. Any such system of accounts will be but one of many thai might ae*-adequately, but as long as the requirement* necessary to fulfill-theatisfactory product will result. These requirementsepresent all those facets of Soviet militaryelated aetiviiy ir. theetail anddaptability of the estimated military expenditures to race ciliation with Soviet budgetary and national accounts, and ii) sufficient detsilm* to provide combinations that facilitate corr.perisor. with US outlaysanner that will minimise distortion.

I System of Accpjf.U

The system of accounts for military expendituresre: -. - inlong with definitions of the accounts. As aril) be noted, the majorre conventional In nature and include those functions directly associatedilitary establishment. Catagory VI (Other Programs and Activities)esidual category and includes the nuclear energy program mentioned above, as well as two activities tha: have yet to be specificallyinto these reports, intar national transactions and stockpiling.

In short, these accounts represent programs and activities that ge beyond whet is usually ascribed to the term military. Technically this termelatively narrow and specific definition that refers to activities of the army but mors commonly ii I* used to indicate the activities of all the armedn spite of these problems, the term is used la this report: it is concise derote* the general meaning intended, snd has tacit acceptance through aecepieo usage. '

ollows on p 5.

Another term, defense, la widely used in this context but has been rejectedof this report for several reasons relating lo tha ambiguity of itsterm ia likely to be usedeemingly all-Inclusive sector of activitya* an end-use category in national accounts, although when so used it isin accordance with standard Western practle* in compilinghe term appears to represent no more than the activities of (he USol Defense. As sometimes employed, the term Is synonymous withsecurity. There are alao occasions whan its use seem* to bethe desire to represent US philosophy about such activities,r. suchtermikelye used to dsnote any broad grouping of pertinent the USSK uss* th* term to denote its announced allocation to theDafense- Although it is seemingly implicit in Its ti'-le that this allocationSoviet outlays of directo

TOP fflffiffl .

i Flexibility in Coverage and Format

Examination of ihU system of accounts will Indicate that it is capable of assimilating both US and SoWsi data as they originate in published or other form. Ths itruciure of the Soviet systsm of accounts makeselatively simple matterccommodate its entries to their respective counterparts in the derived system. If* Similarly. US data are reconcilable with this system: the major categories ithose with Roman numerals) are very much like those now tsed by theepartment of Cefenst. Ii There are. however, some appreciable differences with respect to specific accounts within these categories.

Thus flexibility, in the first instance. Ii nothing more than ths ability Of thc system to incorporate the desired degree of detail, whether it is of the sorte-umerated or not. To achieve flexibility, subaccounts are in use, and furtheruna ion of thehis direction is to be expected. It is important that ex-tensionthis kind should be possible without major changes in the system.

The system also is tended toasis for assimilation of attei! ore rued to different levels of aggregation. It is intended toimilarh regardresentation, and thus to format. In this vein the systsm u! accountsesigned to be used ia two ways. It may be used to categorise totalaccording to the accounts: that is. each entry for example, air-eraf(ould represent all the expenditures mads by or for the Soviet military iSteb.iihm'ni for that activity. The system may also be ustdore limited tas.S. one thai permits an entirely different Orientation for categorisation ol the outlays associated with missions or functions, such as, air defense or strategic Capabilities. Hence, in considering the Soviet air defense systemeparatehe outlays for major equipment would be under category II. the outlaysfteldl under IV, personnel undernd so on. In either case, therefore, the sans accounts would oe -sed, and most of them aro likely to he applicable.

Similarly, the accounts may be employed to differentiate Initial (In--ttimeni) costs and operating costs regardless of whether total expenditure* or Ihosr associatedarticular mission arc at issue. When the accounts era iied in this manner. most,but not all are likely to be found necessary. For example, tn delineating the cost to thb.Sofist government of establishing an operational long-range air force base, most of the accounts would have to be employed. There la little problem ia viewing items under procurement and construction and ever, research ant tetetopmeat as investment, but It should be noted that the initial training of personnel, as well as certain entVies under operations and maintenance, may well be iter - estment.

Wosi of the accounts may also be applicable when considering the opersiing expenditures associated withrogram. In this instance,e appropriate accounts would mere likely be limited, largely because there are entries for the maintenance of facilities and equipment under category HI, Operations

Soviet usee lerm does not conform to Westernn this respect,

Other terms are also in use. most notably that term with which these accounts- comparability, major national security. This lerm. however, is awkward if Ml] Because of its length, and it has some of the same connotations as the word

defense.

Fo' Serially numbered soarce references, see Appendix D-

fTJP**PeftiasT=_

A System of Accounts for Military Kxpendi lures

ccouoJs for Expend it. I. Military personnel

liniiion

Pay ond allowances, subsistence. rlothing. And miscellaneous IiCinS of supply for all militarised personnel on active duty and payment* to retired career personnel.

naval, and air force career ,ind eor.itcripi personnel on active duty. Tho components, such aa pay and allowances, are considered separately for each service and for branches of the respective services.

Pay and allowance)

Z. Subsistence (food) v. Clothing

A. Miscellaneous

B. Militarised security

pay, for rank, ptmltlnn, ami length uf service; and allowances, such as those for food and quartern; special pay, such as that for location, language competence, ami hazardous duty.

Food served in Or dispensed by military facilities. Thc different rations need to be considered.

The basic Issue only. Special clothingor example, flight gears included underequipment. Differentiation in issues (or tank and grade need to be considered.

Soap, rnatclieSi and other miscellaneous items.

Elements of security forces that have military capability, such as, border troops.

1.

and allowances

A.

(food)

A,

A.

A,

wild reserve status called to temporary active duly, such as summer training.

Compensation of reserve personnel. Kor Soviet reservists thejid allowances is not

applicable; recompense comes from their nnnnAl place o( employ me nt. See A, above. See A, bove. See A. A, above.

Retired militaryersonnel.

I. Petition*

A jy f AiriiillH. (ill Milll-ii i -

(Conlinuad)

I (or tiptotlitt It

eombei vehicles

i . *nd Ottir wttponi

vessels

laitronici

II, Guided missilss

I. Organisational equipment

III. and*

A. oreonncl

llowances

r (food)

King

i urchased primarily (or operational use. Iniital ipiifi and replaceimm Kama arc ia eluded, prototypes arid other dewlopcnaatal models are

All combat and other aircraft purchased by the military

Tanas, essaolt guns, armor adlonMl itrriart, armerad icoui cm, and haid-sfcianodvehicles.

ahiIIm, Including antiaircraft artillery, rocket launchers, mortare. and amall

All ammunition, including aatial bomb* 'conventionalI. mines, and

All i. " iiimifii

and auxiliary vessel* ol the naval

All noneommunlcallona ground electronic equipmentor example, ground radai andounts rmeaeureshai la not an Integral part of other equipment and Ihe elacIronic

fil ground communication! iqillpmanl All olhei clciO-nl< ul ii mlngi Med

with the respective wan ponsulpmeril and their operating spure pa He, All balllatic and air breathing mlaallaa. their ground guidance, and their support equipment. Allperational equipment. Including thai for maintenance, conatruction, general purpoaea, and epectal purpose*.

Outlays, other than those lor military paaeonaol. to operate and maintain military forces.

All civilian employees of the military establishment, Moat of these employees ate engaged la operations and maintenance.

Salaries; wages; each sibsIiiimMi as ihoee for hardship posts, and soch allowancesor

food, clothing, and

Where applicable, rations thai are leased.

Where applicable and Issued.

and supplies for the maintenance of items under IV. below.

A System n( Accounts forta ry >pe mhi

(Continued)

Eipn.diui'

III. Oufrtlloni and maintenance

products

of equipment

care

<i. Printing and publishing II. Other

petroleum, oil. and lubricants purchased by the military forces. Operating spare parts for equipment. (See II. above. )

All outlays by or for the military cs tablishmcnl to transport men and materiel and for trans porta -

I lot)that arencluded in the prices of items purchased. Medlcal supplies. Expendituresonstruction of medicale includodV. E,

below; for medical personnel, under. and A, above; for. equipment, under II, I, above. Outlays for printing, publishing, and purchasing such items as military manuals and lexis. Outlays for such US activities as the promotion of rifle practice and such miscellaneous Soviet c

activities as the support of thc Al)-Union Society for the Promotion of the Army, Aviation, and

the Navy (VseSOyusnoye Dohi ovol'noyc Obshcheslvo SodcyStviya Armii,Iolu

IJOSAAF).

IV. Facilities

for operation ol equip-

ment

for maintenance of

nt

for personnel

communication* facilities

facilities

V. Research and development

VI. Oilier progiam* and activities

Facilities from which combat equipment Is operated such as airfields and naval bases. Facilities for the maintenance of combat and support equipment. Facilities for housing.

Permanent communications facilities. Including wireline and all equipment other than electronic

equipment. The electronic equipment Is included under II. G. above. Administration, storage, training, hospitals, mess, and similar facilities.

All research and dcvelopmoftt. Including development, test and evaluation, for militarily alK. i fi purposes.

AM olher programs and ar.livilics dremed relevant.

TOP DCCllET -

and Maintenance. Thus categories II and IV might not hendV and VI are unlikely candidatesuse under Such circumstances.

i- Budgetary and National Accounts

When the estimates of military expenditure arc to be reconciled witi Or in;orpora:ed into budgetary analysis or national accounts, there are various adjustments that need to be enforced.

The basic values of these Studies are the annual expenditures a! ihe USSR for designated or all military programs. To depict trends, these values ir-expressed in constant rublesricesase year ate applied toeasureseriod of lime. Because these prices reflectains wherever feasible and appropriate, in certain instances the constant pTice oasis is One of constant input prices.uch prices are believed to reflect costs to thc Soviet government and therefore to be representations of transfer prices.

The constant price basis is not directly suitable for budgetary analysis that, perforce, is accomplished in terms of Current prices. Hence the basic values of military expenditures must be converted by suitable price Indexes instead of attempting to revalue each program, activity, commodity, and service in the prices appropriate to every year under consideration.

To the extent that input pricesart of the underlying pfice basis, i;t suitable for national accounting where series are usually expressed in market pr'.CeS. To obtain market prices, indexes of production have been applied :o. base-year values ofhese-instance s.

Other considerations besides price basesart. In the case of budgetary analysis, there Is the question of the specific sources of funds, budgetar, and otherwise, for the various military programs and activities. For national accounts, theretill the matter of conforming to the concepts and purposes of Such accounts. Transfer payments must be removed, adjustments necessary to

- They might be usee when the replacement of attrlted items, tor example, Is treated as an operating expense.

ore extensive discussion of some of the aspects of orice bases,

*** In these reports, costs of production are not ocing measured except insofar is they are reflected in price. Naturally, cost information mjs: beo frequently, but conceptually it should represent no moreeans oi attaining transfer prices. It is not meant that cost should be lightly dismissed. Some of the expenditures thai are included are best and most often described in cost lermf Illustrative is overhead ir. the usual business sense. In and of itself, overhead for given military programs car. be difficult to measure; it becomes more so when common overhead must be apportioned among several programs. Of course,is but one of several costs that might requite allocation among programs --

the ;oim product caseequiring, in effect, application of concepts of cost

One need not. even in these Instances, however. Orient oneself to cost-Practically, however, it is almost unavoidable, For example, costs must Be used at times to reflect price, and production functions are based on costs

depict ra'.urna to the factors ol production must Ufa made, and categorisation by enc .se and sector of origin is required * For these studies, tha removal of transfer payment* involves ao mere than removing pension payments to retired career The depicting ot" returns to factors of production entails removal of ir.direc taxes. With regard to categorisation by end use. investment must be distinguished Somewhat more is required for categorisation by sector ofhe military programa and activities must be allocated to industry, agriculture, construction, trar.ipenation, communication, trade, and services. Even outside the context of national accounting, there is need for allocation by sector of origin. One of the toals oi the studies of Soviet military expenditures is to be able to assess theof the military programs and activities on specific sectors of industry.

Comparisons

definition the scope of military expenditures corresponds lo that of u'S major national security expenditures. Hence any problems are most likely to revolve around detailed comparisons, particularly the obtaining of US or other Western expendituresanner that corresponds to the specific accounts usedhese studies of Soviet expenditures.

B. Broader Methodological Considerations

1. Ruble Valuator.

Red.ced to lit most fundamental form,the basic methodologythe estimation o( Soviet military expenditures is price limes quantity. That is prices in rubles are applied to physical measures representing the goods and service! procured and/or produced for the Soviet military effort. Obviously this methodology can rarely be used in this most simple manner and at times cannotec at all.

Several general considerations of significance relate to the prices. Most of these consideration* reduce essentially to the problem of whether or not ihe Soviet military eslablishmeni pays the turnover tax and to the problem of full cost pricing: that is, whether or not the prices paid by the Soviet Ministry of Detense or its ageois represent the full cost, ia the Western sense, of producing the gocds and services purchased.*'

a- Turnover Tax

The turnover tax is probably the only Soviet tax ofh regard to military financing, and its impact Is felt only in certain areas. As

a rule, this tax Is only applicable to consumer goods and not to producer goods.

Hence ths Items lor which it becomes significant in terms of the bill of goods and service* appropriate to the Soviet Ministry of Defense are limited: food, clothing.

and petroleum product*.

" Although other considerations exist, these are thc common* Thc turnover tax is not completely divorced (rom the question of full cost. turnover tax receipts are viewed as returnsactor of production -

tor example, landt is relevant.

The rates of the turnover lax for these items arc Sufficiently largeer-cer.tage of wholesale and reiail prices (generally fromoercent) to war ram the sesig.iaiion insofar as they are an ingredient of price.

-

Although these taxes as cmriMMdelanvely small percentage of the total Soviet military outlays, an appreciable suit. In absolute terms isue. The magnitude of these taxes assumes considerable important in ths context of over-all Sovial economics, Specifically with reference tocosts and sudgatary and national accounts.

The ev.dence ashether or not the Ministry of Defenseat hUHstl tax and to whet extentot conclusive in any animatems lull, clear that the Mlnutry is paying this tax. but it cannot oe judgad -fceinar: payments are in full and paid wherever normally applicable. evidence, however,orking hypo thesis that the standard rates of taxation are appropriate to military transactions.

o. Full Costs of Production

General Soviet policy in establishing, industrial pricesnd the major pricing problem of concern here relates to major items of militarys well known. With the exception of rent and interest, th,factors of cost, including profit, are included in the price base, although it is recegruaed ia: the depreciation allowances taken into account are unr.ali.iicall, low. particularly from tha point off obsols.cence.

or not this same general policy is applicable to major

^*m. of mi.itary equipment is not fully known. Two documents dealing with the Polish situation provide lbs only knowledge ofsort. he effort, of the LSSRmold th.w image, the Skins system may be pertinent within the USSR as well.

The first of these documentsecree signed5 by Marsha. Rokossowski,hen Minister of Defense-of Poland. The decree foal, ith the pricing of special order goods produced under th* aegis of the Ministry of Defense.he Item, of cost to be covered seemnecttjy measured Input, of labor and materials. Some slighten to elements of overhead,ercent of calculated cost. .e added in some instance, for profit. There is. however, no indication a.he scope of this decree in terms of the items toertain.. It may only b. specu.atsd that it. scop* il indeed broad, because most military item, are

goods in tha: they are contracted forob lot basis.

General confirmation is provided by sourcekith listsats o. cost covered by the price. established for military items. Th.s

is: is icme-ha: more inclusive art*to overhead than the decree ust cited andention of depreciation allowances. The rate of profiter-

*

whichthat may influence the extent to

*hich prices paic by ths Soviet military establishment represent full cost of pro-Miction, those mosi likely to be of concern are loca! taxes, subsidies, research end development, and ths performance of certain indusuiaj. agrici rural, or commercial function, by the Miniatry of Defense. In the matter of local

a discussion ofvidence, see Appendix A.

It is also Of interest .ha,eB

s.ry of -efer.se prov.da. the rawh. profit margin ercent

TSP

that can bi laid at this juncture is thai there ia soma teaion to believe matmay be excused from paying theseo the extent ihey are involved in production for military consumption orollary, thei* enterprise! then may be

denied the right to include tneae taxes in the prices that they charge the military establishment.

Subsidies may take many forms but inevitably their existence rrtMfia that special price* that it, lower prices than might otherwise be the case are in effect. If such subsldis* do exist to any appreciable degree, on* or both of two methods ofare likely to be in practice, either (i; there fa ceairalised reimbursement of the producer for such reduction* a* are granted to tne Ministry of Defense and'or III the burden of price concessions is shifted, in whole or In part, to civilian production within tha jurisdiction of the same producing unit (plant or factory) or perhaps within the same Council of the National Economy iSovet Narodnogo Xhoiyaystva inistry, or other broad admlat* stratiechelon. The evidence so far accumulated en this matter suggests that such subsidisation is not the usual practice but that there are circumstance* in Wiieh* operative."

Tha costs of research and development might be expected In some circumstances to be included as an element of cost for purpose* of price Ceriaiely these costs are so included in many areas of the Soviet economy. Whether or not they are included by lac USSR win regard to militarynd development, however, is no: of constquer.ee totudies, the prices employed, by detlgr. and good fortune, appear to be exclusive of such coats.Hence this aspect of cost is estimatedistinct entity and'ti not reflected .r. the estimated out.ay* for such item* a* hardware; It ia accounted for

. savings tn outlay that may be accruinghe Ministrybecause, for all practical purposes, il i* engaged in Industryeparate problem As was true of subsidies. there Is aaspect of the problem relates to those possible instance* in wnich tbefarms, and the like. Given rougn equivalence in

tie efficiency of operation, thc tact thai "free" military personnel may beoperations should leadower marginal cost to the militarythe product Only limited knowledge itto the extent of

Such operations. Of some ZOO million hectares in cultivation ir, the USSR,illion Hectares are estimatedelong to subsidiary farms. In view of tne widespread practice by white industrial and ether crgamtatioea have sues-.diary farms, it i* unlikely that the acreage farmed by military units accountsarge enough litre)illion hectares to be significant in light of the foodof the Soviet Ministry of Defense. Hence It seems probable tha:teiloni are not likely to result In any appreciable, unaccounted-for advantage accruing to ine Soviet Ministry of Defenae,

Scattered information on prices paid by military organizations for itemsgeneral consumption indicates payment of Standard prices. pecial prices raises the likelihood of circumstances in which,re is subsidization. Several defectorsidespread practice ' military items but there It na . uller iisru:

aion in (he context of the turnover tax. see Appendix A

ore complete discussion. E,elow. f" See Category V. in Table.bove.

