Foreign Relations of the United States, 1949, Eastern Europe; The Soviet Union, Volume V

861.00/10–1491

The Ambassador in the Soviet Union (Kirk) to the Secretary of State ¹

[Extracts]
Toap secret

Moscow, October 1, 1949.

No. 557

Subject: Embassy’s Comments on Certain Economic Aspects of Top Secret OIR Report No. 4998, “Soviet Internal Situation”.

Sir: I have the honor to refer to the Department’s Top Secret instruction dated July 22, 1949 transmitting Top Secret OIR Report No. 4998, July 1, 1949, “Soviet Internal Situation”,² and to submit the following Embassy comments and criticisms as requested.

Summary and Conclusions.—This Embassy is in general agreement with the conclusion of OIR Report No. 4998 that, whatever the internal strains of the USSR may be, they are of such a nature that they will not of themselves cause an overthrow of the regime in the immediate future. However, that report is prepared on such a broad basis that it carries with it other conclusions, particularly in its economic aspects, with which this Embassy is not in agreement.

The Embassy’s criticism of economic aspects of reference OIR report is divided into three parts. Part 1: A false separation for purposes of essential political evaluation of major recent changes and developments in the field of Soviet economics has resulted in the failure to explore and properly develop the possible incidence and meaning of these events in arriving at basic conclusions concerning current Soviet economic strength. Part 2: Criticisms and additional considerations applying to the section containing statistical economic estimates and the conclusions drawn therefrom Part 3: Embassy’s non-concurrence in implied overtone and those written conclusions forming an unwritten subthesis, “Invulnerability of the Soviet Economy to Application of Western Economic Strength and Selective Trade Policy”.

Part 1.—In the opinion of the Embassy, separation for the purposes of an essentially political analysis, the discussion of three recent major changes and developments in the field of Soviet economics and a corresponding failure to examine possible implications and relationships affecting general conclusions arrived at in the economic estimate section of the report mark a weakness which could result in an over-estimation of the current Soviet internal economic situation.

a. The Voznesenski Affair.—In connection with what was perhaps the single most significant development in the three-postwar-year history of the Soviet Union, the removal in March, 1949 of Nikolai Voznesenski from his post as Chief of GosPlan, Deputy Chairman of the Council of Ministers and from the Politbureau,³ report states on p. 8, “… If past expulsions offer any precedent, the reasons for Voznesenski’s ouster will be found not in administrative shortcomings or economic failures charged against him but either in some clash of opinions on techniques, which left Voznesenski isolated, or in some intramural intrigues”.

Treatment of this development in connection with the report’s political sub-section, “Possible Weaknesses of the Party or Polit-bureau”, and its utilization in support of the conclusion that “there has been no alteration in the solidarity of party leadership”, plus subsequent failure to adequately test the relationship of this event to the functioning of the Soviet economy is therefore considered a two-count basic weakness.

It is the Embassy’s view that the majority of available historical evidence supports the fundamental conclusion that Voznesenski’s power and successes are essentially attributable to his genius and success in the practical aspects of the work of the State Planning Commission.

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… Therefore, while the Embassy can wholeheartedly support the conclusion that Stalin continues to reign supreme, it is felt that the application of the Voznesenski case offers little support to the proposition and its analysis is more deserving of development in other connections referenced below.

b. Interpretation of the 1948 Ministerial Recentralizations.—Discussion of the 1948 economic ministerial “consolidations” is carried out in the reference document in considering the question of the possibilities of instability of the Soviet Government apparatus. In the opinion of the Embassy the failure to properly identify these reconsolidations as reversals of high economic policy of the recent past or to refer to the removal of the Central Statistical Administration from GosPlan control in the same connection constitutes further shortcomings of the study.

