Foreign Relations of the United States: Diplomatic Papers, 1945, Europe, Volume V

861.50/12–2445

Report Prepared by Mr. Thomas P. Whitney, Attaché of the Embassy in the Soviet Union³⁶

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[Extract]

The Soviet Union in 1945—an Economic Review

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Military Expenditures and Capital Investment. The present Soviet policy of maintaining large standing armed forces, of maintaining a good sized war industry and production of war equipment, and of building a large navy, if continued as a permanent policy, will act as a brake on capital investment since manpower, raw materials and productive facilities which are assigned to the armed forces and their support, could otherwise be used in capital investment. In this respect Soviet leaders are compromising between currently available military potential represented by the armed forces and war industry, and future military potential represented by capital investment in heavy industry.

Size of Armed Forces. The eventual Soviet policy on the size of the armed forces and war production is not completely clear, but at the present time almost all physically fit men from 18 to 30 years in age in the armed forces and large sectors of war industry have not yet been reconverted for peacetime lines of production. It is clear that both considerable further demobilization, and much wider reconversion than heretofore completed must be undertaken in the near future if the rate of capital investment is to be accelerated as desired. But even when these further demobilizations and reconversion have taken place, Soviet armed forces and war production will probably be very large as compared with peacetime establishments of other nations, and a [in?] competition with the capital goods and construction industries for men, materials, and equipment.

Living Standards and Capital Investment Another brake on capital investment and competition with it for manpower, materials and equipment is standard of living. Raising the standard of living in the Soviet Union is not a primary current aim of the Soviet leaders. While they are not opposed in principle to a rise in the standard of living, economic-military potential must come first, in their opinion, and the standard of living of the Soviet people can always be raised later. However, standard of living in the U.S.S.R. was low before the war and has been much lowered as a result of the war. It has a very close connection with labor morale and labor productivity as well as with the general health and morale of the nation, all of which are also elements in military-economic potential.

Because of these considerations standard of living must be improved, but housing and the consumers’ goods industries will, all evidence indicates, have a relatively low priority in Soviet economic plans and standard of living will certainly not rise as rapidly as gross industrial and agricultural production.

Atomic Energy and Capital Investment. Thus, summing up, Soviet economic plans must provide for capital investments in rehabilitation and reconstruction plus large new capital investments and also for a certain rise in the Standard of living, at the same time that large armed forces and a respectable war industry are maintained. This is a very large task in itself and demands the continued mobilization of all resources, but it would be by no means so big if the U.S.S.R. were not facing another extremely urgent problem.

The U.S.S.R. is out to get the atomic bomb. This has been officially stated. The meager evidence available indicates that great efforts are being made and that super-priority will be given to the enterprise.

Capital Outlay for Atomic Energy. The manufacture of the atomic bomb will demand a tremendous capital investment. The manufacture of the capital equipment for the Soviet equivalent of “Manhattan Project” will absorb a very large part of Soviet manufacturing capacity particularly for electrical equipment and precision instruments of all sorts. The manufacture of the atomic bomb when added to the other ambitious features of Soviet plans will strain Soviet economy to the utmost.

External Economic Policy: Foreign Trade. These are the main features of the internal aspects of the Soviet economic plan. As for external economic policy the principal goal of the U.S.S.R. in the coming years is the consolidation of the Soviet bloc of nations of Eastern Europe and Asia, States in Eastern Europe now occupied by the Red Army or controlled by the U.S.S.R, in one degree or another include Bulgaria, Albania, Rumania, Yugoslavia, Hungary, the Soviet Zone in Austria, the Soviet Zone in Germany, Czechoslovakia, Poland and Finland, while in Asia, Manchuria, part of Korea, and the remainder of Sakhalin have fallen under Soviet influence. Regardless of political developments in these areas, it is evident that Moscow hopes to retain dominant economic influence.