Tha otherj the problem relate* to th* proccisincthat may be organic lo militaryoriven unit mayfacilities (or slaughtering meat ana couldreduction, in outlay, atthe extent of it. labor ir.pute. In suchmayccur.

ituat-.on ta po.ttbl* because facllltlea of the mature indicated would perm Purchase of let, proce.sednd thecre-re-t. at (ke various atagea of processing

To da-.e. it ha. net been possible :oquantitativelyoroat.roduction to theconomy are being reflectederived monetary valuation. To the extent, however. thai tha pr.ee informationaccurately ba.ed on the price, actually patd by or (or tha Ministry olhe ratiauMi conelu.ion aeem. to be that thetmate.f ruble, are. than the fullhe

i. Col.ar Valuation

For international comparison ths estimated Soviet expenditure, are valued in US dollars. To doimple concept haa been chosen and adhered to thai the outlays represent what would be requiredthe Soviet military program, were purchased .r. the US. Tne dollar valusibtained do not reflect iH, "rea coat- of military program, to the USSR,. doagnitude mt rr be compared in absolute terms with like US outlays

re fundamental incompsrebility of product exi.is. the situation meliorated by recourae to estimate* ol the cost in dollar, of the Soviet item0 be produced in the US.

The banc method of valuation ia the same as (or rubletimes quantity. There areowever, in which direct, ' " valuation is accomplished through thcdo.Ur-mble ratio* Some of tacse ratios are based on price Informationdirectly applicable; other* are ratio, for broad categoriet of goods. lbe"tvidenct to Justify thi. pro-

Two phenomena deserve special mention in connection with dollar valuation of the Soviet mil.Ury effort. In the first .nstance. military goodiare lets expensive in relation to other gcods and service, ta the Scat economy compared with the relationship of military good* and services to other good, and services in the US economy.* hen measuring mtensity of effort in respective domenlc currencies, that of the USSR appears relatively low and that of the US relatively large. The second phenomenon, one that per nap,arly ll.ustrate* th. danger o( measuring the intensity of the Soviet effort in dollars rather than rubles, concerns manpower. When Soviet manpower t.he US market, it it accorded US military wsges" ,an 'coal.' in the US. This amount of moneyar greater demand on re-source* than does u. ruble counterpart.

" Theie relationships In the respective countries say nothing about tn*fficiencies of the two countries in thit area of production.

Including allowances and payments tn kind with regard lo food and doming

11

J. Timing

Then are two element, not yet discussed that also deserve general mention. Roth relate to time, although in entirely different respect..

The first relates to lee need to move monetary relationships or VAlkM to different price baseshat is. expressing them in terms of price, of ar.other time period. This need arises when the basic estimate, of expenditure, which are iai prices, muet be expresied in current prices for budgetary analysis amew Base year is chosen. To accomplish these conversions, price indexes are most often employed. Because of their general naiure. these indexesreater degree of uncertainty than do most cf the element, that relate to price. Thie itatemen: applies particularly to those Indexes used for major items of milita hardware and is equally applicable for the US and the USSR. Usually, generalindexes or indexes (or materials and broad categories of equipmeat are al that are available. ew instances, seemingly contradictory evidence is at hare and there is nothing available lo permit positive resolution Information on inputs and productivity, however, is sufficient lo permit judgment as to tha direction and.easer degree, to the general magnitude of the changes.

The second element relates to the time leads or lags between product; and proeuremehl, for example, and the relation.mp betweeneads and lags ann financial practice. In these report, the problem is particularly pertinent with regard tohere production of major items of equipment is used. Fortuitously, for many purposes the leads and lags do not introduce serious error. The one area in which they might introduce error of concern to chase reports la aiaiysi. of specific Soviet budgetary allocations, where relatively minorin time can be troublesome.

*. Estimates of Error

Such discus.ion naturally leads to the question of tne errorl report la general. As may be expected, no objective mathematical or faa-tisticel computation of margins of error Is possible. Resort must be had toassessment.

II will be noted that, for the most part, estimate, of the error have not been presented in the treatment of the various categories in this report. Tbe ciscusslons do give some bssis for evaluation, to the extent that one may concludeiven estimate is good. bad. or not evaluablt. In fact, the impress.or. left may be unduly harsh; the material bearing on means of refinement or improvementomewhat idealised and reflects what -ould be desired, not what la necesaarily required,asically sound estimate.

The error* of the various estimates vary considerablyome may be welt withinercent, others are considerably larger. Quantitative assessment -as Bee- largely limited, however, to the aggregated results. Total Soviet military expenditures have an estimated error of plus or minusercent,robability ofercent.

See 'ill. B, p.elow

:>llhl:

Methodology for Specific Categories ot Expenditure

A. Miliary Personnel"

1. Active Regular Service

a. Pay and Allowances

{[) Ruble Values

The procedure basic to estimating the bill for ply ant!of Soviet military psrsonael is one of applying rather abundantmilitary wages to detailed tablet of organisation. This procedure isall types of units, including headquarters, for the Soviet air andThe sample priced in this fashion represents aboutf the total strength of theseestimate (or the nav

forces is determined by applying average rates (or their counterparts in the oth services. The available sampling of naval pay data confirms thc validity of this eadure.

The ruble estimates thus obtained are probably somewhat

servatlve. This conclusion is based primarily on the high degree of reliability <

the wage data on hand and the fact that certain allowances and special forms of

pay, such as those for subsistsnce and (or language competence, heve notluded.

12) Dollar Values

Dollar equivalents of these estimated ruble outlays areby applying average US military wages to the corresponding SovietT Differences in the composition of the forces are taken into eonsideratio by selecting average US wagesear in which the general composition of the forces of the two countries are believed to be most similar, ft Average rates of increase are applied to make these rates of compensation appropriate to the time period being considered. TTT

It is recognised that :he method of obtaining US dollaralenta has certain shortcomings. In ihe first instance, adequate detailing of ths US mix has not been accomplished. Second, the average rates of increase used ti move base-year US military wages: reflect the composition of the US armed forces at the time of changes in the pay structure rather than rates of merest*

* Tor definitions of thc various accounts.le* Table I, p.bove. Tor eomplets description ol data and methodology, seeor the ground forces, this approach is limitedase year.'Values for the other years ara obtained by applying the average recompense for officers are (or other personnel (obtained from the basic calculation) to their respective strengths, after allowing lor the effect* of changes In over-all Strength and in tables of organisation.

I I" terms5. including allowances. (Dollar value* are given In US dollars throughout this report.)

M In no year is comparability really satisfactory. TfT here was an average increasen increase ofndercent. 8/

1 This procedure Is used In order to minimize changes In composition of the armed forces.

IS-

I

known tu be appropriatehe composition oi the force* in thc base year- In add !ton.ir poses of obtaining dollar equivalents, the composition o! the Soviet armed, forces is treated as if it has remained constant. Finally, these is some question of comparability with regard to the inclusiver.ess cf the rules ofinountries. As noted, certain Soviet allowances and other forms ol recompensehose for subsistence, those for some forms of hazard-oijS dutv. those for awards and bonuses, and several ether rather minor ones are not incorporated in the construction of the Soviet pay bill- Some allowances, such as those tor subsistence and clothing, are included, at leasth expenditures lor Other programs and activities. (See the discussion ofa, below, and clothing, c, below. | The aggregative data employeday and allowances, however, are all-inclusive. Relative comparability is achieved By reducing US outlays for pay and allowances by the estimated payments for subsistence and clothing and including those payments with other categories of expenditure.

The fact that US and Soviet allowances differ somewhat in definitionot relevant for most purposes. Thc primary purpose in wanting an expression of these outlays in both rubles and dollars t9e able tof certain types of manpower both in domestic terms and within theof the scarcity relationships existing in the other country. Hence, as long a: the initial concept of pay and allowances is complete for both thc US and the USSR, no violence is done to the accomplishment of the Stated purpose. Furthermore, the differences in definition or scope are of little concern, in thai quantitatively they are negligible compared with the major elements that arc included in the pay-bill and discussed in this report.

(3) Ruble-Dollar Ratios

A Soviet-weighted ruble-dollar ratio Is immediatelyby dividing the ruble value for pay and allowances by itsS-weighted ratio may be obtained by estimating the pay and allowances Ol US military personnel in rubles- The value so obtained, divided by the actual dollar expenditures for this purpose, will yield the desired result.

(41 Further Considerations

With regarduble valuations the need for additional Udia

satter of the following;

and position pay for officers with the rankof The army or higher;

pay for Seagoing naval personnel ot ail

ranks and grades; and

pay for those ground and air forcesuch pay is currently derived by extrapolation.

This computationatio ofubles to US SI in terms ofThe ratio would vary slightly over time, even in constant monetary terms, if Only because of the effect o: changes in the composition of forces.

-

a. Suqiiimpc, Ruble Value.

Mim.try y *"

rnula thatpi. for-

Force, of theMthom.iM,f the Arm.c

practice'he Pr""lbed-PP'OxIm-ted tr

ft be'^ " ^

rr:sr? Mo"ow CSI

*re ^rtid t*

ruoiii capita wfc.cfc U. in turn, appliedhe teul

M

i,became officer. end

aMeaceddu,aclluie. kmdd 2CC ruble, per

Sea. pre.urr.ably

bearlHgaeubel.tencefC0ear for each offtc.r.t

ollow, on

uble

uble, per month

TdZ'^ ^

-

! 1

I i

...

i is i

5 ll

4 'Ml!

If

it Ay Jit

basic ration (or existed menurden some JO percent higher*apita basis.

Other considerationsaythe magnitude of the der wed reeults: for example, military farming operatic and military processing facilities. One facet o: this problem notusscd may also have some bearing on the reeults: namely, the price*hose subsistence items procured locally by military units stationed outside o: lie USSR. In view of the number of these troops, however, and their apparcr. dependence or. fairly substantial imports of foodstuffs from the USSS. IS/ot seem likely, ever, though local purchases may be made a: favorableelative to those paid in the USSR, tha: any substantial error is likely to aecrv from failing to account Specifically for such local purchases by occupation fan

ln summary, the effects of these unaccounted !cr Influer. arc counterbalancing, at least to some extent. At this time it is noto measure the relative significance of such practices as military farmingrocessing. It might be noted, however, that the present subjective evaluation the ruble estimates o( the Soviet subsistence bill is List they are reasonably ac curate.

Moreover, no distortion ia believed to be introduced thro conversion to other price oases by means of indexes. The index employedetail priceut in view of the relative Stability of retail tra ing margins, the index should alsoeasonable representation of wholesale priceot should it matter that this index is being appliedample somewhat less comprehensive in its coverage, for the composition of sample IS not believed to differ excessively from that underlying the index.

12) Dollar Values

Dollar equivalents can be obtained cn tworer bases: the outlay per capita for rations (or the US armed forces, or the require outlay for the Soviet ration. In practice, only ehe former basis Is in use. It Is employed to reflect the outlays that would be necessary in the US to suppcrlSov;

Relative to ration costs during the. 1 prices the enlis man's ration ispercent more costly if the costs borne by officers and by ths Ministry of Defense have remained unchanged.Set.II, B,.bove.

The value of the index) is 78 For the full index, see Appendix C.

T Should the Soviet military establishment be procuring subsistence items a< special prices or at relatively primary processing stages, the applicabilityclttd index is subject to further question. Because special prices may cr may notattern like tha: of wholesale and/or retail pricesepending On the relationship between the former and latter, if anyt is no: possible lo evaluate their effect. Something can be said, however, -with regard to possible militaryci fooist'jffi at more primary sages occa ,scshfrc possesses seme processing facilities, ln Such instances the movement o( prices is not likely to follow the pattern of wholesale prices but to come closer toprocurement prices, which have followed an entirely different pattern.he charges for handling and processing as well as elements of the turnover tax are bypassed.

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{*) Further Considerations

The foregoing discussiont least implicitly the type of data accessary tor further refinementn improved confidence level. These aspects of tbe pricing problemhecene*eport pertain here {as they do to some extent throughout this report, a: ItUI with regard to more positive verification tha: some el the lectori do notearing on thla subject. Then. too. there Is the problem of thefHeabillty of Moscow.based prices, particularly where thereubstantial amount cf local procurement {whether i( it internal or txternaltheurthermore, it would be desirable If the other Soviet rations known to beere included In this calculation.

Dollarf greater effort ia to be expended on counterpart coats, ahould be Improved by recourse to such detail as tieby rank and grade of those receiving allowances instead of rations end of those receiving rations in the US armtd forces.

C. Clothing"

(1) Ruble Values

Thc estimates for individual clothing ,ssjcs_-

wcrt ctenveo in .ma fssnior.- lothing issue priced 0/ mere wsa tome variation between the tit mi of itaue. however, atdifferences in the prices applied. Nevertheless, the resulting outlaysas estimated, were Surprisingly close. The

1 rubles; that from I. 'OC

19S1 rublesI. On an annual oatit. both sourees cue. ublaa per man. Aeeounttng for this apparent anomaly laof the clothing: ears, accordingea:

according to With adjustment for repairs and

changes inrorated annual outlay per capita o'

ubles Presumablywould also

rlst above thc levelublaa if thc costs oi repairs and maintenance were taken into account. Thua theae two estimates, their differences notwithstanding, are1 rubles per ft*I. This figure has beer, embodied is) tneof military expenditure* by flue Office.

There are. besides these problems alreadyumber of problems that are related to this subject and that warrantn formulating these ettlmaitt. It was found necessary in both tha

'reports to rely on the Soviet raist) price structure, scattered, published retail price data ware applied to the liems

Excluding special clothing, such aa flight gear, which i* considered orga*.a* tional equipment.

It will be noted that the resulting estimate more realistically representsge annual outlays; the procedure employed la not rasponaivche irregular expenditures that would be incurred, (or example,ajor change in the basic clothing issue.

In order to convert this value to the monetary relationships of etherhe published Soviet retail price index (or Heme other than food is utad -her.evt-il ia available. 4 this Index has remained essentially stable For tha full index, tee Appendix C.

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of the issue, whereas JBby lhB Sovia[

military establishmentA.yt.Eb usx.ce .rdexunited Id we results inpneevbasa

In addition to the problem of puces, there are pceblfrrhlto the makeup and the applicability of ;he standard issue of clothing. Itthat two somewhat different issues of clothing lay behind the:n Ever, though the com-

position of (he issue usedn information

publication date* backhange*

ire knownave occurred since that time

the Clothing issue is treated as being appli-

cant .or all ranksrades. It i, more likely that re-enlisteesffers receiveB. oi higher quality. Such differences in, dsf. lerencesthe composition of the issue, create another possible element of conservatism In this estimate.

|2| Dollar Values

Dollar valuation of Soviet expenditures for military clothingregular .st-je} presents the came situat.cn as pertained for subsistence, And forsame reasons... The samena ma-d orts tc date have beer, limiteda determination of USapitashmg and application of Lhe figure so determined tosonr.el. *ga:n.ure is obtainedombination of lhe outlays specifically labeled as being to, clothing and the allowances paid to officers and enlisted men forue! end maintenance- The same problems are applicable here 00 amongt.ie possible ambiguity of direct expend-.tuxes for clothing and lhe divergence tr. the composition (rank and grade structure) of the US and Soviet armed lorces in any year.

) Buble-Dollar Ratios

It follows from the preceding cusciitsion of dollarmay also b* on twE bases r,

lamn, however, only one ratio may be derived, and that ratiohe relat.Onsnip between US expenditures per capita lri collar*ikein the USSR in rubles. The ratio so obtainedubles to US SI in terms5 relationships.

(41 Further Considerations

requirements lo* daia in this area areve

range .rem price data and monetary allowances to the composition of the variousof clothing.

It is reassuring, however, that some more current information on prices paid oy sov.et military organisations for items of clothing seems, ir. very broad term*irm the general magnitude of the estimate preserved above. Ir. fact, if any-in.ng. mereuggestion that the present estimate is conservative. However,n the way of detailed analysis or evaluation of these data has teen iccom.ss yet.

See b.. p,. above.

A figure,0 pev.man per.een employed in termsS mlationshipe.

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For ruble expression* of Soviet outlays for clothing tha folic is needed. (a) the current basic clothing lasue and such chances ln theccurredbrother issues and the respective recipients,nformation on the prices patd by the Soviet military establishment and on how these prices have changed; and (di any monetary allowances pa by ths Soviet Ministry of Defense instead of. orupplement to. issues of clothing.

d. Miscellaneo-s

(11 Buble Value*

A miscellany of goods and service* issuediiery peither directly or indirectly is jnelcded in thi* category- toiletaundry soap, matches, cigarette paper, rasor blades, toothpaste, toothbrush* pencils and paper, fuel for space healing and cooking, laundering of pa rsonal equipment. Shoe and clothing repair, and utilities. Clearly, some of the Item; mere properly are elements of operations and maintenance and will be so class fied in the future.

