Without committing itself to an answer, the report stresses the great
difficulties inherent in such a policy change. By its very nature the Soviet
economy finds it much more difficult to shift resources from the defense
sector to the civilian one than is the case in market economies. While in
the United States the expansion or contraction of the defense sector is
essentially a factor of the defense budget, in a planned economy like the
Soviet one, the process is infinitely more complicated. There one must make
not only a budgetary adjustment but also put through changes in highly
complex production plans, reallocate financial, material and human
resources, etc., all of which are directed by the state.
The study assumes that the Soviet Government could, if it so wishes, make a
20 percent cut in defense expenditures by the late 1980s. It believes such a
cut would have appreciable effects on the ailing economy. All the branches
of the Soviet military would have to bear the burden of the cuts except the
strategic forces which would emerge relatively intact. Western policies
would play a major role in such a development. “The credit, goods, food and
technology provided by the West have helped Moscow maintain its current
resource allocation scheme.” Denial of such assistance would produce
additional pressure on the leadership to shift resources from military to
civilian uses.
The report warns that such a shift, once it occurred, would be difficult to
monitor, at any rate, in its early phases.
Attachment
Intelligence Assessment Prepared in the Central
Intelligence Agency2
SOV 82–10101
Washington, July,
1982
CAN THE SOVIETS STAND DOWN MILITARILY?
Foreword
As the Soviet economy continues to deteriorate, more and more attention
is being given to the notion that at some point the leadership might
attempt to prop up the Soviet Union’s faltering economy by shifting some
resources from arms production to civilian end uses. [portion marking not declassified]
To be sure, there is no evidence that any resource shift is under way, or
even that Soviet leaders are seriously contemplating one; the dominant
feature of Soviet defense spending has been the persistence of its
growth. Nevertheless, as economic problems mount—and as the struggle for
leadership intensifies in Moscow—the possibility of a resource shift
requires that Western policymakers have some grasp of the Soviet
system’s technical capacity to accommodate such a shift if, in fact, a
decision of this sort were to be reached or even considered. [portion marking not declassified]
Apart from ideological imperatives, perceived national security needs,
and the personal commitment of Soviet leaders to growing military power,
the very structure of Soviet defense planning and production, which is
vastly different from ours, contributes heavily to the momentum of
defense spending in the USSR and makes
any shift of resources out of the defense sector more difficult than
would be the case in a market economy. [Portion
marking not declassified]
In the United States, the allocation of resources for the production of
both guns and butter is carried out in the free market. Government’s
role is to allocate enough money to provide the minimum number of guns
judged necessary to assure the national security. A political decision
to expand or contract the US military sector, once reached, is
implemented merely by raising or lowering the defense budget. The free
market then reallocates resources, and it is an efficient mechanism for
doing so. By contrast, the entire Soviet system—with its five-year [Page 653] plans, its comprehensive
resource-allocation process, its command economy—is designed and managed
by the government to provide a high priority to defense production. A
political decision to alter the guns-vs.-butter ratio requires far more
from the government than merely a budgetary adjustment: production plans
must be changed; financial, material, and human resources must be
reallocated; production must be rescheduled in government plants; and
the actual goods and services that emerge must be given prices and
assigned to customers—all by government officials. [portion marking not declassified]
After briefly outlining the Soviet industrial structure, this paper
examines the technical capacity of the Soviet Union to shift resources
from military-related production to civilian end uses—assuming a Politburo decision to attempt such a shift. It
examines the time that a significant resource shift would require and
the impact of such a shift on the Soviet Union’s economic performance
and military prowess. After outlining the role of Western economic
assistance in maintaining the Soviet Union’s current resource allocation
scheme, this paper discusses the difficulties that the US Intelligence
Community would have in detecting and monitoring a resource shift from
arms production to civilian end uses. [portion marking
not declassified]
Key Judgments
On the basis of observed military activity, we expect that Soviet defense
spending will continue to grow 4 to 5 percent a year through at least
1985. Sustaining this policy over the long term will be increasingly
difficult, however, especially if economic conditions worsen beyond our
projections. Indeed, a new leadership by mid-decade will feel greater
pressure to reduce the growth rate of defense expenditures to free up
labor, capital, and materials—resources urgently needed in key civilian
sectors. [portion marking not declassified]
An absolute cut in defense spending on the order of 20 percent by 1990—a
hypothesis discussed in this paper—could result in meaningful economic
changes. A gain in per capita consumption growth of up to one percentage
point a year would be likely, and there could be a moderate increase in
the growth of GNP. We believe such an
abrupt shift is highly unlikely in the short run. If it were made at
all, it would be phased in gradually after 1985. [portion marking not declassified]
Absolute cuts would almost immediately free up raw materials and some
semifinished goods such as high-quality steels, construction materials,
chemicals, and fuels. These could help eradicate bottlenecks in such
critical economic sectors as energy, agriculture, and transportation.
Many military production facilities could begin producing goods for the
civilian sector within a reasonable period of time. Capacity currently
used in armored vehicle and tank production, for example, [Page 654] could be converted in roughly
a year to support increased production of a broad range of civilian
vehicles—for example, railway rolling stock, tractors, trucks, and
construction equipment. [portion marking not
declassified]
Absolute cuts in military programs would probably impact most on theater
air, naval, and land arms, possibly causing a major restructuring of
missions and postponing replacements. The Soviet strategic forces could
emerge relatively intact. [portion marking not
declassified]
The military would object strongly to a resource shift of this magnitude,
but the objections would be manageable once the Politburo decision was
final. [portion marking not declassified]
The credit, goods, food, and technology provided by the West have helped
Moscow maintain its current resource allocation scheme. If the West were
able to deny or limit Moscow’s access to these forms of assistance,
pressure would be increased on the Soviet leadership to shift resources
from arms production to the civilian economy. By curtailing the Soviets’
import capacity—primarily by restricting credit but also by hampering
their oil and gas production and thus their hard currency exports—the
West would further raise the cost to the USSR of maintaining its present resource allocation policy.
[portion marking not declassified]
It is, of course, impossible to say for certain that the Soviets would
respond to Western pressure by shifting resources. However, it is
important to note that in some instances they have deemed a shift to be
in their best interests and have directed the military-industrial
complex to support the civilian economy. [portion
marking not declassified]
Monitoring Soviet weapons production by intelligence methods is extremely
difficult. Thus it is highly possible that should Soviet leaders in fact
shift some resources from arms production to civilian end
uses—especially if the magnitude of the shift is smaller than
hypothesized in this paper—the change could go unnoticed for quite some
time. [portion marking not declassified]