Present Policy in Satellite Areas. At present, the U.S.S.R. is endeavoring by all means at its disposal to bind the economies of these nations to that of the Soviet Union. On the one hand, everything is being done to ensure a Soviet monopoly of the foreign trade of each of these countries. The devices being used include reparations payments, military requisitions, seizure of plants and equipment as war booty, and bilateral barter agreements, and special agreements on particular commodities. By these various means the U.S.S.R. has succeeded in taking over almost the entire export surplus of each of these nations. The latter are thus left without the possibility of exporting to western nations, and therefore cannot obtain foreign exchange with which to make purchases from western nations. On the other hand, the Soviet Union is influencing the internal economies of these countries. Programs of nationalization and government control of industry and transport are being inspired and supported by Moscow. The Soviet Government is also using its influence on these governments to secure a permanent interest for the U.S.S.R. in the economies of these nations and to deprive western nations of their investments there. This is done by means of expropriation measures, by seizures as war booty, and by discrimination directed with particular vehemence at firms and enterprises owned by western nations.

Effect on Soviet Military-Economic Potential. If the Russians succeed in this program of economic integration of these controlled areas with the Soviet economy, the perspective for the development of Soviet economic-military potential in the long run are immensely increased. Over a hundred million peoples are added to the two hundred millions of the Soviet Union itself for peace or for war, and tremendous additional natural resources will be at the command of the U.S.S.R.

Time Limits. Enough has been said to make clear that in both its domestic and foreign aspects, the economic program of the Soviet Union is very ambitious.

To execute it the Russians need time. The proposed Fourth Five Year Plan (1946–1950) will be only the first stage in the program and will in the main provide for the reconstruction of the devastated areas and of railway transport. If before the war the Russians estimated that it would require 15 years for the Soviet Union to catch up with present U. S. development, they must now reckon with an even longer period. And there is no reason to assume, as some Russians do, that in that period the United States will stand still.

Effect of Foreign Assistance. The economic program of the U.S.S.R. can be greatly speeded up by assistance from abroad. The Soviet leaders are as keenly conscious of this as anyone else and are greatly desirous of obtaining large credits from the United States with which to purchase machinery for their industry, and transport. The amount of equipment desired from the United States by the U.S.S.R. (six billion dollars worth) would speed up the Soviet economic development by at least two years, and probably more. By means of this credit, the entire resources of the industrial and transport equipment industries of the United States would be at the service of the U.S.S.R. in order to break the many bottlenecks of the Soviet economy. In addition technical aid would be obtained which would suddenly advance some sectors of industry and transport by whole decades. This is an appealing prospect and it is no wonder that such a loan is desired. There is no advantage to be gained from belittling the significance to the U.S.S.R. of United States credits.

Absence of Foreign Assistance. There is also, however, no advantage to be gained from belittling the ultimate ability of the U.S.S.R. to carry out the economic tasks which it has set for itself even without foreign help. The Soviet Government is able to mobilize all the resources of the Soviet Union in peace as well as in war for the fulfillment of economic plans. If the primary problem at the present time is the manufacture of the atomic bomb everything else will be sacrificed for that end. If because of the ambitious character of capital investment plans it proves impossible to raise the standard of living while they are being carried out, the standard of living will be sacrificed to capital investment. The Soviet citizen cannot object to this program. He cannot even express dissatisfaction by emigrating. If he undertakes a slowdown, the piecework system will catch up with him and his pay and rations will be reduced. If even during the worst days of the war the Soviet Government was able to carry out a large program of industrial development, now in peace with much of the manpower, raw materials and industrial resources formerly assigned to the needs of the front available for the service of industry, agriculture and transport, the Soviet Union will be able to make considerable progress towards putting into effect its ambitious economic program. But without foreign assistance it will take longer. The longer it takes, the greater the comparative economic advances of other nations, and the greater the chances that it may be interfered with before completion by unforeseen factors, political, economic, or military. And who can say, in the Russian world, that he can foresee all the factors?

36. In transmitting this report on December 24, 1945, to the Secretary of State, then attending the Moscow meeting of Foreign Ministers, Ambassador Harriman stated that the report had been prepared at the suggestion of the Counselor of Embassy, George F. Kennan. Mr. Harriman added that Mr. Whitney was “an extremely competent economist with an excellent command of the Russian language.”