Thc ruble value of the supplies included in thi*determineder capita basis and then convertednnualli*hm*nt. Specifically, price* for the individual itemsto the appropriate quartitie* of the ipec.fic goods and terv.ee*. computation ha* been acccmplisned tn terms1 rubles bccai.sewas crigmallylthough it is belie*

that the issue haseasonable representation of the situation nnce tt time and it probably suitableean btfore. Itt applicability8 it somewhat tuspect. however, the issue probablyit too lavishhat period of reeonetrucr.cn is the USSR.

necessary to convert the estimates so obtainedrice relationship* of another year, the Soviet retail pries index for items Othei than food haa been applied. No attempt has beer, made as yet to obtain sr. index specifically applicable to this category, for two reasons. First, the outlays in question aresmall, soross distortion would be req-iredany notiecable difference in results would occur. * ow priorityssigned such an undertaking. Second, it is frequently convenient to group fliesi outlays with these for food and clothing.

(2) Dollar Valuea

Dollar equivalents of tha ruble outlay* determined (or misut supplies are Obtained by the applicationuble-dollar ratio. TS1 dollar valuea are converted to ether price bases by mean* ofindex meaiunrg changes in US prices for items of consumption.

(1) Ruble-Dollar Ratios

In tor ml1 relationships, the rattle-dollar ratio iaublee per dollar. It may beoviet-weighted ratio in that the items incorporated in the calculation* belong to theraaented above. Intteat of the usual process ofatio of this sort, however, those ratio* available for individual items of this category are arrayed and the median viLt

The index used does move In the right

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selected aa representative of tha group. The reason for proceeding in thle feshiorstrictly practical: the price date are not abundant enough lo pe rrr.it sufficient reHeelion of *Jnaek*t" of items, and thus there seems to be little purpose inrocess that ia more refined than the dale and that would be slower in its application.

A US-weighted ratio cannot be calculated at thia time and probably ahould await the realignment of this category.

(4| Further Consideration*

The material necessary to improve this eatimate of Soviet expenditures centers on prices. Mere prices known to be paid by their military establishment for tha items in this category and the movement of these prices7 to tne present are required.

For the improvement of dollar equivalents and US-weighied ruble-dollar ratios, similar considerations apply. In additioni however, the counterpart US gooda and services mult be specified.

Because of the diverse nature of the Items included in ikii category no one price Index for Soviet or US prices wO, in an ideal sense, be able to account adequately for price movementse riod of time For such aneries of auitable price indexea (one for each item) would be required. The magnitude in monetary terms or other termsof thia category, however, is sufficiently small that the effort that would be required is not warranted.

2. Militarised Security

9- Pay and Allowances

uble Values

Basically the procedure involved in determining the bill for pay and allowances for militarized security forces In the USSR is thc same si that for the regular service arms. In practice an abbreviated version of that method, drawing heavily On the rcaults tor the Soviet army (groundas been

A large part of the militarised security for ces is Organised in units comparable with those of Ihe regular Soviet ground forces. These security forces comprise border, interior, signal-aad convoy troops, and in the past have Seen estimated to accountotal astimated strengthpplication of average rates of pay (or the army tohus accounted for the pay bill for most of the personnel involved but did not account moat of the remuneration.

" See, p. bove.

Estimates that are more current will be incorporated in future studies. Apparently reliable information justifies this procedure. V! The similarity bCiweer. regular ground force units and those to whichroopsis marked, both with regard to unit organisation and pay and allowances.

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Theer. on. received rwo-iai.-d.onetary recompense. These persons were militarised civil defense person* heedquart.r. personnel, end those personnel engaged In such activities ,l? Onega snd counlere.plonage. It( the unusually high proportion ofncluding higher rsnhinghat this group was SO cosily.

There la,uestion relating to scope. The tl mateCB personnel engaged In Intelligence activities. Ol thre estimated to have been mtegra:ed with the Soviet srmy. nava and air forces. Of thearge but indeterminate number w< engaged in activities that may not havehis category. There is no doubt that they -ere an integral part of the Soviet military security effort, bet obviously all such efforts should notft included. Where the Ceding lir should have beer, in this case is not yet known, and further research into the function, of theseersonnel is necessaryecision can be reached relative to their poaition in studies of military expenditures.

Moreover, the very constancy of these Strength figures has created doubt. The decline of the economic function of the MVD. organise, tiorial changes affecting the Subordination of unit, of the MVD and KCB.of the MVDentral organisation, and the announced reduction in military manpower contribute to thai doubt. Nevertheless, it seems reasonable ihat for1 the strength figures may be considered fairly reliable.

12) Poller Values

Aa tn Vie determination of ruble values, the re is alaoess difficulty in obtaining dollar values for the border, interior, signal, and convoy elements of the militarised security forces.. For these units thsre is .title reason not to apply the same dollar outlay, pe. capita as used for the regu-.ar services, remembering the same limitations of the

The situation ii some-hat different for thepersonnel. Partlyfficultles in this area withthe comparabil.ty of functions in the US and in the USSR and partlya lack of specific data on mix, the same average dollar outlays perfor the regular services have been applied. Th. problems In suchmay well o. mors apparent than real Forscomparable US rank, and grades should not be employed, becauseOf obtaining dollar equivalent, is tot Soviet program* anduld cost in the US. and ihe US might not de.ote the sametr. this .nstane* by Lie ranks and grade, of personnel] toath* .carciry relanonships-and incentives differ in

Relative to the regular services.

Estimate basedamplenformation.See.bove.

t Again, many of the difficulties of this sort will be ameliorated when Sufficie

Mtfl.ll and flexibility permit consideration of programs andn the come ot function or mission.

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of the Soviet military establishment. Instead, while on such duty, these pei receiveheir usual wages or salaries from the civilian eatablishmi employ

Computation of the monetary income so diebursedornclianed in the moat feasible manner with the data or. head.otal number of reservists, by year, are based on Soviet la- andlasses (the number of males born ir. anyhe legal commitment; for service ol each category of reservist areut the wide div genee between the law and practice must behis divergent occurs in two ways: not all of the reservists eligible for annual or Other ire. ing are called, and those called do net always serve for the length o( time sp (led. Because Information sufficient to quantify these divergences has not oe forthcoming, the method used, although not arbitrary, is no moreub live quantification. The resulting man-year estimates are equal to one-third amount that strict application of the legal requirements would have yielded.

Conversion of these man-year figures to estimated rub outlays is accomplished by application of the average wage (or workers and ai ployees in tha USSR.*- The use of such an average, of course, Invariably in* duces problems. In addition to those discussed below with regard to this mea wage, there are several which are peculiar to its use in this context. These problem, center largely around the fact that the diatribe nor. of reservists by age. sex. education, and area of residence (urban or rural) probablyhat for all workers and employees, although the net affect of these influences is moderated somewhat by counterbalancing.

(2| Dollar Values

e

Dollar valuation* are gainedanner very similar it that used (or personnel on regular active duty ia the armed forces. The aver* annual recompense per capita (or service personnel In the US was applied to th number of man-year equivalents served by Soviethe problems inherent in the application of averages, this process permits con servatlve reflection of the outlays -hat would be entailed were the US to support the Soviet reserve program.

(3) Ruble-Dollar Ratios

The only ruble-dollar ratio currently available is thebetween the average wagea used in rublaa and in dollars Conceivab: some weighting system io account for differences in the composition of Soviet and US reserve forces might be developed, but the likelihood of doing so seem.

remote.

* Despite the incidence of the burden of these expenditures, they are included as part of the cost to the Soviet economy of an obvious and direct military progr.iscussion of this average wage, see C. .elow. For the average US rate of compensation, see I.. p bove.

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(4) Further Considerations

As the preceding discussion illustrates, there are many facets of this problem on which additional information could be brought to bear. Resolution of moat of these, however, would represent unwarranted refinement and would add little, if anything, of substantial import to the study of military expenditures. There is one sector, in particular, that does not fall within the scope of this last decls ratio: that dealing with the necessary underlying series of manpower. Here the detail is important and should be extensive enough to cover the number of reservists called for such duty as summer training: the duration of such training by group (by class o: reservists and by ran* and grade within thehe residence, rural or urban, of those called: and, ifthe reman*ration from civil employ received by the various groups.

(Food)

Tha Soviet Ministry of Defense ia presumed to bear theof feeding raservista on these abbreviated tours of duty. Accordingly, the calculated per capita cost of rations 'for lhe active regular servicehas been extended to cover like expenditures for reservists. *

No outlays for issues of clothing to reservists have beenin these analyses of 5oviet military expenditures. Admittedly it seems unrealistic thai the Ministry of Defense bears no expense of this kind, but.giver, the number of reservists and their abbreviated tours of duty.it seems highly unlikely that they receive anything but the temporaryof used clothing. Thus thc associated expenditures would be relatively slight.

Supplies

As in the case of clothing, it seems quits likely that some small expenditure (or miscellaneous supplies issuedeservists should be taken into account. No information permitting anudgment, however, is available

4. Retiree*

a. Pensions

(1) Ruble Values

The question of monetary payments to retiredeadsroblem ofven chough the group would appear to be clearly defined. Briefly the problem ia to decide whether the resultsare to be viewed as all-inclusive (that is. covering both regular service and militarised security personnel) or as representing retirement payments for regular service personnel only.

Budgetary analysis will be affected by the choice made. Pensions for regular eervlcs peraonnel are financed from tha allocaiion to tha

See, p.bove.

These noncsreer personnel receiving pensions for wartime disabilityt like are specifically excluded. They are covered by Social insurance.

- 23

SCP DCGHET

Soviei Ministry of Defense; those for militarised security personnel are ftnanci from Ui* budgetary residual. The procedure followed to dale haa been to eons:-tbe estimated outlays for pension payments aa financed from Lie allocation otinistry of Defenae, and thus pension payments for mllitariied security parser nave actually not been taken Into account.

Because the alie of tbe Soviet armed forces, which are perennially larger than those of tha US. cannot be reflected in Soviet retirement rolls in any preciseinimal estimate directly related lo the number of US retirees has been accepted. It is reasoned that these largerSoviet forces, given their regulations, must be and must have been retiring peraonnel eligible for pensions in at least the same numbers as the US. Hence the annualS retired personnel was smoothed [thatrend was fitted) and employed.

Soviet regulations prescribing the requisite lime in grade for promotion, ih* time in service necessary for retirement, the duty werrar.tm, acditional credit towards retirement, and ths percentage of basic active duty pay to be received as retirement payments provide the basis for estimating anaverage annual penalonesult of these factors the aavrage ran* at retirement Is roughly equivalent to that ofnd the0 rubles.

(2) Dollar Values

A dollar value, equivalent to the ruble outlays for military pensioners, is derived by applying the average annua) US payment to the number oi ratirces estimated as being on the Soviet roll*. The average US figure5/ IS hardly ideal,for itsimply represents US Outlays for military retirees divided by the number of retirees/ It is clear, therefore, that the US figure represents an average retirement payment for retirees of all ranks and grades and does not in any conscious mannerer capita dollar value known to be specifically appropriate to Soviet military retirement rolls. This value, it should be noted, apparently does reflect adifference in the composition of the retirement rolls in the two countries that is, there are appreciably more enlisted personnel on the US roll*.

(3) Ruble-Dollar Ratios

The only ruble-dollar ratio available is no more than the relationship between the two per capita figurea cited above: ubles to USrms5 relationships]. Differences in weightinghat is, theof the respective retirement rollsave not been taken Into account.

It la of some interest that th* relationship betweenper capita for pay and allowances in the two countriea is markedly different from the relationship of expenditures for pensions: the former isubles to US Rl, theubles to US SI. The explanation of this divergence, ho*-ever, ia largely jhe dissimilarity in the composition of the active duty androlls in the two countries with regard to rank and grade, particularly the relatively small numbers of retired career enlisted personnel In the USSR-

The more recent changes affecting these payments have not been taken into accouat. It is apparent that th* changes are somewhat counterbalancing, but it is believed that their net effect will be to reduce the per capita payments as estimated in this report.

Only Soviet officers andualify aa career personnel. In this analysis. rc-*nlisteea are given only cursory consideration because of lhair small numbers relative to the number of officers.

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(41 Further Considerations

of retremiP! outlays, of primary

impertaacc i* information thai *UI permit direct determination of the number of Soviet retirees by rank and grade. Further refinements in other approaches to ihe problem are already possible, but until such lime as the information on manpower thai is basic toalculation can be viewedigher degree of confidence, there is no point in following other approaches.

b. Other Benefits

No estimate has been made of ihe costs associated with auxiliary benefits, such as certain tax exemptions, which accrueoviet retirees. The sum of such costs is most unlikely to be of sufficient magnitude to warrant the

effort.

B, Procurement

The term procurementreadth of meaning sufficient tocquisition of everything from manpower to guided missiles and isd inontext. eneral way the term is understood to refer to the acquisition of equipmentombat, support, and organizationas wall as suchas rations and clothing, For purposes of this report, however, the term has oeen limited to thoee items lhat are sometimes referred to as ma;orthat is, major equipment and organisational equipment and their initial sparea well as replacement items.**

The term major equipment refer* to that equipment used for the direct accomplishment and support o( the basic combat function of tho unit: orflanl-ta-tional equipment, to all the other equipment necessary to the generaland existence of the unit. In the discussion that follows,recise alignment of major equipment and organizational equipment is not achieved. Bather, the several types of equipment are presented under headings denoting specific classes of equipment, such as aireraft and trucks, This procedurethe dual nature of so much of the equipment, both within specific unit* and among various units, snd :h* effort Still necessary to accomplish further Thus the account labeled organisational equipmentesidual

Finally, it ha* not been poisible to determine the actual Soviet schedule of procurement, as distinct from production, much less ths scheduling of pay* ments. In fact, then, the estimates represent the value of production. with regard to major items of military hardware (exclusive of transport aircraft, trucks, and similar itemsivil aa wellilitary uaci, the estimate* represent the value of all production of the given item* and not just that intended for the Soviet military forces. Thus production entering external trade channels or going to the Soviet militarized security forces (or still other internal consumers) is included in the figures presented in the studies of Soviet military expenditures as domestic military procurement. Because these other recipients of military hardware have, to date, accounted forelatively small share of the total, they may be ignored for many purposes but not with

" As opposed to operating spare parts, whichactor In operation and maintenance. e Section C, p.elow. | Initial or concurrent spare parts accompany delivery of the equipment and may be viewed, it, large part, as those spare parts that fill the pipeline. See Table.bove.

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Igard lo budgetary .ad iuqomI accounting analyses, where they may nigm some significance.

11 Aircraft

a. Ruble Valjea

Simply. these estimates art derived from productionin coat ttrma) and from phytieal series" of production Icy plant) forf Soviet aircraft. The initial valuations are made inand are then carerteduble batii.

The production function relates volume of production to coti

sad one euch function ia adequate to describe the relationshipjtven mode

of aircraft, lo practice, however,for purposes of calcuietio

to employ several functions, each with the purpose of characterising the cost

output relationshiptructural component (such as airframe, engines, or

electronical of an aircraft. Cumulnnvelyombination of functions yiale

the tame results as would the one- The subsidiary functions are of two hinder

those in which the cost per unit of output is regarded at constant and thoti in

-hich the con declines with successive production. Illustrative of the former

are armaments, electronics, and propellers. The Utter pertains to airframes engines, and accessories. *ee

It has been establishedeclining cost function, or "learningescribes productivity in ihe US aircraft industry. T Thefunction is an exponential of thear" -inch can be depictedtraight ha, on log-log paper. This curve it fully definedoint on thi carve and it* slope. When the slope is ye percent, the function indicetee that if the cottor unit x. for unithe cost0 C.

There i* no need to represent this function, a* was just done, in terms of unit cost: it may be expressed equally well in terms of cumulative average unit cost or total cost. All these curvet are essentially straight lines when plotted on log-log paper and are alternative means of stating the lame For computational purpose* tha total cost curve is used in the etudt* of military expenditures.

Available data indicate the existence of function* of this type for the Soviet aircraft industry. Voanesenshy wrote "The growth in labor productivity resultededuction in labor expenditures per unit ofespecially ln war Industry. Labor expenditures in plants of the aircraft in-duatry for the output oflane declined from ZC. 0O0 man-hours1an-hoursabor expenditure onlane fell corresponding froman-hours, and labor expenditure or. thelane decreas

rief diacussion of such analyses, see H. A..bove. The methodological concern of this discussion of procurement is confined largely to the valuation o* the physical series provided primarily by theUS services.

Additional components *uch aa electronics may be described by (unctions of thia type In the future. Those (or which the "learning" process is mosthowever, are those already described by tueh function*.

t The (unctions herein presented describe costunction of output. ore complete discussion of learning curves, see'.

0 further corroboration came early In

.

publication <iud functions ofcom of

aircraft production are employed in the/

The informationtogether

with dm for theCab), euggesis that theseeiion. are of the same order ae those for US plant*. It U. ther.fore. considered to be reasonable to use US learning curve* aa repreaentative of thoaa of the USSR.

The dollar data incorporated In these functions are considered toeasonable representation of the appropriate costs of components of Soviet aircraft. They are based on estimates of what it would cost the USindustry to produce the Soviet aircraft as they are built in th. USSR or on the cost of counterpart US models where the aircraft are considered to bealike.

Such cost data and thd production functions already defined serve to provide (in conjunction, of course, with production of aircraft, byhe means for calculating the dollar value of Sovietnitial spars parU are included In these estimates but are calculated separately. The factors employed are based on USheselype of aircraft and are related to production for each major component of an aircraft.

Implicit in the discussion of dollar valuation is tha fact thai sufficient data are not available to permit direct valuation In rubles. The avail-able data, however, areature that permits basing ruble valuation onSoviet information. Such information is adequate foruble, dollar ratio that is reasonably reliable-

Us* of US functions, however, does not imply that Soviet costs andare the iam* as those in the US. but rather that the cost reductions thatroduct of learning proceedimilar rate. Deferences in costs in the two countries are accounted for by Lhe ruble-dollar ratios.