The evidence cited to prove that the series of ministerial reconsolidations were “motivated by a desire to increase efficiency”, which included the statement of the Secretary of the Presidium of the Supreme Soviet on p. 11,⁴ fails to take into consideration the fact that almost the identical purposes were listed by the Soviet Government as the aim behind the wartime and immediate postwar decentralization trend and related decrees published at that time. Herein lies evidence that the new trend marks a sweeping reversal of high economic policy. The question, “Is this a reversal of Voznesenski policy?”, therefore requires fuller consideration. The reseparation of the Central Statistical Administration from GosPlan after almost ten years provides not only evidence of policy reversal but also carries implications of miscalculation and over-reporting of industrial fulfillments, etc., with most serious potential repercussions and consequences in a tightly planned economy.

Consequently, the importance of the relationship of these events to recently published statistics utilized by our research organizations and a basis for important conclusions re Soviet economic strength is deemed deserving of more extensive exploration and development.

c. The Varga Affair.—The Varga controversy, which might be considered the second most important economic development in postwar Soviet history, is once again treated by the reference document under the heading of possible party or Politbureau weaknesses. For the following reasons the Embassy cannot concur in the indiscriminate lumping of this controversy together and on the same level of importance with the ideological “house cleanings” which have transpired in other less critical fields.

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Part 2.—Estimates of Soviet Economic Strength.—While the Embassy is confident that the study’s individual production estimates are the best available, it feels at the same time that failure to fully illustrate the degree of our dependence on Soviet sources, our lack of quality indexes, or to consider the possibilities for calculated Soviet deception as a disguise of weaknesses could result in an over-valuation of our current estimates concerning the strength of Soviet economy and its progress in rehabilitation.

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(3) As regards the conclusions acknowledging the essential success of the Soviet Union in achieving its central industrial and transport goals outlined in the extract above, the following comments relative to these achievements are deemed in order.

Past experience would indicate that the USSR establishes its central five-year and annual goals for coal, steel, oil, electric power, railroad transport and heavy industry construction within optimistic but generally feasible limits. It seems also probable that Mr. Stalin observes the month by month progress of these central sectors with a watchful and jealous eye, consequently that strain of almost any cost attaches to plan fulfillment here as does his unreasonable wrath to laggings and failures. Yet with a labor force presently 1,000,000 over that planned for the year 1950, plus extensive utilization of military labor and POWs whose repatriation is long overdue, there is every indication, as borne out by the reference document, that petroleum, steel and heavy industry construction are lagging somewhat behind their goals, that the installed capacity of the electric power network is not up to plan, and that efficiency goals in railroad transport are not being fulfilled. The coal industry alone, which has undoubtedly received a priority share of the excess labor force, is quantitatively though not qualitatively up to and ahead of plan. Ignoring then the meagerness of firm statistical information on Soviet production or the possibility that recent Soviet statistics in these areas are possibly deceptive or misleading as a disguise for Soviet weakness—are there not indications here that unforeseen difficulties have been encountered over the course of development of the postwar five-year plan sufficiently serious to compel reallocation of basic resources, to compel revision of perhaps major military goals, on which no information is published, or other more subsidiary goals. On the basis of their own figures the Soviets surely entertain no serious illusions as to fulfilling the five-year plan in four years, while announcement of a new plan at the end of 1949 would provide the best evidence of serious implementation troubles.

One generalization regarding a vital economic branch which appeared in the reference report might be pointed up for particular attention at this point:

“From the standpoint of planned economic development oil extraction in the USSR is not a bottleneck.” (p. 30)

This conclusion impresses the Embassy as at least inadequately supported and very probably in error. Current heavy shipments from, and draft exploitation of, the Rumanian oil industry, taken together with current Soviet anxiety in seeking the maximum proportion of Austrian oil resources, would seem adequate testimony of extreme Soviet concern in this area. In addition, their continuous attention accorded the development of non-petroleum consuming power and transport alternatives might be construed as indication that at least the USSR considers petroleum an actual or potential bottleneck.

The critical import of oil in a modern economy, hence the expanding oil requirements of the USSR, assuming that growing demands arising from increased vehicle, tractor and aircraft production and utilization are to be satisfied, lead this Embassy to consider this as one of the most promising areas for exploitation of Soviet weakness through application of economic pressure.

