The battle between CIA and the Pentagon over the state of the Soviets: an excerpt

This is from The Last Warrior, an intellectual history of the Pentagon thinker Andrew Marshall, which is being released this week. “ONA” is Marshall’s “Office of Net Assessment.”

—

“Particularly for those outside ONA, the varied and complex relations between its external research program and its formal balances were often opaque. But as Marshall and Schlesinger recognized at the outset, the research program was a necessary, vital component of Marshall’s development and maturation of net assessment. Without it, ONA’s assessments would have been confined to official government data. But as Marshall found time and again, the data available from official sources could be nonexistent, incomplete, or simply wrong.

The debate between the CIA and ONA over the burden that Soviet military programs imposed on the USSR’s economy is perhaps the most consequential example of official intelligence estimates simply getting it wrong and, hence, the need for independent research outside the government. During the 1970s most of ONA’s efforts to estimate the ratio of Soviet military spending to the USSR’s GNP focused on getting the numerator—how much the Soviets were spending on their military forces—right. Again, Marshall’s view was that the CIA’s estimates of Soviet defense spending concentrated on the visible elements of the USSR’s military forces: ICBMs, naval combatants, shipyards and naval bases, fighter and bomber bases and the aircraft on them, surface-to-air missile batteries, tanks, armored fighting vehicles, military design bureaus, manufacturing plants, and so forth. With the advent of satellite photographic reconnaissance in 1960, the US intelligence community was able to build up relatively accurate estimates of the Soviet military’s equipment holdings. Rightly suspicious of official Soviet figures for defense expenditures, the CIA adopted a building-block approach to estimating the USSR’s military spending, based on the concept that prices x quantities = spending.

Identifying prices presented the greatest challenge because the USSR spent rubles, not dollars, on its military programs. Establishing a valid ruble–dollar exchange ratio proved difficult, as ruble prices in the Soviet Union were not set by market forces as were dollar prices in the United States. In contrast, getting the quantities of military goods to be priced was simpler because over time the CIA was increasingly able to estimate the numbers of units in the USSR’s order of battle, tables of organization and equipment for Soviet units, manpower levels, and production rates for weapons and equipment. In 1967 the CIA’s Office of Strategic Research (OSR) was responsible for estimating Soviet defense expenditures. A different Agency staff element, the Office of Economic Research (OER), was tasked with estimating Soviet GNP. Because of this division of labor there was ambiguity about which of the two offices was responsible for estimates of the USSR’s military burden. This ambiguity seems to have persisted even after OSR and OER were absorbed into the CIA’s Office of Soviet Affairs (SOVA) in 1981.

In 1983 ONA analyst David Epstein completed a two-volume assessment of the US-Soviet investment balance. Epstein’s assessment built on the efforts of Major Lance Lord and retired Navy captain William Manthorpe who had inherited the military investment portfolio from Major Robert Gough in the late 1970s. The assessment broadly accepted CIA estimates of the direct costs of Soviet weapon systems that had been generated with the Agency’s building-block approach. But Soviet production rates were hard to square with estimates of the USSR’s military burden. In 1986 the CIA and the DIA estimated that over the years 1974–1985, the USSR had procured three times as many ICBMs and SLBMs as had the United States, nine times as many surface-to-air missiles, three times as many tanks, and ten times as many artillery pieces. Even though US systems were generally more costly than their Soviet counterparts, the USSR’s dramatically higher production rates suggested that the burden imposed on the Soviet economy should be higher than the CIA’s estimate of less than 14 percent, which had been revised upward from its earlier estimates of roughly 6–7 percent.

There were also at least two sources of “indirect” military costs. One consisted of costs incurred outside the country’s defense budget where the Soviet military acquired resources or influenced their allocation to satisfy wartime requirements. Here Marshall cited as examples the fact that Aeroflot passenger aircraft and the USSR’s merchant marine fleet incorporated additional features—at additional cost—to enable them to transport men and equipment in time of war. Marshall also pointed to the costs incurred by the Soviets in providing economic and military aid to its satellites and clients— in effect, the costs of sustaining the Soviet Union’s external empire.

There was yet another tranche of expenditures beyond the direct costs of Soviet military programs. In the spring of 2001 Marshall met in Paris with Colonel Vitaly V. Shykov, who had been in one of the major planning sections of the Soviet General Staff. Shykov revealed that the Soviet military leaders had accumulated and incurred the cost of maintaining “gigantic war reserve stocks” intended to help match their estimates of US production if the country mobilized fully as it had done in World War II.

Epstein contended that the CIA’s estimates of the numerator for the Soviet defense burden clearly left out the indirect costs of the USSR’s military efforts. He estimated that these indirect costs added another 5 to 8 percent of GNP to the USSR’s defense burden. After the Cold War former CIA analysts Noel Firth and James Noren recalculated the CIA’s historical burden estimates. They estimated the average burden for 1981–1990 to have been 14.8 percent, using constant 1982 ruble prices (and 15.8 percent for 1981–1989, using current prices). Their revised burden for the 1970s was 16.8 percent, using constant 1982 ruble prices. Firth and Noren conceded, therefore, that the 6 to 7 percent in the early 1970s had been a substantial underestimate.

There was, however, another issue—estimates of the denominator (the actual size of the Soviet economy)—where the disagreement between the CIA and ONA was even more pronounced. Soviet GNP eventually turned out to be not 55 to 60 percent of US GNP, as the CIA believed during most of the Cold War, but closer to 25 or 30 percent. Igor Birman was one of the first to raise this possibility with Marshall. Before immigrating to the United States in 1974, Birman had been a member of the Soviet Communist Party and had worked as an economist in several Soviet industrial institutes; he had also published a number of books in Russian on economic issues. Sometime in the early 1970s Birman got into trouble with the Party over provocative statements he made about the Soviet economy and centralized planning during a lecture on Gosplan. As a result he decided to leave the Soviet Union.

In the early 1980s Birman began arguing that Soviet GNP was as low as 20 to 25 percent of US GNP, thereby directly challenging the CIA’s much higher estimates and the prevailing conventional wisdom in the West concerning the Soviet economy. Consequently he found himself engaged in numerous professional disputes with Western Sovietologists and economists, not least those at the CIA. Marshall, long accustomed to challenging the conventional wisdom and, given his abiding interest in how the world really works, was one of the few who took Birman seriously enough to support his research.

Time proved Marshall—and Birman—right. After the Cold War ended, records released from Russian state archives showed Birman’s analysis to have been largely correct. Yet even he actually underestimated the proportion of national wealth being swallowed by the Soviet military. As late as 1990 Birman put the USSR’s defense burden as a least 25 percent of Soviet GNP. Marshall had reached roughly the same estimate in 1987, prompted in large part by articles such as Vasiliy Selyunin and Grigoriy Khanin’s “Cunning Figures,” which appeared in the February 1987 issue of Novyy Mir (“New World”). Their contention was that Western estimates of recent Soviet economic growth were overstated; in fact, the USSR’s economy had actually stagnated.”

Amazon.com