The productivity functions are applicable to productionodel at on. plant, not to production at several plants or throughout the industry.

r The results so obtained have certainat areent from those frequency describedalue .eri.s. Although these series

terials. With the exception of the values obtained for the bass year, the scries described must for some purposes be converted to market prices in the base year On suchroduction index is derived and applied to the value ir the base -ear obtained from tha method Juet described

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Pap SECRET-

evett tntarnal Soviet prices have complete aircraft, one (or an aircraft leu III flndiaj

anddata cover theheFagotti*.,

i5ngin.n7 (Fresco) andB.agle). The quotation, for th.nd l>

eferred to interplanthereat th, oiher price, referred to actVi transfer, to the military establishment

The earlier quotation for theC rubles).

sc have been based on productionanuary

yproduc-

ts is set.mated to have beatircraft as7 andis-eraft as. The average price for an almost identical US plana,as been obtained for the corrasponding units and adjusted downward to re-fleet th, lesser provision of electronics on the Li-2. (The LL2stimsiad to haveercent of the electronic equipment found en7 JB/I In orderoth the US and the Soviet eo.t.he cost'ovedric.ecause the corresponding US unit, of production occrr, On this basis the average price of thenits ofT referrcc to above7 prices is .Sttmatcd at0 The resulting ruble-dollar ratioubles to US SI.

A ilm'.lar procedure ii usedubie-dellarin, priceSr. Li-J

The, -in production and price are account"he mamar ;ust described in the preceding paragrapi Tie corresponding price700 prices. The ratio, marafe-re. isuble, to US SI.

Comparable analysis for thaequired the eatlmate5 manufacturer ol what it would coat to produce this aircraft, using Sov.,tniquas, In the US. (There is no counterpart UShe available Soviet price Is for aircraft produced at Komsomol'sk Airframe Plant No . whlCh started production of this aircraft0 and ii estimated to have producedO units According to the USstimate a. average price00 prices is applicable, which when compared with thcriceublesatio ofo I. Of course, if the ruble pric, pertalnadarge orumber of units, th, ra.ulling ratio would -av, varied directly. For example, if the bails fcrricefnits, tbe ratio would be 4ubles to

In tha cass Of the VK-IA angine, the ruble-dollar comparison can be madetraightforward manner, in view of the fact that the dataectly comparable in terma of time and level of output. Tha price for fie VK-JAublea. was quoted

s the closest US equivalent. Both tha Sov-.et and lhe US, developed from lhe Rolls Royce Nene turbojet engine, and they are generally comparableght and thru.t. The US engine waa pricedn terms4 price.. Th. ruble-dotlat ratio, therefore.tol.

See the footnote on p.elow.

Four other plants had bean producing lhehereby providing lhe basil for realistic assessment of costsew entrante field

11

The several compu tat ions Have yielded ratios ranging tram possiblyubies to USoubles to It has beer, concludedubles to USeasonable representation of tne price relationship cxist-ng curing this period. Ir.f the relatively small amount of electronicand armaments on the aircraft for which internal Soviet price information is Available, this racio is considered to be appropriate for airframes, engines, and accessories.

This ratio has been modified only sligntly in order to reflect th* relationship between US and Soviet priceshich is estimatedubies to US SI. The ratio is roundedingle digit because, all thingsit teems to be the best representation even though if means that the modification appears, in crude terms, to be the equivalent of taking account of lhe increase in US prices with no corresponding change in Soviet prices " Several considerations are integral to this, relatively small change: most of the alternatives rounding to thishe constancy of the individual ratiosthehe offsetting effects of Soviet prices of labor and materials (labor is an appreciable input in production of aircraft,he rapid chine* in the product and the relative profusion" of models that began

As noted, this relaticr.ship is the means of obtaining: the ruble valuation of Soviet production of airframes, engines, and accessories. The dollar values for electronics and armaments are translated into rubles by means of other ratios.

Usually,when current monetary terms are requires,ade in the derived ruble values. The series, based on input prices, are considered to be the most adequate representation of transfer prices in bothnd current terms. As already noted, tne input prices are in constant term*. In vie* of tne upward trend of Soviet wages, the fact tftat the quantity of inputs vanes, decreasing with increased production, is believed to introduce sufficiently compensating elements ro represent the resulting values as being in current price term* as well.

h. Dollar'Values and Ruble-Dollar Ratios

Dollar valuation and the ruble-dollar ratios are an integral part of the foregoing discussion of ruble values-

c. Further Considerations

Tne desirability of more Soviet price information, particularly for the more recent period, is clear. The oilier needs relate to moreou: (he learning process in the USSR, input prices, and the like. Thesehowever, can all be included under the need for price information, an area inelatively small amount o: materialreat deal loiny of lhe goals of these studies.

* The price index for machinery and motive products employed to reflect price changes for US aircraft. (See The US wholesale price index, less farm products and processed foods, is now believed to be more appropriate

; be ited in the* See. 3B. and.elow.

)4

2. Armored Combat Vehicles

Ruble Values

Of lhe data available or. prices of major equipment uniqueground forces, the greatest amount, and perhaps tha most useful,tanks. Specifically, three of the four pieces of price information applyubles inubleshe first of the pricesirecth* secondderived from the value of outout at Plantnd the phyaicalthe third haa bean calculated from

ataiement on relative cost* of medium tanksompared

Obviously the cited prices are all reflection* of exper.enee during World War II. The period was on* of rigidly controlled prices In the USSR, and thus the prices have beeneflection of th* price leveli

With or without the preceding assumption, il is clear thai the data indicate the existenceeclining cost function, or learning curve.ne framework of (he assumption, fitting the abov* data to an appropriate expo*unctionlope ofercent.

Application of the estimated production of4 to thisonesult in an appropriate series of values. The initial requirement, however, called for expenditures by the Soviet military establishment for this item1 prices. To this end the5 pncii were converted by me;rice index thaieighted average of wage and armor steel plate prici At this stage, values ware obtained from the curve.

1 price relationships necessary for the initial endeavo-la this sphere have been converted5 base for the currant elforls. To dc so, the industrial cost Index presented ins used. An extension of the price index employed to5 prices (the weighted average of wage and armor plate price movements) has no: been applied. In view of lhe necessity for the widespread application of the Industrial cost index, it has bean eonaidered to be desirable to use this index for asample ae is feasible, unleas its use would introduce some gross distortion.

For valuation of4 the cost per ton ol th* T-as beer, adjusted upward to allow for the introduction of improved engines and fireequipment. 4 is no: completely different fromome transferability of learning from4 has been assumed. Hence tha initial uni: of production of4 is estimated tooaltion on the pre-ductivsty curve equivalent to theoutput of f th* estimatedin eost forowever, thta point Ilea above the corresponding point on the curve for

Fundamental to the valuation of production of heavy tanka in the USSRtatement that appeared in the Soviet press: "The coat of heavydeclinedercent during the war years and reaultedaving of i- 5rubles, Tha cost ofank in4ercent less

US experienceoughly comparable :ank.. exhibited like gains in productivity.

iacuaaion of these functions see,bove.

-

chanroduction function has been derived from thisyecreasing exponential function of thc type used for the medium tank

The computation,On uic uver- iu uauineenturve

lope ofercent. The applicability of this curve is attested to by the fact that itercent decline in cost3eduction thai compares closely withercent cited above. pr. rim Curve, the remainder of the process for obtaining the relevant values is identicalhat for

The method employed lo obtain similar values for self-propelled guns is less direct. No Soviet data on prices or costs are available. 3ut.ne Chassis of these weapons are the same as those for tanks, it was considered to be appropriate to apply the costs in rubles per tor. for the tank of equivalent slee to the weight of the respective self-propelled gun.

Finally, there remain for consideration armored personnel carriersi arsr.ored scout cars, artillery tractors, and amphibious vehicles. Prices for the armored personnel carriers and armored sccut cars have been obtained by adding the costs1 rubles) of armor pjate and the estimated amount of labor necessary for its fabrication and installation to the prices false1 rubles) of the respective basic truck chassis on which such vehicles are built. Conversion of the results to prices ofears has beer, achieved in the rams fashion as lor the tanks and self-propelled guns. I: Should be possible, however, to determine directly the prices for these vehicles tor other years -or The available information appears to be quite adequate forask.

Price or cost information for artillery ;ractorS and amphibious vehicles is not to be had. In these cases, dollar prices for comparable US items have been obtained. These prices have been adjusted where necessary to allow for differences in specification and then converted to rubles with the ruble-dollar ratio for armored personnel carriers and armored scout cars.

An element o: each of the programs discussed in this section is ths expenditure for initial spare parts. Such expenditure has beer, addedate ofercent of the value of production, whichonservative application of analogous US information. Ir. the case of equipment phasedof production during the period under study.igher rate has beer, useethe last years of its production in Orderrovide an adequate supply of spare parts for the equipment remaining in service.

There are three aspects of the method just described which contain elements of inconsistency. Although not believed to introduce serious distortion of the results, the inconsistencies are worthy of consideration if ti'.lyighlight lhe likelihood of being able to eliminate them, at least in part,he future- First, the Soviet prices used to value thc ma]or items discussed in this section (tanks and self-propelled guns) mayixture of price, cost, and perhaps an undefined value per vehicle. Nevertheless, this information has seen trcaicd as reflecting costsor example, thc declining cost functions. Secor.c, ii aircraft prices may reasonably be supposed to have reacted differently [torn the prices of other industrial goods, it appears reasonable to suppose that

And. ofriceoint in time, which was computed in the same general manner as that for

For example, he

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TOP-SECRET

the pricea of at least some of tho Hams included in this group would Cehav*Uf aircraft. There tl. however, one rather importa

point: product change* are not ao far-reachingiven period ol timef ground armamentt aa they are for aircraft, Aa Staled BOove. an induliria index is employed to reflect price movements for armored combat vehicles,n contrast to what is done for aircraft. Third, thc means of pricingn this caiegory very In their degree of sophistication for tanks and eelf-prneclining coat function is used: for the other vehicles, producttviiv gr are net taker, into account

Values

The basic procedure for obtaining dollarpplication of dollar value*. Ruble dollar ratios, however, are oftenomputational convenience. * In fact. In extending tha estimates overenure frequently haa been reversed in that dollar value* are converted to rub

Ratios

Th* ruble-dollar ratioa relevant to this category are allrom unit prices for comparable item* of equipment.

Aa waa mentioned above, US experienceankhich correiponda roughly to4roductivity function like th' derived forhua tending to confirm at least the reasonableness ol if" cost function derived from Soviet data, from the respective US and

for these model* Itossible to derive ruble-dollar ratios for the periodorld Warhat vary fromoarrow rang*. Fortunately

there is informationonfirmatory nature asS manufacturerated rhat it would cost. COO to produce4 in thi*

The use of the ratios just cited result*uble value that conform* very

th the appropriate ruble value on the derived cost function.

Unfortunately, these ratios are in terms3tHl than In the orig.Rally. pricea or the currently9n order toatio based1 prices, the price of49 rubles was moved in th- manner indicated in a, above:9 price of theaa movedimilareighted average of wages and the prlt< of armor plate). 1 prices so determined were reduced to valueshich, when placed In apposition,uble-dollar ratio ofo 1. Froi this point, ratio*9 prices have beer, determined by means of pi Indexes which have already been noted. The ratio that may be computed laubles to US Sl.a*

- It would ba more direct to speak of converting ruble values to dollars byf dollar-ruble ratios rather than ruble-dollar ratios. Application of the latterision rather than multiplication to obtain the desired reaulta- Thcdollar forma:mployed throughout because ol it* widespread use. Of considerable interestecent statement by an "official" Soviet source. AM. Alekseycv. Candidate of Economic Science and holdertalin pniic. statedublic lecture in Moscow on the Seven Year Plan that the ratio for tanks wasubles to US From the context, and the date of his addict it is assumed that the ratio is applicable Conversion of the derived rat-based9 (used in this itudy)7 priceaatiouble* socceptance of the publicly stated ratio as7 rat* means, therefore, that tl ruble valuation*oviet armored vehicle*n conservative and/orhe equivalent dollar valuation has been overstated somewhat s*tr> cent to thendcratatcment or overstatement are ,mpli*d.

-

These ratios, which arc baaed on th*4 and thcrc - for al! tanks and self-propelledoasonable procedure in viaw ofcomparabilities. Th* applicability of these ratios to the remaining armored combatalso ha* been adjudged appropriate.

d. Further Considerations

dditional price information would be desirable and the more recent the vintag* th* better. Not only are specific prices, andf the savers! item* needed: but thereeal need for indexes that realistically pcrtray the movement of prices, and costs, for these items of major equipment.

1. Artillery and Other Weapon*

The information available on this subject is sparse and the method alogy employed is brief To obtain appropriate monetary valuations for artillery and other weapons, itnecessary to use counterpart US pr.ee data*na reaulta so obtained by meansuble-dollar ratiO-

Initially. coats5 dollars were the basis of this calculation. These coata were converted1 base by means of annd thento the estimate of 5oviet production of the various weapons. In thisallowance was made (or productivity 1 ruble-dollar ratiohich was used on abasis to arrive at ruble valuations.

Current practice is only slightly different. Reductions in coat duecae noaken into account, because ol the small gradient of production function* for these weapons, and hence their.rather negligible effect on thc results for these studies does not justify the rcquieite effort. ddition, arxtther piece of price information (formm antiaircraftas led to di rcct modification of the ruble-dollar ratio expressed5 price rrianonihip*. Instead of the ratioublea to US Si thst would be obtained by applying the Soviet index ol industrial cost and the US Indexes for metal* and metal products and for machinery and1 ruble-dollarew tentative ratioas been established.

4. Ammunition

Estimate* ol the number ol rounds of various type* of ammunition (excluding conventional aerial bombs, mine*.and torpedoes| produced by the USSR are convertedonnage bail*. These tonnage figure* are, in turn, valued by applying dollar price* per ton. Ruble values ar* then obtained through applicationuble-dollar ratio, which,1aa* year,ohe information on Sovietsed in arriving at this ratio isctchy, so that except for the fact that thc ratio falls within the relatively narrow range found applicable for most of the ratios of concern, It probably would be discarded. At best it is viewed as tentative, The usual price indexes areto reflect the ratio'in terms5 priceublaa to US SI.

The US price data employed included allowances for initial spar*s general. such spare parts account for at leastercent of the basic price.

See Appendix C. le and Shotgun Shell* and for what appear to b* mortar sheila.

-

A production secies for mines and torpedoes has also beer,hrough the application of US prices and their conversion to rubles byhis ratio. Expenditures for conventional aerial bombs have been estimated similar manner.

5. Trucks

Values

Price data are available by model and yearargeentagc ct the vehicles The models used by the military esuc ment have been valued directly1 rubles,actor of pen-las related to production) for initial spare parts.* It is expected that inhe same procedure will be followed5 as the base year, but thus fa: price relationships have been obtained by means of the industrial costt is clear from the available prices for trucks that littlesing this index.

Values "

The weighted ruble-dollai ratio described belo* .sruble values in order tc obtain equivalent dollar figures* the US price index for motors employedthaidollar values need to he determined for ether years besides>

C. Ruble-Dollar Ratios

The ruble-dollar ratio1eighted ratio based on the Soviet mix. Ratios for individual models are obtained by using the price tne Closest US counterpart. The specific ratios that result are combined b. using the values of production of the respective models as weight*. The ratio so determinedubles to In order to5 relationship, the aforementioned US and Soviet price indexes are applied to this ratio. Fail.-to use weights for the given year in each instance has introduced little etrnr.

d. Furtiver Considerations

Little information ishis area insofar as tbeerr. is for financial data. Some of the generally applicable questions, {se* th* section on Generalowever; apply. I For example, (I) are the available prices those that are actually paid by the Soviet military asUbliSh-mcr.t,hat are die sources, budgetary or other, from which theestablishment receives funds for the purchase of this equipment*

* Based on US experience. See Appendix C.

*** The results obtained with this ratio are the same as those that would havi been derived through the direct application of dollaree li,bove.

-

6- Naval Vessel-.

a Ruble Values

The valuation of Sovietroduct o'

ofnd de.cr.pt.on. ol Li. re.pective clae.e. ofha. bean to apply us

Initially. 'JS coat. expr**aed in dollar, arc reduced to a

rr.?: oiu" 01

l.. oith ruble-dollar ratio..

to account for the actual tran.ferenee of fund*

.rom th. Soviet naval authoritie. orgent.hehe Th. complete of tonnageplacenu.S nd P'ym-nt. are deemed to occur In accord with

PrV-"i" Itnown that the Soviet

. to trawler fund, to the ah.pyard -ith acceptance of

construction and tha, there are apparentlyp.he process

b- Dollar Value.

... ean, of obtaining collar Ml*.-

p ,n

texpenditure.. Thereowever, one facet of Lie

Ruble-Dollar Ratio.

The paucity of data on price, and co.t. erlth regardov-r

Tel:outlay. ln rub...

na of translating analogou. dollar vsjue. into ruble. needed Ruble.

T^rj" frhiClB>^been der.vJd [r

-he manner described la the following paragraph*.

' conver.ion. have not been. Thua an ele-

ment of undarettimation Some direct ruble price information it altoe.

At first the relevant classes of US ships wereeven inputs: propulsion machieery, electronic equipment, armoran power. Shorether materials, and labor. The dollar costs for each these inputs for each class of major vessel built by th* USSR wereubleseries of ruble-dollar ratios. These are ratios derived from tr general categories of goods and services into which each of the saver specific! inputs fall. This process yielded ratios ofor cruisers,( destroyers, andor submarinesll In terms1 prices.