Part 3.—Soviet “Invulnerability” to Application of Western Economic Power through Selective Trade Program.—The tone of the reference study conveys an implication of relative Soviet invulnerability to U.S. trade control policy, in which the Embassy cannot concur.

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Initial exception might be taken to the statement, “Economic difficulties exist and shortages prevail but they were obviously taken into account by the planners, and the Soviet Government can be expected either gradually to eliminate them or to live with them.” The above implies almost psychic foresight on the part of Soviet planners, when practically all would agree that such developments as U.S. postwar rejection of isolation, developing Western unity and cooperation, and most particularly the introduction of the U.S. export control program, ran counter to the best estimates of the central core of the Politbureau in 1945. In this connection we might recall Premier Stalin’s evidently quite serious intimation to high members of our government in the late war years that the USSR would be performing a rather considerable favor for the capitalist U.S. in deigning to accept a postwar loan from our government, thereby providing an outlet and employment for over-expanded American production facilities. It is not logical to assume, therefore, that instead of a partial economic blockade Soviet planners in 1945 were working with assumptions that from one to six billion dollars in high priority industrial equipment could be expected to supplement the inflow of these critical and bottleneck commodities, earnable by exports and gold sales and that serious economic dislocations have been a result of this miscalculation?

Many another piece of indirect evidence is on hand to lend support to such a conclusion, i.e., strong Soviet protests and subsequent withholding of Lend-Lease interest payments because of direct losses accruing to Soviet organizations as a result of U.S. licensing policy; the parade of Soviet propaganda drives at home and abroad accusing the United States of discrimination and renunciation of commercial agreements; the advancement time and again of the old panacea of credits and expanded trade with the USSR and its dominated areas as a solution for every rash of economic difficulties which breaks out in the capitalist world; Soviet sacrifice of important dollar earnings in cutting manganese exports to the United States as a lever to force resumption of normal trade, etc.

The extent of forced reallocation of resources and readjustment of planning goals mentioned earlier would of course be the best evidence of the effect of U.S. inspired trade restrictions. Unhappily, however, we would be unwise to expect the Soviets to provide us this evidence in scholarly, deducible, concrete terms.

Questions of calculated Soviet deception, absence of qualitative indexes in arriving at our estimates, and the considered failure to adequately relate important developments in the economic field in tempering our Soviet industrial assessments and the conclusions derived therefrom, which are indicated above as elements of weakness in the over-all study, have of course a vital bearing on any assessment of U.S. Government policy regarding trade relations with Soviet dominated areas.

From the policy point of view, therefore, the report’s “underestimation” of the past effect of the U.S. trade restriction program and subsequent failure to consider or treat the potential of Western trade restriction as a positive offensive weapon against the USSR are of deepest concern to this Embassy.

Further examination of problems closely related to those raised in the foregoing will be found in a paper containing recommendations regarding East-West trade (Embassy despatch no. 558⁵) and the supporting studies forwarded as enclosures.

Respectfully yours,

Alan G. Kirk

1. This despatch was drafted by George P. Winters, Jr., an Attaché at the Embassy in the Soviet Union.
2. For the OIR Report No. 4098, July 1, see p. 623. Institution No. 80 of July 22 is not printed.
3. In regard to the removal of Nikolay Alexeyevich Voznesensky from his positions, see telegram 671 from Moscow on March 16, p. 594.

4. The complete statement of the Secretary of the Presidium of the Supreme Council as contained on page 11 of the OIR Report No. 4998 of July 1, reads as follows:

   “In the past 12 months, there has been a series of ministerial consolidations and reorganizations. Most of these were connected with control of the economy and, according to the Secretary of the Presidium of the Supreme Soviet, had for their stated purpose:

   ‘to improve control over the work of these branches of industry, to develop them further in accordance with the needs of the economy, to increase further the production of consumers’ goods, to utilize better the growing cadres of qualified specialists, and to reduce the expenses of administrative apparatus.’”

5. October 1, ante, p. 142.