In view of the problems inherent in the methodingle ratioubles to US Si was used throughout for new construction. Wl5 price relationships the Soviet investment cost index*'- was ji to deflate the ruble element of this ratio; US COS'S were, and are obtained51/ The ratio ir. terms5 pricesubles to Itnterest to note that thc price information dealing with merchantmen wasalthough only roughly, with this material. $Zi

More recently, it has become feasible to use more widely th* standard ship classification system of weight and cost of the US Navy. lassification system and procedures similar to those already describedollowing ratios in terms5 prices: ubles to US SI for destroyers.ubles to USor submarines,ubies to US SI for auxiliaries.

d. Further Considerations

Clearly the nood here is for price and cost Information applie able to Soviet naval vessels. Considerable information of this type is avmi^ol" for Such nonmihtary vessels as cargo ships and tankers.

-

7- Ground Electronics

This account is the Only one devoted exclusively to electroniceat. In all other instances, such equipment constitutes (a) an integral parteapons system (for example, aircraft or guided missiles! or (b) Only one ele menlroad category of equipment (for example, the instance of;he methods employed in handling lhe various accounts, however, permit the separation of most of the electronic equipment, so that the extent of Soviet endeavors ir. this area may be assessed, f

- Spare parts procuredarticular Ship, or class of ships, at the tim* cf construction and stored on shore.

" In termsi prices these ratios are as follows: materials, ubles it US Si; propulsionubles to US Si; electronicublesS Si; armor andubles to US Si; powe r, ubles to US SI. shore spareubles tond labor, ubles tc US SI. *" See Appendix C.

* Only recently this occoun; has been extended loubstantia: amount noncommunications and communications equipment that is net an integral part of ether equipment. Previously, ground radar was the sole item included:t-cf ground electronic equipment were presumed to be covered by the broad factor, used in computing organisational equipment.

Noncommunications equipment encompasses ground radar, electronic court-measures equipment, ground infrared equipment, navigational aids. proximity fuses, and electronic computers. Communications equipment comprises tactical communications equipment for the ground forces, electronic equipment used byair defense system (Or communications, and the electronic elemenrs o: fixed corr-

-

a. Ruble Values

Fundamental to estimation oi the required outlays for ground radar, lhe dominant element ol this account, is the estimated ground radar order

ir, determining this Order ol be tile, each ci the Soviet regionS (oris considered separately. Reasonably accurate data are available or.(or several areas. Such data are extended -hen necessary tofor which the information Is lessof radar for the Soviet earlyoiled intercept system is based or. establishing the number of sets onground fire-control radar is based on order of battleon Soviet production of new antiaircraft gunspercent factor forol equipment. The necessary scheduling of production on anis relatedariety of factors.the cor-

relation between production and construction, respectively, of the equipment and facilities. Each type of radar is scheduled separately.

The projection period is handledimilar manner. tlstirr.a'es are made on the basis q: probable Soviet requirements, in view of trends in the development Of weapons. Each type of radar is accorded Separate treatment.

ime scries of annual production oy model, the last step is to determine the outlays required lor the procurement of this equipment. The saarseness of the necessary information on ruble prices makes il necessary to use analogous US price data. Ruble values then are obtained by applicationuble-dollar ratio.

Outlays for other noncommunications electronic equipment ere computedimilar manner in that the underlying physical series are often based on order-of-battle information or are related to ground radar- Other in-formation, however, is also brought to bear for some items. Outlays for the electronic elements of ground communication equipment are also determinedim.lar manner, except that information on links, transmitters, and receivers as well as requirements and order-of-battle information are employed.

Values

As previously noted, the basic process of morsusatiOn isin dollars.

Ratios

The over-ail ruble-dollar ratio for militaryubles to US$ prices. This ratio, which has been used throughout this report, eighted composite of several ratios derived for different rypes o: equipment.

One of the components of this over-ail ratio is th* ratio for radar equipment,ubles to US SI. uble price was synthesized for antypical Soviet radar Set from known prices of labor and materials,c applied to the physical inputs used tr.imilar set ir. lhe US. The relationship between thc fabricated Soviet price and the US price, both0 prices,atioubles tcUSJl. The rate5

is Obtained by deflating the derived Soviet price0 terms with an ir.de* ai labor productivity for the former Ministry of the Radiotechnical Industry aidrice ir.dcx for electronhen cornearieg this priceenvc& US priceS terms.

--

rvp secret- .

d. Finher Considerations

s (or more informaeion thai directly indicate. Sovi produetion and procurement of ground electronic equipment or. for that matte, of any major military electronic equipment. More Soviet price information -enough, at leaat. So permit calculation of expenditures tn rubles would be highly desirable.

S. Guided Missile*

(or

Somethingeparture from the normal procedure entailard to thia aecowit. The other an mi all under Procurement are limited to the items of hardware apecitied. whereas in this case not only the missiles and the ground guidance* but also their support equipment (special and standard) areded. To some extent this departure wieh respect to support equipmentatter of necessity; it has not been possible to differentiate Suitably expends- -

support equipment for all missile systems.

Moraovar, the basic approach la somewhat different in that thu oj .ays (or entire mietllc systems are derived first. All costs, both ofnd of operational naturencompassing everything from peraonnal to* are taken into account by means of the building bloc* concept used in cosiof weaponsystams. Reconciliation with the accounts presented in thisents little difficulty.

Valuea

Other than for certain standard item* of equipment, it ispossible to bum ruble value* directly. Therefore, mail of the estimation i* performed initially in dollars arc! then converted tofie mosiof th* available ruble-dollar rata*.

Values

Basic to the valuation of Soviet missile system*ata on US syatema. US data on coats and outlays for counterpart systems areccordance with observed or estimated characteristic* of Soviet operationalorganisation, equipment, hardness of sitea. and dispersion. emecaaianly considered separately with the requisite valuea for th* misailes. ground guidance, andial support equipment derived from produ'-tionearning curves").

The usual practice of including all equipment procured |nr produced) under th* accounts for Procurement is also followed here. Thusused for training, replacement missiles, and those missiles In theare included, as are those estimated to be operational, tnltlal apare pans are similarly included.

Ground guidance includes all guidance equipment except that Inmissiles and comprises ouch items as radar, computers, and fire-control equipment.

Guidance equipment for mWailea that is installed ia aircraft and ships is also

included.

ln future estimates, differestiaticn of the costs of special and standardequipment may be possible.See.bove.

- ii -

No: Included in this account ate certain elements of equipment fo miss.la systems thai are covered By other accounts. Most notable of these elemen are nuclear warheads. The other elements are the pro rata share of thefor early warning and ground control intercept that is associated with cefer.-lavej :r . the aircraft and naval vessels that carry and launch mises 'alterations tc aircraft and shipspecial equipment in*tailed or. them art taken intond developmental work. In this regard it might be noted ioc that in those Instances ir. which equipment is inherited from earlier systems it is nci recharged to subsequent system! except insofar as there are modifications.

Ratios

the nams basic to this accountissiles, guidance equipmanl, and special support aquipmentthere is no direct Soviet prlea information. (For standard support equipment, tha aituation is somewhat difiarcnt.I Thus, in the interests of minimizing distortion, ruble vslues arewherever feasible by applying ruble-dollar ratios to components of this ea-ipmeat. Of most importance for this purpose are the ratio for airframes and engiras and die ratio for electronic equipment.

d. omidarations

Theressing need with regard to determining thaoutlays for Soviet missile programs is for price informaocn known toacily applicable. Production functions, ths number of plar.ts engaged ineach major item or component, replacement (actors,loat of like and ouiai items are pertinent. As an alternative orupplement to sucht mac oa, aggrsgative Cat* on Soviet expenditures for missile systems would serve well in that they would provide benchmarks for evaluation.

3. Organisational Equipment

The consideration giver, to the othar accounts underanr.ot o* extended to- organisational equipment. In the first instance, thi*daas not easily lend itself to such treatment; it covers myriadything from automotive equipmentr.eaa equipment, from specialo text pegs. Second, the available information relates to certain types of this equipment only and varies with th* individual item, in some cases pertaining touantity of an item heldarticular unit, in ether caaes to th* prlcea af the itams, although not necessarily the same items for which quantitative data aie available-It has been decided, therefore, that th* usual methodology would not be productive. Instead, US outlays for this category of equipment and theirto other outlays are used after being modified on the basis of theSal* to reflect Soviet conditions.

m. Ruale

Once the appropriate relationship between outlays forequipment and other outlays Is determined, ruble valuation involves no more than the application of this factor to the "otherstimated for the

Sew is: military establishment.

Tor example, see,bove. See i. a,nd', c,bove.

TrOPSEeRef-

b. Dollar Values

Dollar valuation iamaana olruble-dollar

ratio.

C. Ruble-Dollar Ratio*

Tha ruble-dollar ratio ia derived from the several ratios com puiiblt for particular Heme of organisational equipment and from ratioa for other claaaes of equipment. Thia procedure resultsatio ofub(es US Si5 prices. Ratioa in terms of prices of other years are obtained by oviet Index of industrial coalS index of the prices of IBMfclBI and motive producta.

d. Further Considcrancns

It is unlikely that organisational equipment will ever bethe manner accorded most of the other categories: there are too manyitems, however, does not mean that tha more cosily items ear

nd should not be so treated. Nevertheless, significantly improved estimate for organisational equipment are likely to come from an entirely different

To date. Items of major equipmentSeenj ratelyor example,4 and theons Ida ration of thend supporting unite that use this equipment has been limited to establishing Soviet requirements for tha equipment or evaluating lhe estimated volume ofequipment, (Estimates relating to personnel and operation and maintenance ar; madereat extent in the context of the relevantne present trend, for several reasons, is toward increasing emphasis on thc expenditureto equip and maintain specific units and/or to provide given capebilittas.

It is in Just this direction that realistic consideration ofequipment lies that .is, on the basis of Soviet practice and th- ma power and major equipment assignedarticular 'unit, certain crganiietiort-v'. equipment must necessarily be an integral part of that unit's equipment and equipage. This approach will incorporate greater flexibility: (II it willit-use of available Soviet data aid. hence, direct estimation in Sovieths re the preceding is not feasible, it will permit computeuons of outlays for specific items of equipment where such practice is reasonable,l still leaves room for resorting to factors Based on analogous data but with mon specific analogs than heretofore employed. This new approach should also cor tribute appreciably toward resolving definitional problems associated withbetween major equipment and organisational equipment.

The type of information required for this kind o( reeatlmetien n: organizational equipment ahould. of course, ideally be direct Soviet data. The data should cover operating arid training procedures, use of equipment, therganizational equipment and its cost to the Soviet Ministry of Dstanss, repair uui maintenance schedules, and information on the level at which such workor example, in the particular unit origher echelon. Some of 'hi* informationIn fact most of it is needed for other categories a* wall.

4-

SECRET

C. Operationaintcr.ar.ct

In this category are included those outlaysand

maintaining the equipment and organization of the Soviet armed forces, excluding Outlays for military personnel but including those for civilian personnel Each of the entries in this categoryarticular but broad class of commodity cr service that has usually been subdivided. For example, under Maintenance ofre the operating spares tor all types of equipment, major and organ! national- Thc spare parts for items of major equipment are computed for each distinct model (usuallyunction of order oflthough common factors exist for certain related items (such as armored combat vehicles). This method, although generally adequate, has certain shortcomings. Available data tend to Support the belief that these shortcomings maybe overcome by accounting for the requisite outlays by type of unitthat is,unctional basisather than by type of commodity or service purchased.

1. Civilian Employees

a- Pay and Allowances

(I) Ruble Values

Although civilians are integrated in thc tables ofof Soviet military units and some relevant data are available on organization and wages, it has not been feasible to attempt an estimate from Such material, instead the outlays for civilian employees of the Ministry of Defense are based on gross calculations.

It has beenat civilian employees numberercent of military The available organizational material on the USSR and analogous information onend credence to this figure. Application of the average wagetT for workers and employees in the USSR yields the ruble outlay required by the Ministry of Defense for these personnel-

The problems inherent in the procedure justbvious, (a) The estimates of civilian personnel depend on and vary with the number of military personnel and are more likely to reflect thepan of years rather than on an annual basis, (b) The wage rate employed is an average applicable to an extremely broad segment of the labor force- Although this procedure is likely to yield an accurate estimate of thc wage bill, there is as yet no direct ve rificaiion. The scattered and seemingly profuse wage data available for these employees, however, mayasis tor evaluation and/or refinement.

" Outlays for military personnel are included in A. p.bove. See.elow,

Basedample of information on tables ofhe US doesonsiderably higher proportion of civilian employees, but this higher proportion is caused partly by the diffe rent practices in the two countries.

tl ubles. (For an index reflecting the movement of these wages over time, see Appendix C. 1

- 46

^rOF- SCORE?

(2] Dollar Valuea

Dollar equivalents of tho ruble txpenditirei for civilian employees are obtained in the *ame fashion aa were the ruble outlays, except th the average dollar pay for civilian employee* of the US Department olubstituted for the avsrage wage in

13) Ruble-Dollar Patios

The ruble-dollar ratio for any year is simply the ratioverage ruble wage to the average dollar wage. In terms5esultant ratiouble* to US Siubles divided

The ratio Juator all practical purpose*, If weighted ratio* were to be obtained. It would be necessary tolor differences in the composition of the civilian labor force* employed by the armed services of the respective countries. Thi* process also would entail wage data, by position, for both countries. It is questionable, however, whether any lubatantia! improvement would result froman exercise.

(4) Further Considerations

Primarily tne data required relate to the siae anda* well as the specific pay of the civilian employees of die Soviet Ministry of Defense oderate quantity of this type of material for individual unit* oris available attifactory extension of such data woald permit tha improve, ment already suggested.

* Thereroblem related to obtaining dollar values' that is not peculiar to this sector but rather per tains to the entire area of personnel. This problem involves the differing concepts in the US and the USSR a* to the functions andof the peraonnal. in this case the civilian employees of the military The method outlined for obtaining dollar values could lead to tomeof the results If any or all of the following occur: functions performed in the US by civilian personnel being performed in the USSR by military and/or security personnel. US proceduresiven instance being more extensive and/or complex than those In the USSR, certain operations that are nonexistent in one country being practiced in the other, or any of the many other possibilities. Suchwould follow because the procedure usedellar rate for US civilian or military personnel that may not be applicable In the USSR (or thebeing considered. The situation la aggravated by the disparity in the two countries between tha relative position of civilian and militarised personnel with regard to remuneration.

The broad framework under consideration, however, tend* to reduce the Further broadening of the framework to include more aggregative sectors of military activity for example, all personnel, militarised and civilianwould further reduce such disparities. ere possible toall activitiestrictly functional basis without being confined bybounds (military, civilian, and militarizedetter dollar representation for the entire activity orhase of itforould be obtained.

47

b. Subsistencelothing, and Miscellaneous

it is known that some civilian employees of (he Ministry oi Defense receive Income in such forms as food and quarters. Th* average wag however, is believed to be Inclusive of such income whether received inllowances.

I. Maintenance of Facilities

Value I

Estimates of the outlays mad* by the USSR to maintain Ita mi tary facilities ar* directly related to the outlays initially required to construct (hem. Annual maintenance outlays generally are determinedercent of th-value of the facilities. This factor ia no moreepresentation of whai v. deemed generally to be appropri ate for item* of construction in view of So vie; conditionsor example, (ha severe weather. The facilitiea included in this estimate are air Installations; mfeslle sites; naval bases; petroleum storaga facilities; buildings of fixed installations for communications; barracks; hospit and buildings for administration, storage, and other purposes.**

Values

Dollar equivalents arc obtained by applying theor construction.

Ratios

A single ruble-dollar ratio ofubles to USn terma3 relationships Is employed to obtain dollar equivalents. This ratio Isto be applicable to the Soviet construction activity in general, but the little evidence available that deals directly with militarygeau that it is reasonable for military construction aa well. This ratio, however, is probably conservative for maintenance as definedhat is, exclusive of labor because construction materials are relatively more costly in the USSR than Is construction.

Considerations

outlays and the prices paid by the Soviet Ministry of Ue.ensc for this type of activity and the maintenance schedule, and/or plannina factors used constitute the information for which there is the mostet

* It will be noted that this factor must be exclusive o( the value of military an-civilian labor of the Ministry of Defense in maintaining facilities. Personnelconsidered separately. (See A. p.bove, and I.bove.) See D.elow.

-

etroleum Products-

Moil o( th* Soviet military consumption of petroleum prod-ic including that (orln| *nd maintaining equipment, I* represented by in* eatimatcs under this entry. Operating reserves, which are probably paid for the Ministry of Defense, and stockpiles, which are believed not to be paid lor (he ministry, are excluded. Expenditcrea (or operating reaerves are likely to nonrecurringthat ia.iven type and quantity of equipment, one* thes'are or. hand they need no! be considered further aa an element adding coat. As the composition and number o( units change and/or new equipment if Introducad, however, theae reaerves will change with regard to volume and pr net.

Estimates, in metric tons, ara available for the consumption of ths various petroleum products by each o( the Soviet service*. ates are derived by applying factors computed for each type of equipment ot category of personnel to estimate* of the order of battle.

Th* resulting consumption, in tons, is then apportioned ton tha USSR and European Snail.tea ir. accordance with the geographic disirib,-of Soviet troops and equipment. The application of Internal aoaal wholesale prices! for the various petroleum products yields tha ruble valuations of the t> penditures required for this consumption. For the Soviet prices, ie* TabW J. If Similar information I* available in terms of pricesO. !

b. Dollar Valuaa

Equivalent dollar valuations are obtained byuh't

dollar ratio.

c Ruble-Dollar Ratios

For simplicity and ease ofingle ratioib to USn terms5 relationships, is applied to the summation of th* rub valuations described above. Actually the ratios (or consumption by naval and ground forces should be slightly higher, that for consumption by the air forces

Expenditures (or solid fuels and purchased electric power, which mighi urd* narily be expected to be repreeented as an element of Operation and Maintenar" are partially covered under Miscellaneous Supplies (or personnel. Such expendi lurea, in aggregate, are believed to be rather small.

Published/ provide estimates for part of the historical period. These estimates have baen projected to complete the requisite series. No allowance is made (or Air Force and Army requirements (or petroleum products for such purposes as space heating and lighting; they are considered to be Insignificant. Handling losses are taken into account for aviation fuel and lubricating oil.

t The turnover tax (sea Appendix AI and transportation charges are included Ttollow, on p. SO.

fTt 5 pricesuly) areercent lower than thoseased on Soviet weights to which ruble and dollar prices were applied.

-

Tibia 3

Prices of Selectedti in thc USSR5

Rubles per Metric Ton

Zcr.e

Product

gaaollne

gaaollne

025

075

100

140

313

088

71

fuel

5

dieael fuel

oil AK-lS lAvtol IB]

ICl

0

220

320

l.p-14

aiailm-l.

l)

oilth

272

388

transmission oil

transmission oil

grade

grade

Inertcanta

0

maaut

ilighUy lower. Theseowever,to bo more Ihenenthsuble per dollar, hardly enough to Introduce any dietortlon inuits. Future presentation, howiver, may well require differentiation not on among the armed services, but perhaps to the extent of separate treatment fo

each principal petroleum product. Such differentiation will present no proble;

d. Further Considerations

Price data are (or the most part plentiful. The major proM is establishing whether the available Soviet prices truly represent they their military establishment. The current belief is that they do that is. Ministry of Defense pays the turnover tax. (See Appendix A. )econd probl and one of lesser concern, is the need for additional price information for yea between major price changes. Adequate detail exists with regard to prices0ulyinformation on price movements tn the Interim period and5 is sketchy. Because tbe biggest part of the studies of Soviet military expenditures are conducted in base year prices, not having dr tailed information for interimot of great importance. For purpos of refined budgetary analysis, which is conducted tn current terms,ormation on price movements becomes essential

of Equipment

category is confined primarily to the expenditures required for operating spare parts" for major and organisational equipment. Outlayspersonnel, facilities, and other supplies, which contribute to the maieterianc equipment, are treated in other categories.

Operating spare parts generally are computed from factors refle ing US experience which, where.posslble, are adjusted ln accordance with the limited knowledge of Soviet practice. These factors usually express the mone relationship between the expenditures for operating spare parts and the valuethe order of battle, both of which are referred to In this report In terms of cor slant, or base year, prices.

Ruble Values

(1) Aircraft

Originally, operating spare parts were computed by appl ing factors for major components of aircraft to the value of the active inventor for example, airframes and accessories,ercent of the valueframes

accessories; electronics,ercent of the value of electronics; and armame-1percent. (Spare engines and spare parts for engines are included with initio! spare parts under Procurement) These factors are lower than those that we r<

applicable In the US but were chosen at the cited levels to eliminate the influs

of the longer pipelines that the US must maintain and to reflect the more prlmi

tive support provided to Soviet unite.

More recently the procedure for computing the estimates expenditurea for these spare parts has been changed. These estimate* are no.

* Operating spare parts are to be distinguished from initial spare parts. The latter accompany the original equipment when it Is deliverednit or depot the former are delivered subsequently. Initial spare parti are Ineluded-under

Procurement.

- Si -

fOP SECRET' I

a. aof production withlag. All op.ratina snare

(2) Ar mo red Combat Artillery and Other Weapons

#

151 Truck*

(6) Naval Voee.l.

for ,h,li.ttraent .r. co^cdmO Ground Electronic,.

Below.

-

(6) Guided Mi.eilas

... spare parti and euppJiee fa, miiiUu >nd U.

CI Cornmunlcatione Eauipma

iauH.ainteMn"ia Mtimated at anated Initial coat to tha military MuMUhm.ni i

C"' u' of th"il add.dlit,

i.Uitia. lea.ed and applv,

Oreaaltational Equipment

portionataiy .mailer effort tha. th. USSRimatedte put for n -tT- ^imatan- expends"V.

exception ofM""ceptuaUy compUt, M

exception ofhat would pertain to that part of the Soviet naval

Naval

b. Dollar Value*

derived bv* cona.dered to Have be**

denvad by the appltcatioa of ruble-dollar ratioa. theyeat

c Ruble-Dollar Ratioa

or derived for nbia.ned f,

d- Further Coa*ideratlona

quipment and on mamtenanc. pr.ctlca. however, althoughovecbove. "Ma th,

I .bove. tT Sm B. p. JO. above. D.elow, and Appendix B.

-

from the derived results willf available la sufficient detailpermit thcof suitable factors or, at the least, shouldore confident adjustment of US factors,

S. Transportation

a. Ruble Values

The scope of this category is limited to the explicit expenditures for transportation made by the Soviet miliary establishment. Hencecharges included in the prices of equipment and supplies, charges paid by troops out of personal funds, and those charges that might be imputed forperformed by the military establishment are excluded. These costs are, however, included under other headings: where the transportation charges are an element of price, they are reflected in the expenditures for thehere military vehicles, or other means provide transportation, the costs are included in accounts under Personnel and under Operation and Maintenance.ravel and other costs of transportation paid for out of personal funds areost to the Ministry of Defense.

The procedure employed to ascertain the magnitude of explicit expenditures for transportation is to determine the ton-kilometers and passenger-kilometers associated with the relevant movements of military freight andand then to apply the rates appropriate to each class of goods and tc

The estimates of ton-kilometers of movement necessary to supply Soviet forces in the USSR and in the European Satellites and the Chinese Communist and North Korean forces during the Korean War were derived bythe tonnages originating at primary centers of production and depots in conjunction with the geographic distribution of the forces. Only rail transport was taken into account; aome of the equipment capable of being delivered underis own power, such as aircraft, is estimated to be so delivered; water transport is believed to be negligible in moving military materiel and personnel; and truck aic air transport are believed to be furnished largely by the armed forces them-selves.

Passenger-kilometers are estimatedimilar manner. Cognizance is taken of the average length of haul associated with maneuvers, cctanoD, and leave, as well as with the withdrawal from Austria. For reasons similar to those cited regarding movement of military supplies and equipment, movement by rail is the sole means of transport for which expenditures are

Specifically thc procedures just described are apolicd to major items of military hardware; food, clothing, and coal, and major redeployments. Clearly this list is not comprehensive; there are other items lor which explicit payment for transportation is made by the military establishment. Indicative of these omitted items are engineering equipment, organizational ecuioment,material and equipment, and spare parts. To provide for suchthe estimate derived for those items that could be specifically included is increased byercent.

Of the prices used, only those for petroleum products include transportation charges.

Only operating costs arc included in these categories. To account for the full cost, it would be necessary to include the appropriate elements under Procurement arts under Construction.

S4 -

sop Jgcf-cr-

Because rates known to be applicable lo military transport aavailable and because of the possibility that the military establishment ret preferential relet, alternative means of estimating tht explicit; Ministry of Defense for transportation are undertaken. In the firtt insi Soviet rates for the particular eommoditlet ai appropriate average length*re used, at are the lowest class of passenger ratal for the movement ofFor those items of military equipment for which no ratet are include-the Soviethe rates for tech civilian gooda as vehicles, machinery chemicals, and toola are used. In thc second instance, the rates for coal, wh are comparatively low, are used instead of the specific commodity rates, ft* for coal, convertedassenger-ton equivalent, are also uttd for pertonnc because of the widespread Soviet use of freight cart for the movement of traoc

The ettlmate of total expenditures (or transportationhe (Irst schedule of ratet it about twice that yielded by the tceondecause the first schedule Is likely to have resulted In overstatement, ll only cause of Soviet practice with regard to the movement ofhe best estimate of these expenditure! it considered to lie between ihe two (Igures ee rived by tha mesne just cited. The halfway pointhat it, thc mean of the in figureshat been telected as the most reasonable astimate.

The pricing procedure just described was employed after th-base year ol the estimating process was shiftedn the initial study Oi Soviet military1 was the base year. No rate schedules com parable to those released after the revision of thc Soviet tariffS were available. Hence an average rate, in kopecks per kilometer, was applied. This rate was derived from over-all revenue figures in rubles and transportation data In ton-kllomcters and passenger-kilometer*.

Values

Dollar equivalents arc obtained by applicationubie-dollar ratio. Although aample US rates might be applied, It did not seem feasible to do BO, because of the problems associated with obtaining equiva" ler.ee in detail when making this ruble-dollar comparison. Furthermore, the relatively small expenditure {lessillion rubles annually) associated with transportation hardly seemed to warrant the considerable additionalthat would be necessary.

Ratio*

The ruble-dollar ratio, as an expression of freight rates in terms5o 1. Thi* ratio is derived by comparing unit revenues in the US with similar unit revenues in thc USSR. In boththeor unit revenue are obtained by dividing groaa freight rev. nue* by revenue ton-kilometera. Forimilar comparisona ratio of S. IS to 1. Because the two ratios are similar -ind because CO. siderably more weight attaches to freight, the passenger ratio has been

q Charges for the transport of personnel are estimated to account for aboo: c> third of all explicit transportation charges.

-

d. further Considerations

With sufficientthe Explicit coverage included in thiscould be extended to some of those items now accounted for within the added increment ofercent. There is no indication, however, that tha required*U1 yield commensurate returns, given that expenditures for transportation are estimated to be somewhat less5 rubles annually and that this figure i* considered toood refleet.on of the appropriate order of BdgsJ.

There remains, however, essentially one unresolved problem: whether or not the Ministry of Defense receives preferential rates. If not. the use of rates for civilian goods of similar bulk and density doe. not Introduce serious error.

6. Medical Care

This entry is limited to outlays (or medical equipment and supplies. Out.ay. for hospitals (the buildings and major equipment) and their maintenance and for personal services, military and civilian, are included in other categories.

*. Ruble Valuea

There is not sufficient materiel on Soviet military medical care toirect estimate of the associated expenditures. Thus US analogs are emp.oyed as the means of estimation. With this Indirect approach, there is no oaaia for refinement by service or arm of service.

Outlays by the US Department of Defeoqe for medical equipment andreduceder capita This figure is then reduced by rougJuyercent in order to reflect the lower Soviet atandards. Afterof this newcapita ouday to rubles- by meansuble/dollar ratio It is the factor by which total military strength is multiplied in order to derive the estimate of the requisite Soviet expenditure*.

Value*

The basic calculation is in dollars. In term*1 prices. Tne moils of thi* basic calculation are converted to other dollar base* by mean, o. an index of wholesale pricea of all commoditlea,

Ratios

The ratio used to convert thc per capita outlay* to ruble* rears-sent. th. rnedian of ratio, for .cellared item, of medical .uppl.e. and equipment,erm.> relet ion. hips the ratiouble* to US Si.

Considerations

Although direct information a. to the type andf medicaln regard to supplie* and equipment is pcrhapa the most desirable, there is other information that might .erv. well. Illustrative i. the type of information avanaoie On Soviet military sanatorium* and hoepitala, mattering

ure -a. originally computed1 price* and then deflated with anOf ind4.tnal costs to 2C0 rubles in terms5 prices.

-

that it indicative olrom auch ir.form.lion, there ahouldmore reftned ver.ion ofimate herein de.cribed.

and Publi.hine

itRmitc of expenditure. !or printing and publiehlnt bv th* f.

*nown. information being limitedhe knowledge thai aof miZitdry book, andthere ,. So-

publishingevoted to thi.

Value.

IUSollar Agora Ii Am*

1T hen convertedublef. Th. .. ,

. oerlcTof d ould Quctoatoo^

a period of time, and thoestimate doe. not.

Value.

celcuu-ionerivationh. ba.

Ruble-Dollar Ratios US S T. ratio i. ft ruble, to

d- Further Con.ideration.

tsar-

xpenditure would lead to .ub.tanfal improvement, a. Ruble Values

throughoy applying th.aaeaament See Appendix C.

number oihecomponent. local contributions, .ia eats mated to account (or leaa thanercent ol tbe total, althoughigure repr aentaeeta* to the volume of thia known support of DOSAAF.

There aremitations to th* estimate resulting from tha process just delineated. The information available is several years old andimited period of time. Changes In the degree of participation and In the extent of financial support are bound to have occurred over time. Although the constant annual expenditure carried as the estimate lor the entire span of years is not credible, there is reason to believe that iteasonable order of magnitude.

Value a

Dollar equivalent* are Obtained byuble-dollar ratio

r

The ratiouble* to USn termselationships, is employed, representing no more than an estimate of the balance in theo( outlays between manpower and supplies. In effect. It Is abetween the low ratio for manpowerond the considerably higher ratios for materials and supplies.

Considerations

It is clear from the discussion above that more information on the changas that have occurred with regard to the scope of activities of DOSAAF. sa well as more comprehensive and currant information on its financing, will improve at least the confidence with which this minor estimate might b* viewed.

D. Facilities

In general, it has been necessary to estimate expenditures for Soviet military construction by making single, comprehensive calculations covering all constructioniver, type, such as barracks or warehouses. With but three exceptions, it has not been possible to estimate the requiredfor constructionelates to specific military functions or activities. It il hopsd. however, that these three exceptions Indicate the direction of future estimates.

The first of the exceptions, air basee. includes most of the facilities to be found at euch Soviet bases. Tbe second is the construction associated with the Soviet guided missile program. Her* too. the inclusion of facilities IS comprehensive. The last exception is operational naval base a, which,lass Inclusive than the firat two, follow tha same pattern.

The method of dealing with thef relating the construction to th* (unction of which Itart, has th* virtu* of being mor*and more complete, asor many purpoeea. placing the outlay*ore meaningful context. ethod does not preclude deriving total expenditures for construction or, (or that matter,iven class or type of construction.

in the discussion that follows it has not been possible to include allof Soviet military construction. In general, certain obvious facilities Such ta messhall* and maintenance shops ar* not covered, nor are utilities or

-

top rrrnrT

lhe frequently reported fences around all installations. These items are.east in part and conceptually, in the expenditures for that constructionJ^mlVT I'""' the least informs

force andmstallaoons found in the

Because most of the estimates and the account* are oriented to class type oi construction, those for air bases, guided missiles, and naval bases cut across the lines of the several accounts. They appear under the ftrst entry however, it being the most appropriate.

Facilities for Operation of Equipment a. Air Bases

(IJ Ruble Values

Since the close of World War II, most of the Sovietuctmn of mi.itary air bases has-been to provide for expanding ;et forces.

istimate has been limited to home bases of Jet combat units and of Tu-V

h.'with other bases, the

units.

In general, provision has been made for all facilities but not for equipment. Runways, taxiways, hardst.nde, storage facilities for petro.cum products, housing, personnel Servic.dministration and operation, ouildmgs. maintenance shops, and small ancillary buildings arejo, specifically. Roadways, installation of utilities, and someitems of construction are not specifically Included but are covered byactor ofercent of the cost of the other items.

The number and types of bases and their dates of initial operation are determined largely through Information on tho air order of batf* From tables of organization and equipment, information suitable for cat-matin*

mformationoutofSast

"8Umed Bi"ia^iti" if"

r a ber ofs determined5 .r. Lie fashion describee above. In order to make provision for the M-

of the number of bases in eriod On,i'te"or thes then pro-

availahi-A. . fSoviet data on prices and costsor dtrect application to the derived specifications. Such data fo-

PmriB,ntt"' COa"eM'vanous

ampling of the prices and costs employed.*) Although many of the prices and costs em-

'

o-^'m "error in pricing is present, it is probably due to positing tha: civilian laborsed for the construction Thereowever, for Judging that the use of other labor isinor

-..

TOfi-SmiKZ.

Table 4

Sampling of Prices Employed inxpenditures

(or Military Coae traction in the5

Price

Type ol (Rubles per Square Meter)

Pavement at typical air bases

J-inch concrete surfacench compacted sand, gravel, or other

nch concrete surfaceinch compacted sand, gravel, or other

Housing

Family quarters

Commissionedago

Noncommissioned260

Bachelor officers'

gft)

Administration and operations

Maintenance

a. The figure shown (or hospitals is giver, tr. terms of the cost of cor.-strueiion par bed

The price basis employed is that Theof an index value1) yields values5 rubles.

ollar Values

Dollar equivalents of the ruble values are obtained by appllc

tionuble-dollar

(1) Ruble-Dollar Ratios

An over-all ratie for construction ofuble* to US Si5 pricea ia employed. It is not feasible tond davias ratio*applicable to each type of military construction.

For the price index of construction, sec Appends C.

-

<*J Further CorjldinHM.

.till required I. of two

eflectingch.

b- Mia.il. ConHruetJon

ance.ating toto-airend

or which roughlflcation. of Soviet

ir- andt* in USoVi

gram and for th. key component, thereof. Ruble etluM .re then obtainedfv

program,tm.,e, are made in term, ofon.truction co.ta.

c. Naval Baaea

uble Value.

th.S/S

-TQBSELBFT .

Ten sccnzr

(2) Dollar Values and Ruble-Dollar Ratios

Tae rtWF-all ratio !or constructionabies to US Si5 prices Is employed.

(J) Faronsiderations

The Informational problsm is typical: mors information is needed on facilities, their dates of construction, and the prices psld by the Soviot military establishment.

2 Facilities lor Maintenance of Equipment

No specific estimate of this type of facility has been made. To soma extent, of course, repair shops and the like are included in the categories of construction discussed above. uch mora limited extent, however,equipment (tbe equipment in aucb ahopa) haa been included. Most of itovered, at least conceptually, by the eatimate of organisational equipment

J- facilities for Personnel

This category ia defined to include housing faciluiaa only. Hospital, mesa, recreation, and other facilities for personnel, to the extern they are in-eluded, are treated in S.elow.

a Ruble Values

ingle factor is used to account for thedevoted to housing military personnel. oviet source has statedquare meters of barracks space is the per capita allotment for militaryhere, however, personnel and their dependents are housedir base facilities, there is differentiation for rank and family status, and quarters are provided accordingly, lathis instance, too. allowance is made for those living off the base. Tbe scheduling of tbe construction of this aousing ia ion* in accord with the development of tbe reepectivc air bases and is considered to b* an element of tne third and final phase of the standard Soviet pattern.

With regard to the remaining military personnelthat is. all others housed in military base facilities throughout the USSRhe problsm of scheduling is handledifferent manner. An average strength for theillion men! times tbe allotted minimum spacequare meters per man yields an Inventory requirement ofillion square meters of housing, barracks style. In the early years of the period it was unlikely

See. p.ecently received publication indicatesquare meters. 5Vtbe minimum and applying essentially to conscripts. Standard Soviet practice seems to divide the constructionermanent air bass into three phases. During theears, run-ays. Uxiwnys. and .parking areas are built; in the third year, storage facilities for petroleumin thsears, base installations, including permanent Bousing. Naturally, thereegree of overlap among these phases.

1 This figureillion men is ueed only for eatimating expenditures for military facilities that are computedunction of manpower.

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that permanent homing wat available (or all peroonnel. in view of the wideaj destruction in western USSR during Worldnd of reports o( tents be in as base housing- It is sssurnedVlherefore. that such an lr.ver.tory o( per man. housing dtd not exist

For this basic housing.ercent o( the value of the mven as estimateda taken to represent the annual expenditures fortruction and maintenance.'.expenditures equalercent of th value of the inventory are estimated to have been allocated (orercent (or maintenance. Il is presumed that both types of expenditure converged over timeimitercent of the values of the inventory, an that this limit is reached5 and maintained during the remaining years covered by the estimate.

Clearly such an estimate must bs in error (or som* years. It Is bellsved thateriod oi time the estimateonservative but teas able order of magnitude lor housing expenditures.

b. Dollar Values and Ruble-Dollar Railos

The construction ratioubles to US Sio theobtain dollar values.

Considerations

major need is for direct information as lo the space allotted personnel, by service, in accordance with rank and family status and on the scheduling of the construction of such facilities.

4. Fixed Communications Facilities'

This account embraces thc major, military, fixed,facilities of the USSR, including wireline, microwave,radio. These facOitiea are defined as those of military commanddiviaional echelons and major naval headquarters up to the Ministry ofand those command nets from major headquarters to major militaryaa well as thc entire air defenae aystem. Telecommunieadon*lower echelons is largely mobile; hence it is included with organisational ec

Specifically excluded are those nets and facilities associated withamming, eommunlcaUons intelligence, direction finding, monitoring, meteorological services, police functions, civil defense, guided missiles,

- er computation the value of the electronic component, of these facilities included with ground electronics (see B.bove). In the future, this account may be placed under Procurement because it now comprises aend omen) almost exclusively.

Until recently these estimates were somewhat leaa comprehensive anda heavy element of buUdinge and etruciuree. Inclusion of such buildings and structures is now believed to be unrealistic. More information has becom* available, including price information. The price information permits direct valuation of the equipment in rublea rather than dollars OS in the past. Finally, the base year for determining an initial inventory of theae facilitiesS9 as It is now.

ee B.bove.

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DCSAAF, thetomic energy, navigational aids, and, as notedobile facilities, including the fixed ground stations with which the mobile units communicate. As in the case of mobile equipment, some of the facilities and nets excluded here are covered elsewhere in categories relating to other military programs.

Values

Within these definitional bounds the basic procedure is tothe cost of reproduction, in constant ruble prices, of the Inventory of the fixed communications facilitiesoint in time and thereafter to determine the annual increments to this Inventory both backwards and forwards in time. In general, the value of equipment ie determined from Soviet prices.

The Inventory valued ie that estimated in existencehe Soviet order of battle, down to divisions, is located geographically in the appropriate military districts. Communications are then established among the various elements in accordance with their function in the military structure-Within the chair, of command the Ministry of Defense is linked to all military district headquarters, and military district headquarters are linked not only to their respective armies and corps but also to air and naval components within their respective areas. In addition, the Ministry has direct links to all field army and independent corps headquarters. Lateralalso exist; military districts maintain contact with each other, as do other echelonsistrict.

Detailed estimates of the facilities and equipment found at various communications centers are developed, and values applied to these components* Available information, including planning manuals, arc sufficient to make this step passible.

Summing the value of the communication equipment at the various centers provides the estimated inventory for the base year. The base year inventory is projected back5 and forward5 by relating the Srowth of mainline communication equipment to the growth in production ofradio equipment. The annual expenditures for communications facilities are simply the differences between the values of the inventory in successive years.

Values

Dollar equivalents of the annual ruble expenditures arc obtained by employing thc ruble-dollar ratios cited below.

e. Ruble-Dollar Ratioa

The ratio for communications equipment is about the same as tha: for radarther electronicubles to US Si."

d. Further Considerations

More data on the actual equipment employed at the variousl the Soviet military network, the scheduling of installing theselacillties, and the completeness of thc coverage herewith included

See B,bove.

in terms of what itintended to be would all addeduction in the mar; error that now mutt be subjectively ascribed. Ae always, any actual outlt* prices paid by thc Soviet military establishment would be welcome addition-'

S. Other Facilities

This last category ol constructionatchall intended to rep sent all military facilities not already epecifically included. It falls somew short, however, and is limited to administration buildings, warehouses, he; pltals. and petroleum storage facilities, To ths extent that some of these hi already bsenhey are treated hereet basis, Because of th similarity in the means of building the estimates for three of the four items, they are all treated together.

a. Ruble Values

Annual expenditures for military administrationarehouses are computed in the same way as those for barracks. Ths only variant is the price per squars meter of structurs.t is assumed< meter per man of each of these types of structure would satisfy ths minimum quiremeats of the Soviet forces. For thisonstant force levelillion men is posited for the period beginningheillion square meters of each of these types of facility is estimated to have been fulfillednnual expenditures for new construction are the urn function of the value of the base year inventory as is the case (or barracks. **

Expenditures for hospitals era treated in similarasic inventory5 and the same converging series of outlaya for replace meat and maintenance. The sole difference is thet,the requirements for spaci per man are converted to the cost perubles5data cn civilian hospitals serveuide for this value and also provide ism Indication as to the number of beds to be expected in military hospitals. It ha* been concluded thathen the inventory requirement was reached, the available beds were sufficient toarcent ol the personnel oforces. Again, the figureillion men is ussd for this purpose as the rep resestanon of manpower.

Storage facilities for petroleum, oil. and lubricants are treaifferent manner. On th* basis of information that the operating reserves the Soviet Air Forces vary fromoercent of annual requirements, s posited that storage facilitiesapacity equal toercent o( annual consumption is the rule for all Soviet forces. asic inventory7 computed, and annual increments to this inventory are calculatedirec: function ol tha Increases in consumption of petroleum product*. The resulting series is then smoothed; that Is. the averag* outlays during th*.b on are used aa the annual values during the respective perioi Irregularities In the unsmoothed series are Inconsistent with what was to befrom other related developments, lt is necessary to employ US prices fi these faetlitiasT and to convert the resulting values with th* rubla-dollarons truction.

* See D.bove. ** 5 prices, ubles per square meter for administration buildingsubles pes square meter for warehouses.See D,bove.

I The minimum prices used for computing the storage capacity cf air bases are employed.

In (hla instance, there is an element of double counting, io iinil it can be ignored, which Heme from the Inclusion of storage iacilitiea forproducts In the calculations of expenditures for the construction of air bates and theluiivenesi of this method ef computing atorage facilities.

Values

Dollar equivalents are obtained in exactly the same fashion at for the facilities already discussed. Where direct valuation It in rubles, asxpenditures for administration buildings, warehouses, and hospitals, the ruble-dollar ratio for construction is applied. In the case of atorage facilities for pstro-leum products, direct valuation is in dollars.

Ratios

Once again die same ratio ofubles to US Si5 pricee

it employed.*

Considerations

Tha emphatis mutt be placed on ihe need lor more specific in-tormation on the exact types and quantities of those fatilitiee that the Sovietestablishment hat and the ratet of accretioneriod of time. Leatt II known aboui the facilities to be found at ground force and logistical installations in the USSR. As already noted, all facilities are not accounted for, andwhich would permit extension of thett estimates ia datirable.

E. Research and Development

r

It ia clear that the interest in research and development.insofar as this report is concerned, la confined to that research and developmentore or leas direct bearing on Soviet military capabilities. The available data,precludeirect approach to estimating thla particular aapect of Soviet research and development. Instead. It has been necessary lo consider all such activity and only thereafter to estimate the military share.

1. Ruble Values

Although tha USSR reveals altable expenditures (or science, not enosgk additional data are available to permit direct estimation of totalfor research and development. Therefore, analogy must be resorted to.

The rather regularly announced expenditures for "financing scientific rettarchhich are financed primarily from the budgetaryfor social-cultural purposes, appear to correspond to what would ordinarily be termed research and development in the US. ** The rest of the Soviet program.

See D. i.bove.

1 Basic and applied research and its application to new uses up to the point of design and production engineering.

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which is hereafter referred to as product development, is closely akinept of development, test, and evaluation used by the US Department of De

On the basis of this kind of division of expenditures for resea development in the US, specifically by the Department ofelatt-has been derived that is used for the USSR. In recent years, expenditures US Department of Defense for development, test, and evaluation have been as great as those for research andecause of themphasis on military research and development in the USSR and because p; development in general would reasonably be expected to receive moreIn the USSR than In the US.the usene-to-one relationshipct development and other research and development for the USSRustified but conservative. It is not possible to overcome theowever, because no means was available for determining how much greate product development should be or howelationship would vary over t. Hence the one-to-one relationship is adopted as the best to be had at this tin

Application of this relationship means that 5ovie= outlays lor re and development are estimated at twice what were announced for "fiitancii'yresearch establishments. " This procedure, within its .imitations, is adequa the period here washange in the scope announced expenditures for research ando explanation ca-documented, but the most reasonable hypothesis is that the economic reorgat. tion that began7 hasonsiderable realignment in thc subordi: tion of the organizations engaged in research and development and thatsome of the outlays for product development are now included in the a: nounced allocation.

Thc procedure described so far encompasses thc historical perio but not thc present and future. In arriving at estimates for th* period beginnirersonnel and wage data play an important part.

* Until the publication of the budgetxpenditures for development, test,and evaluation were always Included under procurement. In the budget some of these expenditures have been combined with th* expenditures fo: research and development under the entry Research, Development. Test, arid Evaluation.

It seems credible that because so much of what has beer, developed in the West is available to the USSR and because the USSR is generally behind the Wes" ther* must be appreciable Soviet effort to adapt Western developments (that is. product development). This ability to progress, upoint, without research should mean greater proportional emphasis on product development by the USSR Apparently the announced plan for expenditures8 was on the old bastf and actual expenditures on the new basis. This difference may account for thc indicated excess of actual expenditures compared with the plan. It is possible, however, that the figures would still show an excess of actual expenditures if bo were given on the same basis. It is of interest that simple extrapolation of the budgeted funds announced for thealue9 that is remarkably close to the announced planned allocation of li billion rubles

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The nature of thc data on scientific manpower, including theirplenty and precision, makes them the most useful in attempting the projection. The series of scientific manpower employed in research institutions" has been selected for this purpose because the best direct data on expenditures are theallocations for financing these institutions, For thehe expenditure per scientist can then be determined and applied to the number of these scientists estimated for each of the following years, In accordance with thc procedures used for the historical period, the expenditures so derived are doubled In order to take account of product development.

Constant ruble values are used to express these expenditures. The expenditures per scientist are derived Initially in current rubles; they areerted to constant rubles by apportioning them between wages and otherand byeneral index ofnd an Index of industrial costs,respectively, In spite of obvious inadequacies the latter index is used tc reflect changes in the prices of construction, equipment, and materials.

The resulting expenditures per scientist showed an annual average rate of increaseercent in real terms over the. most of the increase took place, the average rate for the entire period Is Incorporated ir. the derivation of expenditures3 andyears.

artial test of the reasonableness of the expenditures per scientist Is available. These expenditures include wages for supportingas well as for the scientists. Application of estimated annual wages for such personnel indicates that about one-half of lhe estimated outlays go for wages. During lhe Fifth Five Year Plan it is estimated that roughlyercent of the expenditures of the Academy of Sciences were so expended, but the Academy has the highest paid scientific personnel. Ir. addition, the nature of the Academy's work in pure and applied research would be expected to result in proportionally lower outlays for equipment and materials compared with other organisations engaged in research and development. Furthermore. US outlays for research and development seem to be apportionedetween wages and other categories of expenditure. Although normally the mere (act of comparability between the US and the USSR in such an instance would be sufficient to arouse suspicion of the results, the relatively superior position of Sovietin their wage structure compared with that of US scientiststrongly mitigating circumstance. Moreover, statistics recently published by the USSR, although subject to alternate interpretation, are seemingly confirmatory. These statisticseneral decline, in the proportion represented by wages, from aboutercent0 to about SO percent

The final step, that of determining what proportion of total Soviet expenditures for research and development is of military significance, is Although it Is known in general terms that Soviet research andis oriented toward military ends and/or toward programs of likely military significance,esser extent toward investment in heavy industry, and to a

" Projections are based on estimates of moreoups of scientific personnel.

0 The changing relationship of wages to other outlays has been" See Appendix C.

I It should be noted that these published figures are in current rubles. Interms the changes would be magnified because wages have increased during tne period, whereas Other costs have, in general, declined.

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ECRET :

ECRCT

towardt is not possible to eslimet

specificallyhares. It has Sees- postulated, therefore, that two-thirds of ths total Soviet sffort is for military or related purposes, in viewhe fact that about one-half of US outlays for research and development (ineluroduct development) are within the scope of the Department ofhe Atomic Energy Commission and thatonsiderable amour on research and development for consumer goods. This proportion appears

reasonable, but lo date no evidence to support or disprove it has been found.

Because of the possibility of amortising the cost ol suchnd development and recovering it in price, the question o! double counting arises with regard to this account. Regardless of this possibility, an underly ing term for price information waa that such Information be exclusive of the costs of research and development. Where US prices have been used, they were to be free of nonrecurring costs, and fortuitously the Soviet priceslly pe rtair. to Items that had been in production for moreears.that were being produced under license, or that ware direct copies of Western products -

2. lar Valuea

In view of tha limited amount of detail available, the dollar equivi lent of Soviet expenditures In rubles for research and development ia ncceeear crude. As in all other instances in this report, dollar values conceptually rep sent the estimated outlays required to pay for the same programs and activities in the US. Tor research and development, at for military personnel, theexpenditure is for manpower,ommodity. Thus Soviet outlays for research and development when stated in dollars represent, in effect, what the manpower, materials, and the like uted in the Soviet effort would cote in tne US; It does not represent what the final products of Soviet research and develop rncnt would cost. Nor does it represent the cott to the USSR In realr. spite of the preferred politico of scientists in Soviet society, the US scientii commands far more in real terms, and thus the application of US wage scalesSoviet personnel merely represents what the number of scientists would "cott" in the US.

The dollar equlvalenti are obtained by applying the ruble-dollar ratio diicusted immediately below.

eclining proportion of me total of aueh expenditure!accounted for by the publishedf budgeted expenditures for financing scientific research establishment! into wagei and the like. T percent of such expenditures were explained;nlyercent. Whether this failure to break down the residualeflection of lensitive Soviet programs is not knownense, it eeems to be tooevelation for them to be making. Interestingly, the republic outlays are explained essentially in full; theexpenditures involve disbursements from the union budget. *" The usual practice, where amortiiation of research and developmentxiite. Is for that cost to be recovered during theeari of series

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I. Ruble-Dollar Ratios

It is assumed that the apparently equal division ol Soviet Outlays 'or resedrcn and development (exclusive of product development! between wages and other items, is Suitable for at least most of the period under study. With the use si tatsa ratio for manpowerubles to 'JS SI,atio ol other expenditures olndubies tohere arei ratios ofublesubles to US Si? terms The uppes Umu; rubies to US Si hasoser, largely because it is believed tnat theo; product development would tend to raise the ratio.

Per capita outlays for scientists in the US and the USSR, whenpresent some interesting testimony. S expenditures peramountednd Soviet expenditureselationshic cfo 1. oviet outlays were increasing rapidly, as were those of the US. with the result that the relationship between ruble and dollarseemed to remain constant or perhaps to Increase somewhat.oreo I.

In spite of certain incomparabiliiies in tne US and Soviet data, the ocr capita expenditures tnat are derived undoubtedly reflect an order o: magnitude of reasonable proportions. Although ordinarily Such comparison could not and should not be used to verily or to form the basisuble-dollar ratio. In thla instance, and given the apparent similarity in the use of the funds, it is

4. Further Considerations

It is not necessary to consider in detail the kind of information still necessary to improve considerably the estimates of Soviet research and Ir. almost any aspect, additional information is neededor example, (a) Soviet expenditures for product development; (b) the number of each category of personnel employed In any phase of research and development; (c) outlays 'or wages, construction, equipment, and the like; (d) thc distribution of funds "ito regard tc research and development for military, industrial, and consumerand (e) more information on the financing of research and development.

Other Programs and Activities

This categoryesidual that completes the system of accountsall the programs and activities of direct military significance thatbeer, enumerated above. Included in this categcry are programs andbecause of purpose and/or scope, go beyond the limits of beingand directly to the capability ol the Soviet forcesor example, thenuclear energy program. The development and production of weaponsdirect military significance; the balance of the program is not. Thesimilar with regard to another entry. International Transactions. Importsot military end items, particularly new and modern equipment, areSignificance; occupation costs are not. Transactions of the latierare important because they undoubtedly ease the economic burdenestablishment

International Transactions

The comprehensive heading Internationalmployed to demonstrate the breadth and complexity o! the crcblem usually referred ic< as military trade. The actual importing and exporting cf military goods and services

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la Only one facet of thc problem, In eometne aspect that lendi itself most eauly to solution: the burden on the ptoduC)n| country and thc extent of thatwith regard to the armaments industry of the producing country may oe a* -cribed with relative ease. Seyonc this point, ilitary goods presents the same complexitiesfor example, suitable valuation aa do other Soviet

trade transactions, aa wail aa occupation coats and reparations.

With regard to the receipt of occupation costs, there may be nothing tangible with which to start except the nominal monetary value of such payments. These receipts may be sufficient, for example, to cover the operatingof Soviet troop* In the country making the payments. The USSR.may defer expenditure of the receipt*. What is more important is that thesemay not bs spent for items necessary tor the support of Soviet (orcea. In such case, the USSR would be directly bearing the burden of providing th*for these forces but. In an ovar-all economic sense, may be receiving still greater returns.

Discussion of this kind cao be eaiended at great length- Alle associated problems, however, do not seriously affect the Bub.ect of immediate interest, which ia th* actual annual expenditures of the USSR for militaryand activities, To the axtant the USSR la not consuming its domesticof armaments and Is importing armaments and supplies from Other sources, there should be an accounting.

These problems assume greater importance for purposes ofaccounting but are not of serious consequence, because the volume ol these transaciions relative to the Soviet national product, or even in relation to all balance of payments transactions, is not inordinately large. In the area of budgetary analysis the importance of International transactionsunction of Soviet financial practice. Fortuitously. Soviet practice ia believed to beature that lends to minimis* such transactionshat is, it Is believed that revenues obtaided from occupanon costs and from trade in military items accrue to the Soviet budget as general revenue and are not unbudgeted revenues at the disposal of the Ministry of Defense. If this be the case, what might be Substantial financial resources need not be sought and accounted for.

a. Trade

This heading is defined lo cover all transactions between the USSR and other countries that involve thc movement of military goods. No differentiation because of the methods employed to finance the transactions, the terms of the transactions, and the like Is of relevance. Hence, for example, those East German product* consumed by theoccupation foreaa areby tha USSR: those Soviet products consumed by tha occupation forces in East Germany are domestic (Soviet! consumption. Those payments of occupation costs that axe not spent in Eaat Germany for items of military supply but for otbar purposes are outsid* the purview ofiacussion. Tbenterest ia in the requisite expenditures for Soviet military consumption, regardless of whether the goods are of Soviet or foreign origin. When the goods are of foreign Origin, of course, the timing of Soviet payments for them, as opposed to receipt of thorn, la necessary information.

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In spite of Soviet Bloc announcements Indicating that reparation terminatedear* ago. such payments would still bear on theue> of significance with, regard to the historical period and. therefore, to budge tary analysts.

This category is provided because it is an account* under US expenc Urea lor major national security. Hence, for purposes of comparing US and Soviet expenditures, allowance must be made for this category.

The category is defined to cover primarily expenditures forcritical and Strategic materials and for the expansion of the production of critical materials, items for which it has not been possible to make counterpart estimates for the USSR. Hence, when comparisons between US and Soviet outlays are made, US expenditures for these activities are deleted. In view of thehat the scope of thsse reports on Soviet military expenditures is limited to aetiv, ties of direct miliurysignificar.ee. omission of this category is of no concern. In the broader context of the fuU economic burden that the Soviet military effort imposes on tho economy, this category needs to bs included.

Energy

There are no data available thai directly indicate the magnitude or composition Of the expenditures for Ae Soviet nuclear energy program. There-fore, bills of materials have been developed for building and operating feedplants, gaseous diffusion cascades, reactors, and othor nuclsar facilities required to produce th* amounts of uranium and fissionabls materials that thc USSR is estimated to have produced. These bills of materials are based on what is known or can be Infarred about Soviet plants and nuclear technology. US analogy isonly to fill the gaps left by incomplete knowledge of the Soviet program. -

ft. Ruble Values

The rubl* values are determined either by pricing quantities Of materials dirscUy In rubles with prices available in Soviet catalogs or by COn verting dollar coat* into ruble costs through the use of appropriate ruble-dollar ratios. The resulting estimate* of Soviet expenditures for nuclear energy must be considered first approximations. These estimetcs are believed, however, to approximate reasonably the magnitude of the Soviet effort. It is believed that the cumulative estimates are more accurate than the estimates for individual years and that the estimates for the later years are more accurate than thoss for the sarlier years.

b. Dollar Values

Dollar values are obtained directly. The dollar prices used are not based on estimates of cost of the same volume of production ofmatcrialo In the US as is attributed to the USSR but rather ar* based or. Soviet technology to the extent possible.

Usually referred to aa Stockpiling and Defcnae Production Expansion. Estimates of Soviet expenditure for nuclear energy that were incorporated la paat stud tea of military expenditures were based largely on analogy with su US expenditures.

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APPENDIX A

TURNOVER TAX AND THE SOVIET MINISTRY DEFENSE

1. General

Under ihe existing Soviet policy of extreme secrecy regarding the financing o: activities related to national security, specific statements ofn regardhe payment of the turnover tax by the Ministry of Defense or its agents have not been available since World War II. Statements for previous years, however,with information on recent purchasing operations, permit some discussion of the problem.

Before World War II, Soviet policy regarding payment of the turnover tax by their military establishment was not constant. 0 tne armed forcesmpted by government order from the payment of this This exemption was revokednd military purcnases were again subject to payment Of the turnover During World War II the policy, as itto the output of the principal armament-producing industries, was modified by tne Council of Soviet Commissars in Order No. This order released the Peoples Commissariats of Defense, Armaments. Av.ationShipbuilding, and Tank Industry from payment into the bucge: of turnover taxes accruing from the sale of their Thus military procurement of hard goods became an explicit exemption. There is no evidence tnat this poiiCy na* since changed, and the turnover tax on military hard goods is not at issue. 1

The military procurement of consumer types of goods (principally food and Clothing) and petroleum products apparently continued to be taxed. urnovcr tax rates or, food products, published by the Finance Commissariatontains'instructions to charge the turnover tax on products of the meat in-dustry (livestock, meat, meat products, and food fats) "which supply thc needs Of the Peoples Commissariats of Defense, the Navy, and the troops of tne NKVD of the USSR" according to Specific zonal price*. All other goods were to be taxed ai the price ofne to which they were Furthermore, it may beas it was In one study of this that the turnover tax wascollected during tne war years. Receipts from this form of taxation were viewed against the increased proportions of the taxable output allotted to the armec forces (grain products, meat products, cottonnd leather shoes]. It was pointed out that turnover tax receipt* did not decline to tbe extent that might have been expected had the armed force* been exempted from the tax.

Since World War II. financial laws and regulations have not been available. oviet textbook authorized by th* Ministry of Finance for use in tekhnikums teachitlf finance, however, deals extensively with the turnover taxource of stateJ_2'iscussing the nature of turnover taxesumber of the products that are of direct concerntudy of military purchases, A. K. Suchkovidentifies sales to "extra-market" consumers (the Ministry of tne Armed Forces, the Ministry of the Navy, and tne Ministry of Internal In the discussion that follows, the materia! from this source is presented by categories

In general, producer goods are exempt from the turnover tax. which is almostax on consumption.

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repreientmg relevant and significant mi.nary purchases endef available intelligence information "

I. Food

Suchkev idiniiftea tba principal sectors, including 'extra-marxee' consumers, to which grain i* allocated by the central organiaation for gram procurementlACO.ZirXNOl and state* that thea aold to all consumer* at cr.iformalt pricea including

to confirm that, wnere regglarpa-

nel* are uaed. tie itandard procedural and pricea. .ncluding turnoverre cmploved

In diacumng tne operation of the grain procurement organisation in iheoviet writer listi untaxed turnover aa deliveries to State commissions forto state reaervea to the internal distribution iviiam of the procurement or -ganiaation. for sewingd loana. for export, and for distribution a* panes and payments in kind to agricultural workers.

Two recent Soviet books provide general support .'or this earlier text Onethat tha turnover tax ia levied on clothing for the Ministry of De! enee. MVD. and KCB. but it is not clear ai to whether or not the rates are tha same aa those on goods sold in retail/ The eider States thai these ministries payprices. Including thc turnover tax. for grain

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uble* (or overall,iven specification,ercent lor peeking and craiing. had been establishedrotocol with ihe Ministry ofriceuble* would indicate that the turnover tax li included inasmuch at trie retail prices for overall, in state and cooperative atores7 rangeduble* per pair, depending en sue and design. Became me official Soviet index of clothing pricesecline ofercent3V the prices3 should not have been significantly different. The turn-over Ui on items of this kind ranged fromoercent of wholesale prices, including tbe turnover tan.ol the similarity between the wholesale price to the military and the retail prices cited,iewthe level of the turnover tax. it would appear that the pricehe Ministry of Defense included this tax.

whether list pr.cas or protocols are used, there appears to be aaherer.ee to prices at least on the wholesale level, including tha turnover tax.

*- Petroleum Product*

urnover texe* have been applied to petroleum productspecific rate per ton and. according lo Suehkov. are applied at the wholesale lev*]. Jn addition, however, petroleum products are subjectudgetary surcharge, which Suehkov states is applicable only to the sale of petroleum products through tbeetwork. Sales tolra-market"* comments, are exempt from this surcharge but noi from the turnover

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Furthermore, it is evident that delays in plan fulfillmenturtailment of turnover tax recetots. tr-.er-working hardship on the administrative organs of (he localities thatercentage of these taxes as income.

A quartermaster officer who served during the war

tha procurement of food, particularly meat. He maintaineo mat meat lshe hoofrice reflecting coet to the procurement agencies and ishe military for its own uae and for the creation of reaerves.

. however, thai the military dealsegular basis with meat combines and with the Chief Directorate of Cold Storage Plants and Wholesale Trade in Meat and Butter, organisations that processribute the meat, respectively, Moreover, the former quartermasterk ened his own argument by making an exaggerated statement with rrepeci to the quantltlca of meat purchased by the military and stated that if taxes were paid, the cost would be many times mora than tha defense expenditures announced for theof the armed forces. This is simply not the case. On!

meat content of ths military ration, the inNsst a: issue in the extreme would be or.

Ae orderillion rubles annually, whereas the announced expenditure* are on

the orderillion rubles.

. ers li afrom awas an engineer

anel who cited example* of comparableand retail price*umber of commoditie*t indicated relationships between these price* are roughly ie the order of 1to to price liet* governing the Soviat Navy's ac-

counting wiin mppliers.and lhe price* cited were those that he remembered. The reason (or hi* access to military price information

s not indicated, and It should be noted that the information wasfrom memory moreears after hi* access to it

What reliance to place oncannot be determined Wir*.

xception of the last one. tbe Information gained relates ie rather turbulent time* in :he USSRust before, during, and immediately following World War II It is entirely possible that military procurement of consumer types of item* during the war was of necessity many times on an ad hoc bail* and without any great attempt on ;ha part of the government to exercise rigid fiscal control- It t* alsoat even now thereiexist fiscal practices which provide (or special preferential prices, including carefully hidden tax exemption* or rebates, for military purchases

On the basis of the information available, however, it seems probable that :ce turnover tax i* collected on taxable commodities supplied to the militarythrough normal cbannele and that afterthese normal channels becameore important sources for military procurement.

APPENDIX 3

WEIGHTED RUBLE-DOLLAR RATIOS

. ratios presented throughout this report ar* inail, un-

weightedhat la. each raito represent* no more than tha relactonahipollar prlc*uble priceiven commodity or service. Weighting Ml tc be accomplishedater stage. In same cases.however. Iteaesary to deviate (rom this practice, but aver, so the resulting ratioa can rtrolly beto be weighted.

Ir.he ratioe usedbeea listed (or the catagoriee o( tha System o!long with ths estimated expenditures (or each category Thes* Soviet expenditures are employed as weights and should be viewed as so more thar means of demonstrating aggregatehe ratios so computed are shown for each major category and for the total: Were dollar equivalents to be obtained by applying aggregated ratios, the r'atlos based on Soviet weights should be employee The dollar equivalents are intended to represent what tha Soviet military program would cost on the US.

Inhe same ratios are aligned with US expenditures for the same yes It was necessary to use broader categories than those employed inf com-parability were to be achieved. To the extent that the individual ratios are notand that elements of Soviet weighting have crept in, this sxorclss isawry. Th* fact that the US-weighted and the Soviet-weighted ratios fo; total military expenditures have almost exactly tha same value should not be given undue Significance.

Table 5

Construction of Soviet-Weighted Dollar-Ruble Ratios

Categories and Accounts for Expenditure 1. Military personnel

A. Active regular service

b.; Ratios

(Dollars

per Ruble) Rublel

I

Q- J5

and

Subsistence1

Miscellaneous

Shown as dollar-ruble ratios, the reciprocal of the values Shown up lo this point. With ruble weights, such inversion of the ruble-dollar ratios was necessary unless, of course, thc weights were divided by the ratios rather than multiplied.ollows on

Footnotes forollow on

-

Tubl* 5

lont-truction Bf Soviet Weighted Dollai-l'ubic[Continued!

llltil Villus

RatlO- Cigili.

(Dollar: million ccounts for Expenditure_Ky.blu*| pel Huolvl

Military personnel (Continued)

3. Militarised*S

Pay and2'

Miscellaneous1

34

1 Pay and

2. Sub!is:er.ee

*

Operation andM

A CivilianI

3. Maintenance ofI

C. Petroleum3

D Maintenance of%l

1 V

Armored combs:;

5. Naval vessels

7. Ground

3 Guided

5 Organizational

i 6

F- Medical

G. Printing and

K

12

Construction of Soviet- WeightedRatios

11S5 (Continued)

Catsnonca and[Accounts for Expenditure jj

III. Procurement

Ratios Dollars (Billion* ir Ruble) Rubles)

IDall

2S

combat29

*nd other

22

21

radar and eommunicaiion*

I T

19

20

rv. Facilities

for operation of16

lor maintenance of

for16

communication* facilities

/

Construction

E. Other facilities

'V. Research and development VI. Other programs and activities

C. Nuclear energy

Total

. 16

6

2

. ,1

.

numbering and lettering of the categories and accounts are thoseabove.

*.

to ell facilities except for fixed communication*

Table 6

Construction of US-Weighced nuble-Dc-lIar

Military personnel

A. Active regular service

C.

n

I- Pay and allowances Z- Subsistence Clothing

eti roes

A. a

C. D. E.

N. Operation and maintenance III. Procurement

Aircraft

Armofsd combat vehicles Artillery and other weapons Ammunition Trucks Naval vessels

3acar and communications equip, men!

Guided missiles and associated equipment

Organitational equipment

facilities

Researchevelopment Ctlier programs and activities

C Nuclear energy Total

1.0

I. i

I. 9

1 e/

v 3/

4

>

3 e/

3_f/

"

5

3

i

U

1

0

-

&

. -

6

5

.

B h/

I

/

The numbering and lettering of the categories and accounts are those of l'able I. p.bove. ertainigher level ol-n it. Table. II. above, beeauee of problema of ceu.perability Therefore, certain of the accounts have been omitted

9 . Th* weights are the U5 military expenditurec for th* fiscal year IMS. c Including all allowances except those Included under obligations fdr clcthuitj d These expenditures vary from thed to commute average oatlaya ;ir man and hence from ihe ruble-dollar ratios, beca.st the latter were adjusted ia account for outlays included under allowances.

e Composite ratio (or pay and allowance* and subsistence, using US wdiQtit"

-

T. for pa rionno'I tSfie.

appropriate accounts

g. Compoaha ratio based or. ratios for civilian personnel and for all Othersing US weights.

h- Outlays for developmental work are included ia tha vanoua eaiago.-iai ol rquipment, inasmuch aa these outlays could not ha separated in all instances. Thus these categories include funds that, in the derivation of Soviet-weighted ratios, are under research and development. The aimilarity of the applicable ratioa precludea any aerious distortion in ths results.

I. Excluding outlays for research and development, which are locatedory V.

J. Excluding outlays for production equipment and facilities, military assistance and stockpiling and expansion of defense production. Total for the weights for categories and accounts for expenditures has been rounded.

as -

APPENDIX C

US AND SOVIET PRICE R ANALYSIS OF SOVIET MILITARY EXPENDITURES

Tha indexes for analysis of Sovlat military expenditure* presented in th'.aara thoaa that have been in general uss to permit the movement from one price bail* to another. They do not, however, represent all of the price relation-ahipe employed with regard to the movement ofS or Soviet price* Moat ci' these other relationahipe have already baan preaented in the text; thoaa which have not are few and repreaent, for the moot part, relationships between only two and. occasionally, three yeara. Such limited information is usually employed in shifting the baaea of ruble-dollar ratios tn eddltlon. it is occasionallyomposite index, for the same purpose, from the indexes presented in this appendix and from others (for example. the dollar expression for the Soviet nuciaar energy programor research and

Ir.Jmee Employedccount for 5avir: Puce Changes

Pay and Allowances

Basle pay scales have remained essentially unchanged sincolth ins exception of those for some enlisted positions.

(Food)*

V- -

-:

* Soviet index of state retail food prices./ There are available announced values.8ew estimate-9 that differ from the above. They,.. respectively./

-

Sj-.CftfHfc

IP ItCR&r

Original document.

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